The Fed wants to see what happens if it moves to negative interest rates

fed cc 1

It wants to see via a “stress test” of banks. But even with the Fed raising a quarter point recently, so called liftoff, the general trend globally is in the opposite direction. Japan just moved to negative rates. There are smatterings of negative rates to be found throughout Europe. Canada is playing with the idea of negative rates.

Why? Because as the anti-Kyensians have long warned the great post 2008 experiment was destined to fail. And it is failing. The Fed now wants to know what will happen to banks just on the off chance there was a profound recession (really a continuation of the 2008 crisis) say 2018-2019.

Just in case mind you.

(From Bloomberg)

As interest rates turn negative around the world, the Federal Reserve is asking banks to consider the possibility of the same happening in the U.S.

In its annual stress test for 2016, the Fed said it will assess the resilience of big banks to a number of possible situations, including one where the rate on the three-month U.S. Treasury bill stays below zero for a prolonged period.

“The severely adverse scenario is characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities,” the central bank said in announcing the stress tests last week.

In that particular simulation, the unemployment rate doubles to 10 percent, the same level it reached in the aftermath of the last financial crisis.
You have 0 items in your cart. Proceed to checkout?
Yes, please!