Entering text into the input field will update the search result below

Negative Interest Rates Will Likely Come To The U.S.

Louis Kokernak, CFA profile picture
Louis Kokernak, CFA


  • Almost one third of government debt in developed markets already yields less than 0%.
  • Inflation and economic growth remain persistently low, 10 years removed from the Great Recession.
  • Chairman Powell may have to entertain unconventional policy measures in the advent of an actual recession.
  • Low or negative interest rates may be the only thing that keeps western economies solvent.

Central bankers convened in Wyoming last week for their annual meeting. Interest rates are collapsing everywhere. In the last six months, a third of them have executed explicitly accommodative policies. Federal Reserve chairman Powell stated that there were "no recent precedents to guide any policy response to the current situation.” It's my view that he will have to force short-term rates below zero if and when the US economy falls into recession.

We are now more than 10 years removed from the Great Recession and it appears that the world is lapsing back into another round of interest rate repression. There are strong political and economic incentives for rates to fall below zero here in the US.

There is some objective rationale for a coordinated easing of interest rates. Independent forecasts of global economic growth are mediocre and have deteriorated a bit recently. The IMF recently reduced its forecast for 2019 global growth to 3.2%. Advanced economies are expected to do worse.

The world's premier economic powers, the USA and China, are facing off in a disruptive trade war. Federal Reserve minutes released this week reflect a view among the central bankers that the current conflict will be a persistent headwind to economic growth. Some estimate that US GDP will lose 0.3% each year the trade war continues. Many large European economies have stalled and Britain's exit from the EU will almost certainly reduce trade flows.

The USA is not in a recession now but more and more economists are forecasting one. Nearly 3 out of 4 economists surveyed by the National Association for Business Economics expect a recession by 2021, according to poll results released this month. Even if this survey is alarmist, it's reasonable to consider precedent in order to gauge a Fed policy response. At the onset of the last nine

This article was written by

Louis Kokernak, CFA profile picture
I have been a fee only financial advisor since 2002 and am a Chartered Financial Analyst and Certified Financial Planner. The cornerstone of the life savings strategy at Haven Financial Advisors is the investment in multiple asset classes with low cost and low turnover.The investment process is transparent.There are no "black box" funds or sudden swings in risk taking.

Analyst’s Disclosure: I am/we are long IGOV, AGG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Here is my revision pursuant to your feedback on Sunday, 08-25-19

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.