With a tweet, President Trump has reopened the debate about negative interest rates.
In Japan and Europe negative rates are a fact. And just last week former Federal Reserve Board Chair Alan Greenspan said in a televised interview that he believes negative interest rates will hit the U.S. before long.
Federal Reserve Bank of Dallas President Robert Kaplan has said he’s skeptical whether negative interest rates are “viable.” Former U.S. Treasury Secretary Larry Summers also opposes the idea. Federal Reserve Bank of Minneapolis President Neel Kashkari in 2016 said it’s “unlikely” the Fed would implement negative rates. Fed Gov. Lael Brainerd also dismissed the possibility in a televised interview earlier this year.
On the other hand, Federal Reserve Bank of St. Louis President James Bullard has said negative rates could be considered at some point.
Probably the most telling sign that Fed policy makers are not yet considering negative rates is that they still refer to zero lower bound, suggesting zero is the bottom. And there is a question about whether such a move would be legal.