- Pressure mounts for Fed Chair Powell to either cut interest rates or leave his office.
- Meanwhile, a Fed paper suggests that the chance of the US ever achieving near zero interest rate again is low.
POTUS Intensifies Call for Fed Chair Powell to Resign
To President Donald Trump’s dismay, the Federal Reserve has held interest rates at 4.25%-4.50% since the end of 2024. Despite the mounting pressure from the Republican camp for him to either resign or cut the rates, Fed Chair Jerome Powell has remained firm on his conviction that the numbers should get closer to the 2% target for a soft landing first before slashing the numbers. He also cited economic uncertainty in maintaining his decision.
The Federal Open Market Committee (FOMC), the monetary-making policy of the US central bank, will meet again by the end of this month. Seeing no sign of lowering the interest rest in the near term, Trump once again nudged Powell to vacate his position while launching a probe to investigate the chair for his alleged $2.5 billion overspending on office building renovations. Whether or not the Fed chair will cave into the calls for him to step down from office remains to be seen.
Chance of Near Zero Interest Rates
There have been several occasions when the Fed reduced interest rates near zero. These came in response to economic crises, particularly the 2008 global financial crisis and the COVID-19 pandemic.
The former aimed to bolster borrowing and spending to prevent further economic downturn. Meanwhile, the latter came in support to businesses and households struggling during the pandemic.
Without any foreseen events requiring similar extraordinary measures from the US central bank, a paper co-authored by John Williams, President of the New York Fed, said that the medium- to long-term risk that the Fed will revisit its near zero interest rate is at very low levels. In fact, the document emphasized that it’s “currently at the lower end of the range observed over the past fifteen years.”
How Near-Zero Interest Rates Would Affect Crypto
Low interest rates reduce the cost of borrowing from banks and other financial institutions. Additionally, it boosts liquidity in the market.
However, near-zero interest rates devaluate fiat currencies like the US dollar. The lower cost of borrowing also entices investors to prefer risk assets like tech stocks and crypto, where they can either put their money to work or simply hedge their wealth. This was evident in 2020 when Bitcoin entered a bull market, culminating in a series of all-time highs in the following year. Hence, a zero-interest rate would certainly amplify such an investor behavior.
