Market Lab Report - Premarket Pulse 10/12/15
While the global economy is weak, economic reports claim the US is doing better. Nevertheless, the Federal Reserve may deploy negative interest rates should economic conditions worsen over the next year or two to the point of recession, an option that was rejected during the darkest days of the financial crisis post 2008.
“Some of the experiences [in Europe] suggest maybe can we use negative interest rates and the costs aren’t as great as you anticipate,” said William Dudley, the president of the New York Fed.
Indeed, events in Europe over the past few years have shown the benefits outweigh the risks. In Europe, the European Central Bank, the Swiss National Bank and the central banks of Denmark and Sweden have deployed negative rates to some small degree without catastrophe.
So while negative rates would not be a total solution, it would be additional support. Thus the odds of a QE4 of some sort could occur should the weak global economy worsen and push economic growth in the US into recessionary levels.
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