Monday, October 12, 2015

Fed officials seem ready to deploy negative rates in next crisis

Marketwatch reports:
“Some of the experiences [in Europe] suggest maybe can we use negative interest rates and the costs aren’t as great as you anticipate,” said William Dudley, the president of the New York Fed, in an interview on CNBC on Friday.

The Fed under former chairman Ben Bernanke considered using negative rates during the financial crisis, but rejected the idea.

“We decided — even during the period where the economy was doing the poorest and we were pretty far from our objectives — not to move to negative interest rates because of some concern that the costs might outweigh the benefits,” said Dudley.

Bernanke told Bloomberg Radio last week he didn’t deploy negative rates because he was “afraid” zero interest rates would have adverse effects on money markets funds -- a concern they wouldn’t be able to recover management fees -- and the federal-funds market might not work. Staff work told him the benefits were not great.
There's more:
For instance, $100 in the bank would be worth only $98 after a certain period.
That's called a tax increase!