Federal Reserve expected to cut key rate

The investment markets expect the Federal Reserve to cut its target short-term interest rate in the week ahead.

President Donald Trump is demanding it.

When the Fed’s interest rate policymakers meet on Tuesday and Wednesday, they will consider whether or not to cut the rate the Fed pays banks on money those banks keep at the Fed. The idea is that a low interest rate encourages banks to lend out the money, and for companies and consumers to borrow, thereby creating economic activity.

The last time the central bank’s rate-setting committee met, in June, it cut the target interest rate, citing sluggish business investment. In explaining the decision, Fed Chairman Jerome Powell cited “trade developments and concerns about global growth.” It was a polite poke at the president’s ongoing trade war with China.

The president has tweeted the agency should “get our interest rates down to ZERO or less.” His rationale for venturing into such unchartered financial territory? Bring down interest costs on government debt.

He’s not wrong. The interest expense on America’s debt was $32 billion in August. The average interest rate was 2.4 percent. That’s actually higher than a year ago.

Trump and Congress have borrowed hard in recent years. America’s debt has increased by 13 percent, $2.6 trillion, since he took office. A half-trillion dollars in interest payments were sent to holders of America’s bonds in the last fiscal year alone.

That means big interest payments to China, the second largest holder of U.S. government debt. The president’s call for zero percent rates isn’t so much a refinancing maneuver as it is another front in his trade war.