The monetary policy of negative interest rates is popular in certain economic zones, including the European Union. Jerome Powell, chairman of the US Federal Reserve, believes that the central bank will not apply negative policy rates.
Invited by Scott Pelley in the program 60 Minutes on CBS News, and placed at a good distance from his interlocutor, Jerome Powell had some difficulties to be reassuring about the economic future of the United States.
The reality of the American economy according to the grand manitou
“S. P: What economic reality do Americans have to prepare for?
J. P: Well, I would take a more optimistic approach to this, if I could. It is a time of great suffering and great difficulty. And it happened to us so quickly, and with such force, that you really cannot put into words the pain that people feel, and their uncertainty. And it will take us a while to get out of it. ”
Of course, as the most influential man on the American economy, Powell assures us that there is no shortage of tools and resources to revive the economy, greatly weakened by the “covid-19 crisis”.
“JP: We can do much more. We did what we could as we went along. But I would say that we are far from being short of ammunition.
SP: Is it fair to say that you just watered the money system?
JP: Yes. We did it. This is another way of looking at this. We did it.
SP: Where does it come from? Do you print it?
JP: We print it digitally. So we – you know, we as a central bank – have the ability to create money digitally. We do this by buying government-guaranteed treasury bills, bonds, or other financial securities. And that increases the amount of money. We also print “real” money, and distribute it through Federal Reserve banks. ”
Powell does not do it in the wooden language and describes in quite correct words the reality of the monetary policy of the federal reserve, which is printing money. The repurchase of assets program extended the balance of the FED to nearly 7000 billion dollars. A few days ago, the central bank announced that an additional 2,999 billion would be injected into the system.
Negative interest rates are not on the agenda
On the other hand, if the key rates are close to zero, the fateful barrier will not be crossed:
“JP: I continue to think, and my colleagues in the Federal Open Market Committee (note: the FED supervisory body responsible for applying the securities purchase programs) continue to think that negative interest rates probably aren’t an appropriate, or useful, policy for us here in the United States.
SP: And why not? The President thinks that would help.
JP: It is not clear that they actually support economic activity. The problem is that people who deposit money in banks will see their value fall and pay interest. So it’s not a very popular policy, as you can imagine. In addition, it tends to reduce the profitability of banks, which forces them to lend less, and which weighs on growth. There is no evidence in economic analysis that negative interest rates add value. ”
We can certainly appreciate the outspokenness of the administrators of the Federal Reserve. This contrasts with the elegant convolutions of European central bankers, who prefer to drown in obscure terms the reality of their monetary policy.
Market reaction
This sincerity is also felt on the markets: after these declarations, the price of gold and silver jumped.
ECONOMY dying. FED incompetent. Next BAILOUT trillions in pensions. HOPE fading. Bought more gold silver Bitcoin. GOLD @$1700. Predict $3000 in 1 year. Silver @ $17. Predict $40 in 5 years. Bitcoin @$9800. Predict $75000 in 3 years. PRAY for the BEST-PREPARE for the WORST.
— therealkiyosaki (@theRealKiyosaki) May 16, 2020
”Pray for the best, and prepare for the worst. “