Update (0935ET): The market is throwing a tantrum, demanding – it would appear – that The Fed move to negative rates as following Fed Chair Powell’s comments that NIRP “was not in The Fed’s toolbox.” How long will The Fed allow stocks to drop before they begin to hint that maybe it is back in the toolbox?
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Update: and there it is – after failing to mention negative rates in his prepared remarks, Powell responded to a question from Adam Posen, saying that the FOMC’s view on negative rates has not changed and even though Powell knows “there are fans of negative rates, evidence of effectiveness of negative rates very mixed” and as a result “negative rates is not something we are looking at.”
As a result, the “Fed intends to continue using tools it has already tried.” Powell’s comment immediately reversed the initial kneejerk reaction in the market which was surprised there was no mention of NIRP in the initial remarks, and promptly sent gold lower after an initial spike…
… with the dollar and 10Y yields both rebounding from session lows, while Jan 2021 implied rates reversed the earlier move and are again positive.
Of course, this is the same Fed that just two months ago never expected its balance sheet would be anywhere close to where it is now, so while Powell has closed the door on NIRP for now, it will be time to revisit this topic after the next market crash.
Powell to negative rates for now $USD
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