Consider this your periodic reminder that the people in charge of US monetary policy and either millionaires (Jerome Powell) or academics (Ben Bernake) who are making it up as they go along. See below from former Federal Reserve Chairmen Ben Bernanke, who, in a recent speech, called for ‘constructive ambiguity about whether the Fed would take its official interest rate target negative in the future.
Late in December 2019, Sweden’s Riksbank ended a five year experiment with negative rates by moving its official target to zero. Like in Japan and Europe, the Swedes found that while negative rates were good for asset owners (stocks and bonds) they did not spur consumption and business investment and lead to expected GDP growth.
Our take is that the Fed will eventually move to control the entirety of the US yield curve, keeping long-term rates low along with short-term rates. The main driver is America’s annual $1 trillion government deficits. Between the Warfare State and the Welfare State, those deficits are going to get larger every year.