Negative rates in the US - BofAML

Mark Cabana, Rates Strategist at BofAML, suggests that if the US economy were to sufficiently weaken, we believe the Fed would consider negative rates to ease policy.

Key Quotes

“With other major central banks adopting negative rates, discussion has recently shifted to whether the Fed would consider adopting a similar policy. While not our baseline scenario, if the US economy were to sufficiently weaken, we believe the Fed would consider negative rates as a means to ease policy. However, before adopting negative rates, we expect the Fed to first move rates back to zero, reintroduce forward guidance, and make stronger pleas to Congress for fiscal policy action. It is unclear how the Fed might consider the tradeoffs of further easing policy through negative rates or additional asset purchases, though we expect they would give careful consideration to both as potential tools.

Before pursuing negative rates, the Fed would likely want to work with market participants to resolve any potential technical issues associated with trading, payment, and settlement systems. The Fed would also want to provide clarity on any legal issues associated with the potential adoption of negative rates.”