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Trump economic adviser: Negative interest rates are 'really bad'

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
Larry Kudlow, US director of the Economic Council. Photo: Al Drago/Reuters
Larry Kudlow, US director of the Economic Council. Photo: Al Drago/Reuters

US president Donald Trump’s top economics adviser has said negative interest rates are “really bad”, despite comments earlier in the day from the president suggesting he was a fan.

Larry Kudlow said on Tuesday: “Negative rates are not a good idea. They’re really bad for banks, they’re really bad for savers, they’re not great for investors.”

Kudlow made the comments unprompted during a panel at Davos, the elite conference for business leaders and politicians.

Earlier in the day, Trump had said he “could get used to” the idea of negative interest rates during a keynote address at the same conference.

“They get paid to borrow money, something I could get used to very quickly,” the president said. “Love that.”

Negative interest rates have taken hold in Europe in the wake of the financial crisis, part of attempts by central banks to stimulate growth, which has remained weak – and negative rates have proved difficult to reverse.

“I predict we will see much deeper negative interest policy but only after there’re regulatory changes and legal changes to try and protect small depositors, protect the banking system,” Harvard Economics Professor Ken Rogoff said on the same panel.

“But again, not coming any time soon.”

Kudlow, who is the chief economic adviser to president Trump, and Rogoff made their comments on a panel discussing ‘liquidity traps’. This is where interest rates are low but savings rates remain high. Essentially, it means interest rates are no longer effective in spurring lending and spending in the economy, which are needed to stimulate growth.

Discussing the US Fed’s cut to interest rates last year, Kudlow said: “I think the Fed has done a good job. I wouldn’t mind them being a little bolder. I don’t want to criticise them. They’re moving in the right direction.”

Kudlow and Rogoff appeared alongside Fang Xinghai, vice-chairman of China Securities Regulatory Commission, and Gita Gopinath, the chief economist at the International Monetary Fund (IMF).

The four are just some of the high-profile speakers at this year’s Davos conference, officially known as the World Economic Forum (WEF)’s annual meeting. Around 3,000 leaders from the worlds of business and politics are in Switzerland this week for the event. Climate change is top of the agenda, with this year’s conference titled “Stakeholders for a Cohesive and Sustainable World”.