Posts Tagged ‘Negative Interest Rates’

Federal Reserve ponders negative interest rates.

October 12, 2015

The Federal Reserve Board is reportedly thinking about negative interest rates as a means of stimulating the economy.

“Some of the experiences [in Europe] suggest maybe can we use negative interest rates and the costs aren’t as great as you anticipate,” said William Dudley, the president of the New York Fed, in an interview on CNBC on Friday.

Source: MarketWatch

negative-interest-rates1Negative interest rates are just what they sound like.   Depositors would pay banks to keep their money rather than being paid interest.  This is crazy.  Why would the Federal Reserve Board members even consider such a thing?

The idea is that if our economic problem is too much saving and too little spending, you can stimulate spending by penalizing saving.

The idea is that if low interest rates stimulate spending and investment, which produce economic growth, then negative interest rates would be an even better stimulus.

The negative interest rates would apply to funds that individual banks, such as M&T Bank here in upstate New York, deposit with a central bank, such as the Federal Reserve Bank of New York.

The negative rate wouldn’t necessarily apply to individual depositors, although it might.  Central banks in Germany, Switzerland, Denmark and Sweden have imposed negative interest rates, and individual banks have charged depositors for holding their money.