The US Federal Reserve for now is not considering implementing negative interest rates as a response to the pandemic-fueled global financial crisis, Chairman Jay Powell said on Wednesday
WASHINGTON (Pakistan Point News / Sputnik - 13th May, 2020) The US Federal Reserve for now is not considering implementing negative interest rates as a response to the pandemic-fueled global financial crisis, Chairman Jay Powell said on Wednesday.
Earlier this week, US President Donald Trump in a tweet said the United States should benefit from the "gift" of negative interest rates like other countries are doing.
"It's not something that we're considering," Powell said in a live-streamed event hosted by the Peterson Institute of International Economics think tank. "We chose not to implement negative rates during the global financial crisis and saw recovery instead. We avoided asset purchases going on when we were near the zero-bound and we've said that we intend to continue relying on the tools which are tried and now a part of our toolkit."
The Fed dropped US interest rates to between zero and 0.25 percent in March and has since launched a battery of other COVID-19 fiscal responses, including lending to heavily-indebted companies but with ability to repay under its Main Street Lending program.
Powell said evidence on the effectiveness of negative rates was "very mixed".
"There is research that says that they've been effective [but] there are plenty of doubters. The issue really is the concern over interrupting the intermediation process and reducing bank profitability, thereby reducing the availability of credit in the economy. So, it's an unsettled area. I know there are fans of the policy, but for now, it's not something that we're considering," he said.
He said the Fed currently had 13 different instruments, including open-ended bond buying and emergency lending programs, that it relied on for its COVID-19 response.
Some on Wall Street actually support the president's call for negative rates, with investment bank JPMorgan saying mildly negative rates such as -10 bps for a year or two could be beneficial in the present environment.
