Over this past week, President Trump tweeted that he thinks the central bank should cut the interest rates to zero or even set negative interest rates. Is this even possible? if so, what would even happen to people's money? If this was to even happen, people trying to save their money will be the ones screwed over in this situation. "If the fed lowers its benchmark rate to zero, that would erode recent gains in savings rates immediately." What do you guys think about this? Is this even a possibility?
https://www.cnbc.com/2019/09/11/what-trumps-call-for-zero-interest-rates-would-mean-for-your-wallet.html
If negative interest rates occur, it is during deflationary periods when people and businesses hold too much money instead of spending. By making interest rates zero or negative, it encourages people to take their money out of their savings and invest them. It encourages more spending in the economy. If a negative interest rate occurs then the people who are saving will actually lose money, so they are better off taking it out of the bank and spending it.
ReplyDeleteMy question is, why would banks want this?
Negative rates would be harmful to the economy at this point. Although it would reduce rates on borrowing funds, it would make it difficult to raise wages and be detrimental to returns on savings. The benefits of reducing an already low rate is not sufficient to continue growth within the economy. The lowered rates make it more difficult on banks as well, as their profits would have slimmer margins. My opinion is lowering the interest rate to the point of 0 or even negative would not be beneficial for our current economy.
ReplyDeleteI think that this is just a terrible idea on a lot of levels, but what sticks out to me the most is that if there were interest rates that are negative then the bank is essentially paying people to take out money, and where are the banks going to get this money? They're going to take it from their reserves which is going to cause a panic when people try to take their money out and it isn't there.
ReplyDeleteSeveral countries in the EU have already started offering negative rates on bonds with Germany receiving a fair amount of media coverage over it and Denmark whos central bank has a pegged rate at -.75%. It is certainly a growing concern for the us as rate are already as low as 1.5%. If negative rates start to take over I think it will be very hard for governments to recover from an economic downturn as will exacerbate the problem with added deflation.
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