Will the Federal Reserve bring interest rates to zero and beyond?
Unlike his predecessor, Jerome Powell did not give a clear statement on negative interest rates, choosing to state it is not appropriate for the United States economy at this time. He did not dismiss the possibility of introducing subzero rates, noting that larger economies with low growth and inflation are typically the ones to embrace negative rates.
He told Congress in his semi-annual testimony:
“Negative interest rates would certainly not be appropriate in the current environment,” Powell said. “Our economy is in a strong position. We have growth, we have a strong consumer sector, we have inflation … You tend to see negative rates in the larger economies at times when growth is quite low and inflation is quite low. That’s just not the case here.”
Powell did reveal that the central bank will likely hit the pause button on its mid-cycle adjustment.
“We see the current stance of monetary policy as likely to remain appropriate with our outlook of moderate economic growth, a strong labor market, and inflation near our symmetric 2% objective,” Powell said. “The baseline outlook remains favorable … My colleagues and I see a sustained expansion of economic activity … as most likely.”
But if you don’t think that the Fed will eventually cut rates to negatives, then we have a 100-year Treasury note to sell you…
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