Negative interest rates have become a trend across Europe, but what would happen if the Federal Reserve decided to go to zero-percent interest rates in the U.S.?
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Although Apple Bank for Savings CEO Steve Bush believes it’s highly unlikely, because it’s “symptomatic of a moribund economy,” he painted a very dreary picture while talking with FOX Business’ Stuart Varney on Wednesday.
“I think if they do, you will see some stimulus to the US economy, but you're going to see maybe a retraction of bank credit,” he told Varney, adding that banks would “lend less because you’re getting less.”
Bush said you would also see bank net-interest margins decline and consumer rates would go to zero. Net-interest margins measure the difference between the amount money and interest a bank is generating, compared to interest earning assets.
“That sets a limit on how much banks cut funding costs as their earning rates come down, crashes bring bank margins and I think that especially hurts the smaller community and smaller regional banks because they don't have the other businesses that the large banks have that would protect them,” he explained.
Bush noted that the Fed has some control over the longer-term rates by setting a “policy floor and saying they won’t cut beyond a certain point.”
However, he also pointed out that uncertainty lingers.
“We’ll see what they do,” he said.