Sam Zell thinks that President Donald Trump’s push for the Federal Reserve to lower short-term interest rates would result in only a brief boost in the economy—and invite troubling inflation and a weaker dollar.
“I don’t think that there’s any justification for any kind of a significant increase,” Zell said at the SALT 2019 conference in Las Vegas. “I think he’s right. If we reduced interest rates by 100 basis points, I think the economy would soar and so would inflation and so would the dollar fall accordingly.”
Billionaire investor Zell, who heads investing firm Equity International, has a well-established knack for knowing when trouble is coming. Nicknamed the Grave Dancer, in part for this forecasting ability, he famously sold his real estate company right before the 2008-09 financial crisis.
While he agreed with Trump that lowering interest rates would juice economic growth—the Fed has put its rate-hike campaign on hold after four increases in 2018—he expressed alarm at what the long-range impact of such a move would be. To him, the result would be “a disaster.”
“There is an attempt to take the dollar out of the reserve currency status,” Zell said. “I think that would be a disaster to the US. I think that would be the biggest risk of playing with interest rates.”
The president has urged the Fed to reduce its benchmark rate by one percentage point, taking it to a range of 1.25% to 1.5%. To Trump, such a move would spur the US economy to rise “like a rocket ship.”
Zell said a slump in the US dollar, a currency that now is riding high, could endanger its status as the world’s reserve currency—that is, many countries keep stashes of greenbacks to buffer their central banks, and also many commodities and much international trade are conducted in dollars. Periodically, the European Union and China have talked about their currencies replacing the dollar on the world economic scene.
“There is an attempt to take the dollar out of the reserve currency status,” Zell said. “I think that would be a disaster to the US. I think that would be the biggest risk of playing with interest rates.”
Related Stories:
Hey, Maybe the Fed Should Cut Interest RatesWhat Will It Take to Make the Dollar Weaken?
Fed Chair Says He May Ease Off Rate Boosts
Tags: dollar, Donald Trump, Federal Reserve, Interest Rates