Fed chief rules out negative interest rates

There is no option for pushing interest rates below zero, says Jerome Powell

Aysu Bicer   | 14.05.2020
Fed chief rules out negative interest rates


The head of the US Federal Reserve on Wednesday said they are not considering going to negative interest rates, despite calls for such a move from President Donald Trump and others.

During an event hosted by the Peterson Institute for International Economics, Jerome Powell said the Fed will continue to use its tools to their fullest until the coronavirus crisis ends and the economic recovery is well under way.

Yet, among these those tools, he added, there is no option for pushing interest rates below zero.

The usefulness of negative rate policy triggered a debate in global central banking circles, given the examples of Bank of Japan and European Central Bank which could not reap the benefits and failed to reach the desired level of inflation.

More spending needed

According to Powell, the overall policy response to date has provided a measure of relief and stability, and will provide some support to the recovery when it comes, he noted.

"But the coronavirus crisis raises longer-term concerns as well," he said, adding the record shows that deeper and longer recessions can leave behind lasting damage to the productive capacity of the economy.

“We ought to do what we can to avoid these outcomes, and that may require additional policy measures,” he said.

Powell stressed that additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and helps with a stronger recovery.

“This tradeoff is one for our elected representatives, who wield powers of taxation and spending,” he concluded.

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