[ad_1]
REUTERS: Federal Reserve Chairman Jerome Powell sent a clear message to interest rate futures traders on Wednesday (May 13): Bets that the US central bank. USA A negative policy of interest rates will be out of base.
The chief Federal Reserve official became the latest in a parade of policymakers to ignore the idea that they could push rates into negative territory after futures tied to expectations of the company’s interest rate policy. The Federal Reserve recently began setting a small chance for sub-zero rates in the United States within the next year. .
“The committee’s opinion on negative rates has not really changed. This is not something we are seeing,” Powell said in response to a question during an event organized by the Peterson Institute for International Economics, referring to the establishment of policies by the Fed. Federal Open Market Committee (FOMC).
Several of the major central banks, including the Bank of Japan and the European Central Bank, have implemented negative rate policies in the years since the 2007-2009 financial crisis because their weak economies have failed to produce the desired level of inflation.
Last week, for the first time in history, federal funds futures began to reflect a small chance that a negative-rate policy would hit the American shores. The futures market is used both to hedge and to bet directly on the Fed’s benchmark interest rate level for up to three years.
The effectiveness of negative rate policy continues to be debated in global central banking circles. The idea has at least one high-profile fan, President Donald Trump, who tweeted favorably about negative rates again this week.
Trump has frequently called negative rates a way to limit the strength of the dollar and keep US exports competitive, calling the Fed “Boneheads” last September for not following the policy.
“As a former real estate developer, the idea of being able to get low or negative rate loans fits with Trump’s mindset,” said Mark Sobel, a former official with the United States Treasury and the International Monetary Fund and a policy expert. monetary. “The strong dollar has given him a lever to push for that.”
UNANIMITY EDF
Powell is just the latest in a series of American policymakers to reject the idea that a sub-zero policy is on the table. At least six of the 12 presidents of the Federal Reserve’s regional banks have rejected the idea, and Powell noted during Wednesday’s event that his contempt has been the subject of rare unanimity among policy makers.
Officials recently discussed it during the meeting last October, Powell said, “and the minutes said that all FOMC participants, and that is not a sentence that can be said very often, all FOMC participants currently did not judge that negative rates … appear to be an attractive monetary policy tool in the United States. “
Powell said policymakers prefer alternatives such as forward-looking, or harsh signs of how long current policy will remain in place, and large-scale asset purchases, also known as quantitative easing (QE).
“We have said that we continue to trust those tools that are tested, and are now part of our toolkit,” he said.
Rate futures moderated the price of negative rates somewhat after Powell’s comments. However, a dozen contracts that expire from April 2021 through March 2022 are priced to reflect a federal funds rate of between minus 0.01 percent and minus 0.025 percent at contract expiration.
Some analysts dumped cold water with the idea that the market was seriously pricing in negative rates.
Subadra Rajappa, Director of US Rate Strategy USA At Societe Generale in New York, he said that while the futures markets “are still setting it … we are seeing very small volumes in federal funds futures off the curve. Even then you are seeing” negative one or two point rates basic, so it is not in any way suggestive of a policy move that the market is implementing “
Rajappa said this is likely indicative of “hedges that are being implemented in case the Fed goes in that direction.”
