The Fed Slaps Down Negative Interest Rates
The Fed Slaps Down Negative Interest Rates by Wolf Richter for Wolf Street
A serious rejection in its first major discussion of negative interest rates recounted in the FOMC minutes.
The minutes for the FOMC meeting on October 29-30, released today, shed some light on the laundry list of discussions arising out of the Fed’s current review of monetary policy strategy, where it tries to figure out how to line up the tools to be used during the next crisis, and which tools to line up.
All kinds of tools are being kicked around in addition to the tools used during the last crisis – these potential new tools ranged from “rate caps” on long-term Treasury securities to various repo facilities and negative interest rates.
But one potential tool was rejected by “all participants”: negative interest rates.
And the Fed had a lot to say about negative interest rates and their drawbacks for the US. This is the first time that a detailed discussion of negative interest rates – with pros and cons – were referenced in the minutes – showing how controversial that topic has become among central banks globally. You can essentially see the Fed’s distaste for them in the US.
In the quote below from the minutes, the paragraph divisions and bullet points are mine to make the pathologically long paragraphs of the minutes, which are purposefully designed to not be read by humans, more readable for humans:
“The briefing also discussed negative interest rates, a policy option implemented by several foreign central banks. The staff noted that although the evidence so far suggested that this tool had provided accommodation in jurisdictions where it had been employed, there were also indications of possible adverse side effects.
“Moreover, differences between the U.S. financial system and the financial systems of those jurisdictions suggested that the foreign experience may not provide a useful guide in assessing whether negative rates would be effective in the United States.