Negative Interest Rates? Is the Fed Delusional?


The latest jobs report is lackluster — just 142,000 jobs were added to the economy in September. The labor force participation rate is now down to its lowest level since Jimmy Carter was in office. And the Federal Reserve? They refuse to change course and fix their mistakes.

In 2008, the Fed promised they could save us from economic collapse with a radical solution — by holding interest rates near zero — and then reverse policy after the crisis was averted. But seven years later, rates are still the same. The economy is still spinning its wheels, going nowhere fast. And workers are watching their real wages effectively decline as prices increase. The Fed promised that this would be a free lunch, but clearly this is not the case. They failed.

Now, the Fed wants to double down on seven years of failed policy by offering up negative interest rates as a solution.

Seriously. Via CNBC:

Last week, the Federal Reserve spooked markets by preserving the monetary policy status quo. Yet a few central bank watchers were more surprised by a new idea the central bank seemingly suggested: a negative interest rate.

The Fed’s closely watched “dot plot” revealed that at least one committee member floated the idea that a fed funds rate below zero might be an appropriate target for the remainder of this year and next.

The forecast is widely thought to be the work of Minneapolis Fed President Narayana Kocherlakota, a non-voting member of the committee who is known for his dovish views.

That’s right. The Fed is now talking about the possibility of a negative federal funds rate. Instead of family savings accounts earning even a small return on their savings, as they do now, working families could actually be charged interest on their savings — a tax. How will that help struggling workers living paycheck to paycheck? How will that help middle class families save money for rainy days?

The Fed is broken and apparently delusional. The status quo clearly isn’t working for the vast majority of Americans. It’s time for the American public to press the Federal Reserve on its failed policy and urge Congress to pass the Centennial Monetary Commission bill to help us chart a new path forward.

Steve Lonegan is the Director of Monetary Policy for American Principles in Action.

Steve Lonegan

Steve Lonegan is Director of Monetary Policy for the American Principles Project.

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