Negative interest rates in the United States were once unimaginable. The coronavirus has changed that.
FILE PHOTO: Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 19, 2019. REUTERS/Leah Millis
“It’s gone from theoretical to distinctly possible,” said Michael Purves, chief executive of Tallbacken Capital Advisors. Investors worry that the United States crossing the zero bound may have bigger disruptive side effects in money markets than the years of negative rates in Europe and Japan. Fed Chairman Jerome Powell said in March that negative rates would be unlikely to help the economy. Investors expect him to reinforce that message during webcast comments scheduled for Wednesday.
The policy effectively redistributes income from those who have benefited from many years of lending to those who need to borrow, he said. “In that sense, they are similar to various income and rent support programs for those who have been hit by the lockdowns.”Ultra-low rates drive demand for bonds, since their higher coupon becomes more attractive.
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