Sam Zell says Trump's desire to slash interest rates could end in 'a disaster'

Key Points
  • Sam Zell agrees with President Donald Trump that cutting interest rates by 1 percentage point would be great for the economy, but only at first.
  • Doing so, he said, would threaten the dollar's status as the world's reserve currency.

Investor Sam Zell agrees with President Donald Trump that slashing interest rates would make the economy take off rapidly. The consequences of that, though, could be "a disaster," he said.

The president recently suggested that the Federal Reserve cut its benchmark rate by 1 percentage point, which would take it to a range of 1.25% to 1.5%. Trump said doing so would make the U.S. economy take off "like a rocket ship."

Zell agrees, but indicated Wednesday that the long-range impact could not be good.

"I don't think that there's any justification for any kind of a significant increase," Zell said 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.

He said there already are threats to the U.S. currency's global standing, such as China and Syria "swapping oil for yuan" and Russia's attempts to get the ruble more widely circulated.

"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 gave mostly high marks to the U.S. economy except for some areas of real estate, though he called the industry "less speculative" than it was several years ago.

If growth stays consistent, Zell said he thinks Trump will be reelected in 2020, but will lose if conditions deteriorate. He praised the president for taking on China in trade, which he said should have been done years ago when the country abused its entry into the World Trade Organization.

"I'm having a tough time correlating the negative headlines on the business environment and the reality of what we see," he 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 reelected."