Skip to main content

A tight spot: US Fed could learn from ECB, Swiss National Bank, Germany and now Japan's move into negative interest rates

“Four hikes in 2016??? Ha. The economy is a lot more fragile than we thought,” the statement seemingly says.
It doesn’t, of course. But it says, quoting correctly this time, “economic growth slowed late last year.” Yes, the economy seems to be growing at a “moderate pace,” but no longer are the risks balanced between an economy picking up steam and one slowing further. Business investment, called “strong” last month, is now “moderate.”
And, oh, that stock market? The Fed noted it was closely monitoring “global economic and financial developments.”
That’s not the same as saying the Fed will forever prop up your 401(k), but it’s saying the central bank is showing concern over it.
How do negative interest rates work?
A central bank uses its deposit rate to influence how banks handle their reserves. In the case of negative rates, central banks want to dissuade lenders from parking cash with them. The hope is that they will use that money to lend to individuals and businesses, which in turn will spend the money and boost the economy and contribute to inflation.
It is also aiming to force investors to shift money out of bank accounts and into higher-yielding assets.
So this has been done elsewhere?
The European Central Bank in June 2014 was the first major central bank to venture into negative territory followed by the Swiss National Bank in December 2014. The Danish central bank has also employed negative rates to defend its currency’s peg to the euro, while Sweden’s rates are also in negative territory.
And former Federal Reserve chief Ben Bernanke has said that in the event of a serious downturn, negative interest rates are a tool that the U.S. central bank should consider.
Also read:

German bond yields went to negative recently, ECB made same move, US bonds may follow soon. What it indicates for the world economy?
http://drkhalid.blogspot.in/2016/01/german-bond-yields-went-to-negative.html

Martin Feldstein, a prominent Harvard economist says Fed should let the market fall and keep hiking rates.http://www.marketwatch.com/story/feldstein-says-fed-should-let-the-market-fall-and-keep-hiking-rates-2016-01-27

Do negative interest rates create jobs?
http://drkhalid.blogspot.in/2016/02/do-negative-interest-rates-create-jobs.html

Ref:
http://www.marketwatch.com/story/a-lesson-for-the-fed-in-the-bank-of-japans-move-2016-01-29

http://www.marketwatch.com/story/what-you-need-to-know-about-the-bank-of-japan-and-negative-interest-rates-2016-01-29


Comments

Post a Comment

Popular posts from this blog

Best IELTS and English language training institutions in Hyderabad

IELTS stands for International English Language Testing System. As the name implies it is basically an English test for testing the proficiency of the language in an individual.  Training for IELTS can be taken to pass the IELTS exam or to develop good english language skills. I am giving the training institute addresses for Hyderabad. The test system is jointly managed by the British Council,IDP education ltd and University of Cambridge ESOL Examinations and more than 1 million candidates are taking the exam all over the world. The test has two versions : 1. Academic 2. General training Academic  version is for people who plan to continue their higher education by enrolling in universities in countries like US,UK,Australia,Canada,New Zealand etc.The academic institutions in these countries consider the IELTS score as a criteria for the admission process. General training is mostly for immigration purposes in countries like Australia,New Zealand,Canada etc. It may ...
9 comments
Read more

How to use home loans most effectively for tax benefits

1) Deduction on interest: If you are paying EMIs for a home loan you took to buy a house, the interest component in the EMI can be claimed as deduction. You must be both an owner and a co-borrower (in the loan) to claim tax benefits. This deduction can be claimed starting the year in which the construction of the house is completed. Suppose the construction of your house was completed on August 30, 2014, you can claim deduction for interest for the entire 12 months in financial year 2014-15. So every year a maximum of Rs. 2 lakh can be claimed for a house that you use for your own residence. If your house is rented, the entire interest for the year can be claimed as deduction. The interest payments for the year shall result in a loss under the head 'income from house property'. This loss can be adjusted against in the same year against other heads of income in your income tax return including salary. Therefore, it reduces your total taxable income and the tax you pay thereon. A...
2 comments
Read more

Intellectual battle against ISIS as important as Military: Sheikh Makhtoum of Dubai

The global financial crisis taught the world how profoundly interdependent our economies have become. In today's crisis of extremism, we must recognize that we are just as interdependent for our security, as is clear in the current struggle to defeat ISIS. Mohammed bin Rashid Al Maktoum, VP and prime minister of the UAE, ruler of Dubai If we are to prevent ISIS from teaching us this lesson the hard way, we must acknowledge that we cannot extinguish the fires of fanaticism by force alone. The world must unite behind a holistic drive to discredit the ideology that gives extremists their power, and to restore hope and dignity to those whom they would recruit. ISIS certainly can – and will – be defeated militarily by the international coalition that is now assembling and which the UAE is actively supporting. But military containment is only a partial solution. Lasting peace requires three other ingredients: winning the battle of ideas; upgrading weak governance; and ...
Post a Comment
Read more