Another «big drop» the U.S. economy may prompt the Federal reserve to consider reducing interest rates to negative territory — but such a monetary policy will not be «very useful», said a strategist at Goldman Sachs.
The fed Chairman Jerome Powell on Wednesday reiterated that the Central Bank is considering negative interest rates at the moment, even if other Central banks such as the Bank of England was open to this idea.
Answering the question about what can change the view the fed about negative interest rates, Zach Pandl, co-Chairman of Goldman Sachs on global monetary policy rates and strategy in emerging markets, indicated the possibility of a second wave of cases of the coronavirus, which could derail the impending economic recovery expected by many analysts and investors.
«If the economy will another great recession… when will the second wave of infections, and it really knocked the recovery off course, then I think this opens up the possibility for a number of additional action», — he said in an interview with CNBC.
However, «even in this scenario, I think that fiscal policy will be the first step. I don't think lower rates to negative territory, potentially would be very useful even in this environment», — he said.
«But who knows, maybe the politicians will want to try something new, if the economy really will be under pressure for a certain period of time — he added. — So in this scenario, perhaps they may consider negative interest rates, but I think it's a pretty low probability at the moment».
Pandl did not specify why negative interest rates won't be helpful. But many analysts have long questioned the effectiveness of such a policy, citing the experience of some European countries and Japan, which have experienced problems with the growth of their economies even after the use of negative interest rates for many years.
Information-analytical Department TeleTrade