02/25/2016 - Will The Federal Reserve Implement Negative Interest Rates?
NIRP (negative interest rate policy) is both possible under U.S. law & achievable by the Federal Reserve through various transmission options, including paying a negative rate of interest on excess reserves .. Federal Financial Analytics, Inc. (FedFin) released a report today concluding that the Federal Reserve has the authority to execute a negative interest-rate policy (NIRP) should it be compelled to do so. The paper also concludes that the central bank is under such acute political risk that it will shun NIRP if at all possible. However, should its hand be forced, the central bank is most likely to implement NIRP through limited reductions in the interest on excess reserves (IOER) now paid to U.S. banks – “Until the Bank of Japan’s disastrous NIRP launch, the FRB looked at NIRP largely as a technical central-banking question. Now, it sees all too clearly its political risk even if those to financial stability remain less of a deterrent .. Using IOER – seen across the political spectrum as a big-bank subsidy – could thus be the FRB’s only option even though it should know full well how disruptive this would prove to sustained, stable growth.”
