15 Feb 2016
Negative Rates: Keep Calm, Carry On - RBS
Blake Gwinn, U.S. Rates Strategist at RBS, suggests that every couple of years the possibility of the Fed going to a negative interest rate target pops into the public consciousness and becomes a hot topic among the strategist/economist community for a few weeks before once again moving to the back-burner.
Key Quotes
“This typically includes a lot of coverage on the legal and operational capabilities of the Fed/Treasury, potential market dislocations, the ability of financial intermediaries to pass on negative interest rate costs, the role of money market mutual funds (MMMFs) in the U.S. financial infrastructure, and analysis on the cost and feasibility of storing physical currency.
This most recent round has been particularly intense. The inclusion of negative rate scenarios in the Fed’s stress tests seems to have been one of the main sparks, but the BoJ’s recent decision to dabble in negative rates, some commentary on negative rates by several key Fed officials, Chair Yellen’s congressional testimony, the complete pricing out of Fed hikes, and the market volatility over the last week certainly proved adequate kindling. I see the probability of negative rates being implemented in the U.S. at any point over the next few years as very low.”
Key Quotes
“This typically includes a lot of coverage on the legal and operational capabilities of the Fed/Treasury, potential market dislocations, the ability of financial intermediaries to pass on negative interest rate costs, the role of money market mutual funds (MMMFs) in the U.S. financial infrastructure, and analysis on the cost and feasibility of storing physical currency.
This most recent round has been particularly intense. The inclusion of negative rate scenarios in the Fed’s stress tests seems to have been one of the main sparks, but the BoJ’s recent decision to dabble in negative rates, some commentary on negative rates by several key Fed officials, Chair Yellen’s congressional testimony, the complete pricing out of Fed hikes, and the market volatility over the last week certainly proved adequate kindling. I see the probability of negative rates being implemented in the U.S. at any point over the next few years as very low.”