Internal Federal Reserve Study Concludes Fed. should "Create" a -5% interest rate

You read it right, a negative 5% interest rate. The financial times is reporting an internal study by the Federal reserve came to this conclusion:

The ideal interest rate for the US economy in current conditions would be minus 5 per cent, according to internal analysis prepared for the Federal Reserve’s last policy meeting.

The analysis was based on a so-called Taylor-rule approach that estimates an appropriate interest rate based on unemployment and inflation.

A central bank cannot cut interest rates below zero. However, the staff research suggests the Fed should maintain unconventional policies that provide stimulus roughly equivalent to an interest rate of minus 5 per cent.

Fed staff separately estimated what size and type of unconventional operations, including asset purchases, might provide this level of stimulus. They suggested that the Fed should expand its asset purchases by even more than the $1,150bn (€885bn, £788bn) increase policymakers authorised at the last meeting, which included $300bn of Treasury purchases.

The assessment that the US central bank needs to provide stimulus equivalent to a substantially negative interest rate is unlikely to have changed ahead of this week’s policy meeting.

Ok, now let's see, a -5% interest rate means someone should give me money to borrow money. Awesome! The article estimates interest rates will be kept near zero and not change for 18 months.

Talk about cheap money!

No, the Federal Reserve cannot literally make the interest rate -5%, seriously, does that make any real sense to you?

So, while the article reads like something The Onion would write, it does imply the Federal Reserve will keep the money supply absurdly high and other financial tricks to stimulate the economy. Makes free money Greenspan mess look like a loan shark.

Subject Meta: 

Forum Categories: 

Japan had negative interest rates

So our immitation of Japan's failure would be complete.

You must have Javascript enabled to use this form.

Champ

I see you posting here quite a bit. I hope you will create an account (right hand column) and join us. When you create an account all sorts of features appear and the "typing of the letters to prove you are a human" disappear. All contributions can be instantly posted. (i.e. it's all way easier).

On Japan with negative interest rates, even a blog post on those events with some details and the consequence would make an incredible blog post.

It sure does appear the Obama administration/Federal Reserve is not interested in the least about learning lessons from the past.

You must have Javascript enabled to use this form.

Can somebody rationalize an

argument of the deflation side when the FED is going to create/lend money at -5% interest.

It has always been about class warfare.

You must have Javascript enabled to use this form.

The financial times

The financial times report:

"Fed staff separately estimated what size and type of unconventional operations, including asset purchases, might provide this level of stimulus. They suggested that the Fed should expand its asset purchases by even more than the $1,150bn"

I dont know if i understand this but is that saying that the Fed (a private company) is 'printing' money at a rate of 5% and buying stuff with.

Would that not cause alot of inflation

You must have Javascript enabled to use this form.