President Trump support negative rates. Recall he has said, “Fed should cut rates to ‘Zero or less.’”
Forward-looking indicators are seeing the possibility of negative interest rates by the end of this year or the beginning of next year.
This is happening despite repeated statements by Fed officials that negative rates are unlikely and undesirable.
The experience in the EU with negative rates suggests that the benefits are small, but they may well be offset by multiple costs and risks from damage to financial intermediation to economy-wide misallocation of resources. But, President Trump want the US to be able to undercut the EU on financial matters.
The drivers pushing markets to press the Fed to take rates negative are: the significant deterioration in economic data, including this wk’s jobs indicators; a desire to validate elevated stock prices; and the hope that if they cannot get negative rates they will get more credit easing.
This is another example of markets pressing for exceptional Fed support directly after an unanticipated policy easing.
With the economy under pressure from the C-19 coronavirus chaos, the continued option of the Fed by markets risks fueling more criticism that it cares much more about Wall Street than Main Street and much more about the rich, who disproportionately own financial assets, than the less-fortunate segments of society.
But, the Fed is owned by Wall Street, and the President is its real boss, he is for Main Street, that means negative interest rates are Win-Win for Main Street and Wall Street.
Plus, more later, stay tuned…
Have a healthy weekend, Keep the Faith!
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