Policy Could Come Under Fire if It Were to Hurt Retail Depositors, Federal Financial Analytics Paper Says
By Kate Davidson
The Federal Reserve may have the legal authority to push interest rates into negative territory, but the politics of such a decision may prove to be a thornier challenge. That’s the conclusion of a new report from Federal Financial Analytics Inc., a Washington policy-analysis firm, which says the Fed will face significant blowback from Capitol Hill if the strategy appeared to hurt retail and small-business depositors. Fed officials are unlikely to engineer negative interest rates any time soon. They are now focused on whether and when to raise rates in coming months. But they have said they could consider pushing rates below zero if they needed to provide more stimulus during an economic downturn, and the policy is generating interest as other central banks experiment with it.