Money & Markets: 'Sign of Sickness' - Worry Grows That Negative Interest Rates Are the New Norm

October 22, 2019

Article by Eugene Townes in Money & Markets

The global economy is slowing, and many countries have lowered interest rates — even into the negatives in some cases — which is creating a new problem for central banks to solve.

Global financial officials including the International Monetary Fund and the World Bank met at the end of last week to discuss what could be done about the worsening global economy. Haruhiko Kuroda, governor of the Bank of Japan, argued “we still have tools which could be used as necessary,” according to Reuters.“I don’t think the effect of monetary policy has declined significantly or materially,” he continued.

But he warned countries “have to be careful” when considering the effects prolonged low interest rates could have on a financial system. Japan, along with the EU, is currently dealing with negative interest rates. And many other countries, including the U.S., are trending in that direction as well.

Fitch Ratings Chief Economist Brian Coulton also thinks central banks are losing the power needed to offset ongoing global events that are impacting the economy.

“There is a kind of benign view that central banks are just kind of doing their best to offset the damage done by one set of policymakers in one side of the government,” he said.  “There is a real danger in misplaced faith in the capacity of central banks to fix all these growth challenges.”

But central banks may be trapped, and they’re running out of tools to dig their respective economies out.

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