After years of of near-zero interest rates, it appeared the Federal Reserve would able to guide its benchmark short-term interest rate close to 1% by year’s end. Sure, that’s low by historical standards, but rhetoric coming from the Fed and many analysts on Wall Street was that in 2016 the price of money would begin to rise back to levels that we were used to before the financial crisis.
But troubles in the Chinese economy have metastasized, in part causing the oil market to crater and American investors to question the health of the global economy. Analysts who argue that the United States could soon be dragged into recession have yet to find a smoking gun to prove their case, but slower economic growth in the fourth quarter, weak retail sales growth, and a slight uptick in jobless claims do bolster their case.
Economists have long thought negative interest rates were impossible because of the existence of paper money. If the central bank were to set a negative interest rate, people would respond by hoarding cash rather than paying a bank for the privilege of keeping their money. But several central banks, including Japan’s and Denmark’s, have adopted negative rates, proving that the central banks can get financial institutions to pay them to hold reserves.
http://www.msn.com/en-us/money/markets/why-the-fed%e2%80%99s-interest-rate-plans-may-get-turned-upside-down/ar-BBp9P4p?li=BBnb7Kv&ocid=iehp
Hoarding cash might not be a bad thing. Although it might piss of Lloyd Blankfein which would be a good thing in my book.
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