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US central bankers last month
dismissed the idea of taking interest rates into negative territory,
something President Donald Trump has called for many times, according to
meeting minutes released Wednesday.
Evidence for the benefits of negative interest rates — lenders must pay
borrowers rather than the other way around — has proven “mixed” in countries
where it has been tried, according to members of the Fed’s rate-setting
Federal Open Market Committee.
Federal Reserve policymakers also said at the October 29-30 meeting that
the world’s largest economy has “proven resilient” in the face of persistent
global difficulties but risks remain “elevated,” including from Trump’s trade
war.
But the minutes also confirmed Fed members believe further rate cuts
should be unnecessary in the near term, barring major changes to the outlook.
The Fed cut the benchmark lending rate last month for the third time this
year, bringing it down to a range of 1.5-1.75 percent.
Trump has relentlessly attacked the central bank, demanding lower and even
negative interest rates, claiming that relatively higher US interest rates
put the country at a disadvantage against weaker economies in Europe and
Asia.
During an appearance in New York last week, Trump said the Fed was
blocking America from the kinds of stimulus other countries enjoyed.
“Give me some of that money. I want some of that money,” Trump said of
negative rates.
“Our Federal Reserve doesn’t let us do it.”
The minutes of the Fed deliberations made clear that under the current
circumstances US central bankers have all but shut the door.
– Untold consequences –
“All participants judged that negative interest rates currently did not
appear to be an attractive monetary policy tool in the United States,” the
minutes said.
There is “limited scope” to adopt such a policy, which has not clearly
benefited other countries and could have untold consequences for bank lending
and household spending, the minutes said.
And negative rates would introduce “significant complexity and
distortions” into the US financial system, Fed members said.
However, they “did not rule out” that circumstances could arise that would
cause them to change their position.
Meanwhile, in general, the American economy appears to be doing well, with
the risk of recession lessening in recent weeks.
But, while job markets and consumer spending remain strong, Fed members
generally felt businesses will remain skittish about investing and exports
will remain weak due to “trade uncertainty and sluggish global growth.”
The Fed this year has reversed most of last year’s four increases to
bolster a slowing economy and provide “insurance” against looming dangers,
including Trump’s trade wars.
After three straight rate cuts, current interest rate levels are “well
calibrated” to support growth and “likely would remain so” as long as the
outlook remains broadly the same.
Efforts to end the trade wars, however, appear to be stumbling, with a
partial deal announced last month sliding out of view as Trump threatens to
jack up tariffs to pressure Beijing to cooperate.
Futures markets as of Wednesday predict the Fed will hold its fire until
June, when a majority of investors expect cutting to resume.
(BSS)
