February 21, 2020

Trump Wants Negative Rates. Here’s How That Would Work.

Several of the Fed’s counterparts have introduced negative rates, including central banks in Denmark, Switzerland, Japan, Sweden and the eurozone, to stabilize either growth or their currencies.

While central bank interest rate moves are usually passed along to investors and consumers, banks in economies like the eurozone — which first turned to negative rates back in 2014 — generally do not charge everyday savers who keep money in retail bank accounts. But consumers do earn less interest on their savings accounts, and there are rare instances in which they have to pay to keep very large deposits at banks.

On the flip side, consumers benefit from cheaper loans. In Denmark, where rates have been below zero for seven years, banks have introduced negative-rate mortgages. Practically, that means borrowers’ outstanding balances are reduced by more than they pay in a given period.

If negative rates became a reality in the United States, consumers could face new charges. Jamie Dimon, chief executive of JPMorgan Chase, said this week that the bank had begun to discuss what fees it could introduce if interest rates fell to zero or below.

And investors definitely feel the aftershock. In the eurozone and Japan, about 70 percent of government bonds now have a negative yield, according to the data provider Tradeweb. Rates on the securities have tumbled this year amid concerns about global growth.

Article source: https://www.nytimes.com/2019/09/11/business/economy/trump-fed-negative-interest-rates.html?emc=rss&partner=rss

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