Fed's Powell rules out negative interest rates, despite Trump pressure
The Fed prefers to rely on forward guidance and asset purchases, Powell said
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Federal Reserve Chairman Jerome Powell pushed back against the possibility that policymakers at the U.S. central bank will deploy negative interest rates to fight the coronavirus-induced recession.
"It’s an unsettled area. I know that there are fans of the policy, but for now, it’s not something we’re considering," Powell said Wednesday. "We think we have a good toolkit, and that’s the one we’ll be using."
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The "tried and true" toolkit the U.S. central bank will use to blunt the economic pain inflicted by the virus outbreak includes asset purchases (also known as quantitative easing), interest rates and "forward guidance," or its verbal communication about the state of the economy and the anticipated course of monetary policy.
"We do feel that our tools work," Powell said. "Forward guidance and asset purchasing work."
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Although the U.S. has always had positive interest rates, other countries have experimented with sending rates into negative territory. So far, five central banks have interest rates set below zero, including Japan, Sweden, Denmark, Switzerland and the European Central Bank.
But Fed policymakers have long doubted the effectiveness of negative interest rates.
"The committee’s view on negative rates really has not changed. This is not something we’re looking at," he said, adding: "The evidence on negative rates is mixed."
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The benchmark federal funds rate is at a range between 0 percent and 0.25 percent, after the U.S. central bank cut it during two emergency sessions earlier this year. Powell has pledged that interest rates will remain at the historically low level until the U.S. weathers the outbreak of the virus.
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Powell's comments follow a tweet by President Trump on Tuesday calling on the Fed to follow other countries in deploying negative interest rates.
"As long as other countries are receiving the benefits of Negative Rates, the USA should also accept the “GIFT”. Big numbers!" he wrote.