Powell says the Federal Reserve is not considering negative interest rates

Powell says the Federal Reserve is not considering negative interest rates

Even as it has pulled out all the policy stops during the coronavirus crisis, Federal Reserve Chairman Jerome Powell said one area it won’t be going is negative interest rates, CNBC reports.

“I know there are fans of the policy, but for now it’s not something that we’re considering,” the central bank chief said Wednesday. “We think we have a good toolkit and that’s the one that we will be using.”

The principle parts of the “toolkit” are interest rates, the bond purchases the Fed has been making and what it calls “forward guidance,” or its verbal directions about policy in the future and the impact it should have on economic barometers like unemployment and inflation.

President Donald Trump has been nudging the Fed toward taking its benchmark overnight borrowing rate to below zero, and traders have been pricing in a funds rate that could edge into negative territory by the end of the year or early into 2021.

However, Federal Open Market Committee officials have long doubted the effectiveness of going negative. Large parts of Europe as well as Japan have negative yields across the duration curve of their government bonds, but those economies continue to struggle and had been slowing well before the coronavirus impact struck.

“The committee’s view on negative rates really has not changed. This is not something that we’re looking at,” Powell said.

The Fed currently has its fund rate, which banks use as a benchmark for what they charge each other for overnight funding, in a range between 0%-0.25%. It most recently has traded at 0.05%, near the lower part of the range but still above zero.

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