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The negative consequences of negative rates

| Posted by: Paul Donovan | Tags: Paul Donovan

  • The US vice presidential debate takes place today. There is likely to be less of a media circus about proceedings, which may allow some hints as to policy platforms to creep through. Policy discussion would be a novel addition to the campaign. 
  • The Fed's Loretta Mester is defying politics to declare her support for a November rate hike. This does seem unlikely, as the Fed is unlikely to have a clear picture of future fiscal and regulatory policy at its November meeting, and these are pertinent facts in determining central bank policy.
  • Yves Mersch of the ECB has been telling banks to stop being cry-babies over the consequences of negative rates (which are a tax rather pointedly aimed at banks, as well as large savers). He did at least acknowledge that there are negative consequences from negative rates.
  • The Bank of Japan's negative rate policy has also been criticized by opposition politicians. It seems as if the fashion for negative rates is fading, as central bankers realize that they are not a universal panacea for economic ills. Something the Swiss have known for some time.