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Are low interest rates helpful to economic growth?

US President Donald Trump believes that low interest rates are key to stronger economic growth, which is illustrated through his attempts to make the Federal Reserve cut interest rates to provide a boost to the economy. But do low interest rates help or hinder economic growth, asks David Smith.

Financial crashIt looks like the most straightforward relationship you can think of. Low interest rates are good for economic growth, while high interest rates are bad. Low interest rates encourage businesses to invest and consumers to spend, the latter because borrowers – such as those with mortgages – have a higher propensity to consume than savers. Lower their mortgage payments by cutting interest rates and they will spend.

The belief in this relationship between low rates and stronger growth is so pervasive that it has framed Donald Trump’s relationship with Jerome “Jay” Powell, who he appointed chairman of the Federal Reserve, America’s central bank. The president has been leaning on him to cut interest rates to provide the US economy with a boost and pave the way for a second Trump election victory next year.