Report indicates US needs an interest rate of minus 5
The Financial Times has published a report on its website indicating that in order to deal with the recession, the US economy needs an interest rate of minus 5 percent.
Quoting from the Federal Reserve’s own analysis of the Taylor-rule approach, which produces an estimate of the most useful interest rate using measures such as inflation and unemployment, the negative interest rate emerged.
The Fed meeting starts today to discuss measures that have already been placed to boost the economy, although no drastic measures are expected.
However, interest rates cannot be cut below zero but financial stimuli could be introduced that are equivalent to an interest rate of minus 5 percent.
There is a suggestion that the central bank may be able to increase its asset purchase above the $1.1 trillion that has already been sanctioned.
The current situation is rather different as the reality of cutting interest rates any further is going to prove difficult.
Federal Reserve officials are dependant upon interest paid on bank reserves to control inflation with the greatest fear that consumer prices may go sky high and many analysts see this as a real gamble.
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We are truly through the looking glass.
Policymakers want negative interest rates (lenders would LOSE money by lending) but complain that lenders are not lending enough (allegedly, but I have some information that says otherwise).