News & Politics

Funny Money: Fed Looking at Negative Interest Rates

While we focus on the presidential nominating contest, the Federal Reserve signals a bleak future irrespective of whom we elect in November. From CNBC:

The Federal Reserve started raising official interest rates in December. But in the stress tests that large U.S. banks have to undergo, the central bank is hypothesizing that short-term Treasury yields could drop below zero. The European Central Bank and, since Friday, the Bank of Japan are trying it with policy benchmarks. Though negative U.S. interest rates are for now only in the Fed’s worst-case scenario, they are becoming a plausible downturn assumption.

The stress tests are required each year under the Dodd-Frank Act, and the 2016 parameters for big financial institutions were announced last week. They come in “baseline,” “adverse” and “severely adverse” flavors. The last is supposed to represent a severe global recession, and that’s where the Fed has told banks to model negative yields on short-term Treasury securities – emphasizing that it’s a hypothetical scenario, not a forecast.

Imagine. Instead of earning money on deposits, you could end up paying for your bank to hold them. Think the savings rate sucks now? Wait until Yellen and the gang pull the trigger on this.