For the second day in a row, Donald Trump attacked the Board of Governors of the Federal Reserve, the country’s central bank, for raining interest rates, declaring in a Tuesday Twitter posting, “They don’t have a clue!” and that the current Fed rate — which is 2.5 percent — is “way too high.”
Trump’s Twitter attack on the Fed follows his remarks on Monday in which Trump returned to a theme he has sounded repeatedly at least since July of last year, according to a Bloomberg News timeline — that the Fed needs to lower interest rates rather than raise them.
Economists generally say that lowering interest rates in times of economic growth can set off excessive inflation that would disrupt the economy, according to Marketwatch.
But on Monday, Trump accused the Fed itself of being “very, very disruptive to us” by supposedly preventing a “fair playing field” in Trump’s ongoing trade war with China, as a result of interest rate hikes, The New York Times reported.
The Federal Reserve has imposed increases in the prime rate seven times since Trump took office in January of 2017, according to The Hill, as a way to prevent a new round of inflation.
But a report by Bloomberg News suggests that Trump may also have a very personal reason for his often-repeated demand that the Fed cut rates.
“Every time the Fed raises rates, Trump’s payments on some $340 million in variable-rate loans go up,” Bloomberg reported. The rate hikes imposed since January of 2017 have personally cost Trump an additional $5.1 million per year on his debt repayments, due to the fact that variable rate loans are keyed to the Federal Reserve prime rate, according to Bloomberg. When the Fed raises rates, those loans become more expensive to pay off. When the Fed cuts rates, the loans get cheaper.
“Every time the Federal Reserve raises interest rates, it costs Donald Trump money,” added Yahoo! News finance columnist Rick Newman.
“Maybe that’s why Trump has been lacerating the Fed for raising short-term rates.”
With every quarter of a point that the interest rate goes up, the cost of Trump’s loans balloons by $1 million per year, Newman reported, noting that Trump’s personal financial stake in an economic policy decision that could have far-reaching consequences for the economy appears “problematic.”
According to the Marketwatch analysis, lowering rates can cause a number of problems that spell trouble for the economy. Businesses will take on too much debt, because rates are cheap, only to be saddled with unsustainable payments when rates go back up again. Also, because the profit on loans for banks would be extremely low, banks often increase their number of high-risk loans to borrowers who will be left unable to pay them back.