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Updated 03:24 22/09/20

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Is the Fed getting us ready for negative interest rates

Adam Pike, News Editor
3 Nov 2015, 12:18 p.m.

The Fed is obsessed with market reactions to their policy announcements. So every time they want to change policy, they hint and prepare the market months before. The Fed prefer to call this process forward guidance and typically start prepping the market six months before they act.

With this in mind should we be paying attention to a number of fed officials who have already hinted that the Fed may take rates negative? After the Fed’s September meeting they first hinted that negative rates may be on the horizon. Then on the 9th of October, Bill Dudley, the Fed President, stated negative rates are a potential policy option. Soon after Minneapolis Fed President, Narayana Kocherlakota, stated the Fed should consider negative rates.

Negative rates involves Central Bank charging commercial banks to hold deposits. Ultimately this will lead to banks charging customers to hold cash on deposit. In May, HSBC became the first global bank to charge clients for holdings deposits in currencies with negative rates.

With the ground work already in place it will be a lot easier for the Fed to take rates negative when we enter the next economic crisis.

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