Economy

'There is no point' in the Fed going to negative interest rates, argues JPMorgan

Key Points
  • As markets begin pricing in the possibility of the Federal Reserve going to negative rates, JPMorgan Asset Management's David Kelly argues that such a policy move makes little sense.
  • Kelly said "there is no point" in negative interest rates, as such a policy has done little for other places that have implemented it, namely Japan and Europe.
Jerome Powell, chairman of the U.S. Federal Reserve, pauses while speaking during a news conference in Washington, D.C., on Tuesday, March 3, 2020.
Andrew Harrer | Bloomberg | Getty Images

As markets begin pricing in the possibility of the Federal Reserve bringing interest rates into negative territory, JPMorgan Asset Management's David Kelly argues that such a policy move makes little sense.

"There is no point ... at all in going to negative rates," Kelly, who is chief global strategist at JPMorgan Asset Management, told CNBC's "Squawk Box Asia" on Friday.

"Negative rates have not helped the Japanese economy, they haven't helped the European economy," Kelly said, in reference to the well-documented economic challenges in those places despite the adoption of such policies.  "All they do is clog up the banking system, make it more difficult for everybody to operate."

Furthermore, that's not needed at a time when the government is "essentially enabling and monetizing unlimited fiscal .. expansion," he said.

"If you want to stimulate the economy directly, just put more money into the hands of consumers and businesses, Congress doesn't seem to have any shyness about doing that," Kelly said, adding that he expected an additional $2 trillion of stimulus "before this is over."

That's on top of the more than $2 trillion already approved. The historic amount of stimulus comes at a time when economies worldwide have been ravaged by extensive restrictions implemented to stem the spread of the coronavirus pandemic.

Coupled with reports of the Federal Reserve stepping in to buy bonds, some of which include those in the high-yield space, Kelly said: "That's tremendous monetary expansion right there, you don't ... need to go to negative rates ... to try and help that along."

The strategist's views came after Richmond Federal Reserve President Thomas Barkin told CNBC recently he doesn't expect negative interest rates to become official policy.

Traders on Thursday priced in a negative federal funds rate by December and lasting at least until January 2022, amid expectations that the central bank would need to keep its policy rate that banks charge each other for overnight lending around the zero level it is now.

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— CNBC's Jeff Cox contributed to this report.