While looking at data provided by Eurostat reveals a picture of positive European growth and vibrance, what central banks on the ground are saying is something totally different. And indeed, after yesterday’s surprising move by Sweden’s Riskbank, there are now at least four central banks, and numerous countries in Europe, that are toiling under NIRP: Sweden (-0.1%), Denmark (-0.75%), the Eurozone (-0.2%) and, of course, Switzerland (-0.75%). Japan, oddly enough, has so far resisted the temptation to join Europe in an all out NIRP-fest, however with the amount of bonds the BOJ is monetizing, which is just about 100% of net JGB issuance, NIRP would be a secondary tool in the BOJ’s arsenal especially since Japanese bonds drift in and out of negative interest rate territory on a whim. But what bout the US?
Well, as we first noted a week ago referencing a long-forgotten piece by NY Fed authors titled appropriately enough “If Interest Rates Go Negative . . . Or, Be Careful What You Wish For.” As could be expected at the time, the Fed was full of fire and brimstone warnings about the aberations that would occur in a world in which negative rates prevail. It even went so far as saying that “we may see an epochal outburst of socially unproductive—even if individually beneficial—financial innovation.”
Well, the financial innovation has yet to come, but Europe is doing all it can to accelerate its arrival.
However, now that Europe has demonstrated that one can go NIRP and not crash the system, will the Fed – once its silly obsession with hiking rates in the summer only to launch even more easing and/or QE as the ECB did in 2008 and 2011 – follow suit and join a rising tide of “developed” world central banks in punishing savers for hoarding cash?
In a note released last night titled “Revisiting Negative Interest Rates in the US”, Goldman shares its thought on the matter. It goes without saying that Goldman is important, because whatever Goldman’s econ team shares with Goldman’s Bill Dudley over at the NY Fed, usually tends to become official policy with a 3-6 month lag.
