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Inflation Expectations Limit the Power of Negative Interest Rates

Author

Listed:
  • Andrew Glover
  • Emily Pollard

Abstract

Both the federal funds rate and longer-run yields have dropped to near zero, renewing discussion of negative interest rate policy. Although negative rates would allow for additional cuts in the United States, negative policy rates in line with what other countries have implemented would not be able to achieve the nominal rate reduction of previous easing cycles. Moreover, inflation expectations remained flat or fell after negative rates were introduced in most countries, limiting the expansionary power of these additional rate cuts.

Suggested Citation

  • Andrew Glover & Emily Pollard, 2020. "Inflation Expectations Limit the Power of Negative Interest Rates," Economic Bulletin, Federal Reserve Bank of Kansas City, issue March 25,, pages 1-4, March.
    • Handle: RePEc:fip:fedkeb:87725
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