Date
20 November 2018
US policymakers had fretted about the prospect of negative interest rates, says former Fed vice chair Stanley Fischer. Photo: Bloomberg
US policymakers had fretted about the prospect of negative interest rates, says former Fed vice chair Stanley Fischer. Photo: Bloomberg

Fed was afraid of negative interest rates: Stanley Fischer

A fear of negative interest rates kept the US Federal Reserve from raising rates earlier than some policymakers had hoped, according to Stanley Fischer, the central bank’s former vice chairman.

“The possibility of having a negative interest rate frightened the heck out of everybody who had to set the interest rate,” Fischer, who served as Fed vice chair for three-and-a-half years until last October, said on Sunday, Reuters reports.

“What really concerned people was, ‘If we raise the interest rate, will we have to reduce it, and if we have to reduce it, will it go negative?’” Fischer was quoted as saying during a farewell conference for Bank of Israel Governor Karnit Flug in Jerusalem.

“This led to interest rate raising aversion. So the interest rate was kept between zero and 25 basis points for several years.”

The Fed started to raise rates in late 2015.

“There was a large public aversion to going negative, so it was fortunate that we didn’t get into that situation,” said Fischer, who had earlier spent eight years as Israel’s central bank chief.

The Fed’s benchmark overnight lending rate now stands at 2.25 percent.

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RC

 

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