Billionaire investor Sam Zell warns that President Donald Trump’s seemingly never-ending push to get the Federal Reserve to lower interest rates could eventually end in an economic disaster.
Zell agrees that cutting interest rates by 1 percentage point would be great for the economy. However, such a move would threaten the dollar's status as the world's reserve currency.
Trump last week sought to pressure the Federal Reserve into drastic moves to boost an already-healthy U.S. economy, calling for a steep interest-rate cut and the resumption of bond purchases as the central bank met to weigh monetary policy.
"I don't think that there's any justification for any kind of a significant increase," CNBC quoted Zell as saying at the SALT 2019 hedge fund 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."
That expected tumble in the dollar would threaten the greenback's status as the world's reserve currency, CNBC explained.
"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 U.S. I think that would be the biggest risk of playing with interest rates," Zell said.
"I don't think anything else is going to be more relevant in the 2020 election than the economy," Zell added. "If the economy is going to continue to prosper the way it is now, I don't think there's any doubt that President Trump is going to get re-elected."
In a pair of tweets last Tuesday, Trump criticized the Fed for having “incessantly lifted interest rates” amid “wonderfully low inflation” in the U.S. He also praised China for adding “great stimulus” to its economy and keeping borrowing costs low. He said the U.S. economy could soar “like a rocket” if the central bank would cut rates by a full point -- double the reduction that his economic adviser Larry Kudlow has urged.
"China is adding great stimulus to its economy while at the same time keeping interest rates low. Our Federal Reserve has incessantly lifted interest rates, even though inflation is very low, and instituted a very big dose of quantitative tightening. We have the potential to go..." the first past of his tweet read.
"We have the potential to go ... up like a rocket if we did some lowering of rates, like one point, and some quantitative easing," he said on Twitter in his second half.
"Yes, we are doing very well at 3.2% GDP, but with our wonderfully low inflation, we could be setting major records &, at the same time, make our National Debt start to look small!"
The last time the Fed reduced interest rates, in 2008, the economy was mired in the worst recession since the Great Depression. Fed Chairman Jerome Powell -- appointed by Trump -- and his colleagues have repeatedly said they won’t bow to political pressure and are focused on their congressional mandates of stable prices and maximum employment.
Trump’s latest tweets repeat and build on comments almost a month ago where he called for an interest-rate cut -- without specifying the magnitude -- as well as bond purchases.
Material from Bloomberg and Reuters has been used in this report.
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