The President of the Federal Reserve, and Jerome Powell speaks during a press conference in Washington, DC.
Another “setback” in the U. s. economy could prompt the The Federal Reserve to consider reducing interest rates into negative territory, but such a monetary policy would not be very useful,” Goldman Sachs strategist said on Thursday.
President Of The Federal Reserve Jerome Powell Wednesday recalled that the central bank will not be considering negative interest rates at this point, even as other central banks — such as the reserve Bank of india — seems to be open to the idea.
When asked what could change the Fed’s mind on a negative interest rate, Zach Pandl, Goldman Sachs ‘ co-head of global foreign exchange, rates and fixed income strategy, has raised the possibility of a second wave of corona virus cases that could derail the next economic recovery that many analysts and investors have expected.
“If the economy has another setback … a place where you have a second wave of infections, and it would really take for the recovery, of course, because I do think that it is that it opens up the possibility of a range of additional actions,” he told CNBC’s “Street Signs Asia.”
However, “even in this scenario, I think that fiscal policy would be the first step. I do not think that the reduction of rates in negative territory and could be very useful, even in this environment,” he said.
“But who knows, decision-makers will try new things if the economy is really struggling, for a period of time,” he added. “So, in this scenario, maybe they can consider it, otherwise I think it’s pretty unlikely at this stage.”
Pandl will not elaborate on the reasons for the negative interest rates would not be useful. But many analysts have long questioned the effectiveness of such a policy, citing the experience of some European countries and Japan, which are struggling to develop their economies, even after the adoption of negative rates for years.
The strength of the U.S. dollar, it will not last
The U. s. dollar index — which measures the dollar against a basket of major currencies — climbed in after Barry, but ruled out because of the deterioration rates.
The U. s. dollar has remained strong in recent weeks, as investors seek safer assets to park their money after the corona virus pandemic dampened the economic outlook on a global scale.
But as the recovery of the global economy in the years to come, such strength in the currency would fade, ” said Pandl. He explained that the usd is estimated to be overvalued by about 20%, which means a decrease when it eventually comes — it may be “quite significant.”
“The interest rates in the U. s. have been the main factor keeping the dollar well supported over the last few years, and that the source of support is now gone, U.s. rates are now much closer to the low levels that we have seen in the rest of the world,” he added.