Kudlow: Fed's T-bill purchases are “basically” QE

Larry Kudlow, Director of the National Economic Council and President Donald Trump's top economic adviser is at the forum of World Economic Forum on Tuesday, a gathering of government and business leaders is held in snowy Davos, Switzerland. Kudlow has previously voiced strong opinions on the Federal Reserve. 

While US President Donald Trump praised the negative rates assigned to bonds in other countries during a speech Tuesday at the World Economic Forum in Davos, Kudlow, offered a different view. Kudlow says that sub-zero yields and aggressive central bank practices are “ineffectual,” arguing that they are no substitute for pro-growth fiscal policy.

“Negative interest rates struck me as ineffectual,” Kudlow said during an interview with CNBC. “All this negative rates and printing money doesn’t really work, does it?”

“There’s nothing wrong with a balance sheet rising,” he said. “But where are the tax cuts? Where are the incentives for people to work the extra hour take the extra incentive and take the extra risk?”

Additional comments

• Exports to China will be a huge growth factor for the US.
• Its not fair to say that expectations are lower for phase-2. 
• Market opening is the key to Europe trade talks. 
• Tax cuts will not be in the budget proposal. 

FX implications

There is a keen focus on the Fed this year. The dots indicate the Fed's neutral bias and the US dollar is consolidated in the main, although the recent COT report shows a bias to the downside for the DXY. US 10-year yields are extending the December downward trajectory, almost at the lowest pint since the trend began, 1.763%.