— This is the script of CNBC's news report for China's CCTV on May 14, 2020, Thursday.
Powell's comments dismissed the possibility of negative interest rates in the US but did not completely rule out the option as a potential tool in the future. In an interview with CNBC on Wednesday, the President of the Cleveland Fed also revealed that negative interest rates have been reviewed and discussed within the fed twice, one was during the financial crisis and one recently as part of the framework review. It's just that now they don't think negative interest rates are the right tool to use.
President of Federal Reserve Bank of Cleveland
You know, the Fed never say never. Right. Circumstances could be different, but that's not part of the active discussion.
You know, I think that there'd be a lot of problems with using negative interest rates in the U.S. financial markets, I don't think it's something that I would certainly want to turn to.
So why is the fed reluctant to go negative? There are at least a few reasons, according to a Wall Street Journal analysis. First, the Fed now has other options beyond negative rates, such as promising to keep them ultra-low for a long time.
In fact, the Chicago mercantile exchange's fed-watching tool shows that markets are now pricing in more than a 99% chance that the fed will keep its ultra-low interest rate range at zero to 0.25 percent through March. In addition to its own tools, the Fed wants congress and the White House to spend more money to help tide over the crisis. The fed is also worried that the risks of a negative interest rate policy could outweigh the benefits that the commercial banks would cost more. The effects are mixed in countries that already have negative interest rates. The purpose of negative interest rates is to encourage risk and encourage businesses and households to borrow and spend more. Recent trading in the futures market suggests that the expectation of negative interest rates may simply be a technical move for hedging purposes.
Is it possible for the us to avoid negative interest rates altogether? Indeed, the discussion of negative interest rates has received attention in the past year. In an interview with CNBC last September, former federal reserve chairman Alan Greenspan warned of the possibility of negative interest rates in the United States.
Former Chair of the Federal Reserve of the United States
You see pretty much throughout the world it's just a matter of time before it's more in the United States
Japan, and many countries in Europe, including Germany, already have negative interest rates, and the bank of England has been talking about the possibility of negative interest rates since its recent rate-setting meeting.
Unlike Europe, the US has the world's largest market for government bonds. If the US takes negative rates, then that will bring further influence, manty institutional investors will lack alternative options. Negative interest rates in the US now look unlikely in the short term, but we probably need to view it in a longer run.