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Trump’s push to cut interest rates has echoes of ‘banana republic’, says Yellen
TL;DR
Janet Yellen criticized Donald Trump's call for lower interest rates, likening it to actions seen in a 'banana republic.' Trump aims to reduce government borrowing costs on the $39 trillion national debt.
Key points
- Janet Yellen criticized Trump's interest rate proposals
- Trump aims to reduce government borrowing costs
- US national debt is $39 trillion
- Yellen warns of inflation risks
- Comparison to actions of a banana republic
Mentioned in this story
Janet YellenDonald TrumpFederal Reserve
The former US Federal Reserve chair Janet Yellen has attacked Donald Trump’s push for lower interest rates, comparing it to the actions of a “banana republic”.
The US president has repeatedly urged the central bank to slash interest rates, in the hope of cutting the government’s borrowing costs on its $39tn (£29tn) debt.
In a post on his Truth Social platform in January, Trump wrote “we should be paying the LOWEST INTEREST RATE OF ANY COUNTRY IN THE WORLD”.
Speaking at an HSBC investor summit in Hong Kong, Yellen said: “How often does the president of a developed country express the view that the interest rate should be set to reduce the debt service cost? This is what you hear in a banana republic.”
She argued that this approach can lead to inflation getting out of control, if central banks fall under the control of politicians whose aim is to borrow more cheaply.
Yellen served as Fed chair from 2014 to 2018, and went on to be Joe Biden’s Treasury secretary, succeeded by Jerome Powell.
Powell is due to step down as Fed chair next month, though the successor chosen by Trump, Kevin Warsh, has not yet been confirmed by the Senate.
Warsh has argued that potential productivity gains from AI could justify lower interest rates. Yellen questioned whether other members of the Fed’s powerful board of governors, which votes on rates, would be won over.
Comparing Warsh with former Fed chair Alan Greenspan, she said, “[Greenspan] looked at evidence in a different way than many economists do. But I think he was very much respected for his economic expertise … And people listened to what he said very respectfully and took it seriously.” She added: “I don’t think that Warsh walks in with that level of credibility.”
Despite appointing Powell, Trump has attacked him personally, insulting him as a “moron” and accusing him of being too slow to cut interest rates.
The Fed last reduced rates in December, to 3.5%-3.75%, but policymakers have become increasingly concerned about the risks of higher inflation as a result of the war in Iran.
Finance ministers and central bankers are this week for the International Monetary Fund’s spring meetings.
Q&A
What did Janet Yellen say about Trump's interest rate proposals?
Janet Yellen criticized Trump's push for lower interest rates, comparing it to the behavior of a 'banana republic' and warning of potential inflation risks.
How much is the US national debt that Trump wants to lower interest rates for?
The US national debt is approximately $39 trillion, which Trump aims to reduce borrowing costs for through lower interest rates.
What are the potential consequences of politicians influencing interest rates?
Yellen warned that if central banks are influenced by politicians seeking cheaper borrowing, it could lead to uncontrolled inflation.
