The European Central Bank decided to stick rather than twist today as it announced the deposit rate has been held at -0.4%, the refinancing rate held at zero, and the details of its €80bn per month quantitative easing programme are unchanged.
Not only do zero or negative interest rates fail to provide an “easing cushion” in a recession, but they destroy capitalism’s business models, according to Bill Gross of Janus Capital.
Almost two thirds of German savers believe they could soon face negative interest rates on their bank accounts, according to a poll administered by Union Investment.
Speaking at the annual Jackson Hole symposium, Federal Reserve Chair Janet Yellen said the solid performance of the United States labour market and current economic outlook mean the case for an increase in the federal funds rate has ‘strengthened in recent months.’
The Federal Reserve’s decision to hold rates at 0.25-0.5% announced last night surprised nobody, but the accompanying rhetoric suggested a more hawkish stance is emerging.
Record-low interest rates are the number-one risk to investors, even if they stay at their current levels, said Greg Woodard, who is part of the management team of the GAM Star Global Quality Fund.
The amount of global sovereign fixed income with negative interest rates is up 5% since the end of April, according to Fitch Ratings.
Negative interest rate policies have started to unnerve investors, even though Sweden, Denmark, the eurozone and Switzerland have all had negative policy rates for over a year.
It is not every day that the Bank of International Settlements warns that confidence in central bank omnipotence has begun to falter, but when it does it is worth a read.
The Swedish central bank’s surprise announcement that it has pushed interest rates further into negative territory is the latest piece in what is an increasingly worrying puzzle.
About the right amount of ‘dovishness’ seems to be the initial verdict from market commentators pronouncing on what had been billed as the biggest event in financial markets since the collapse of Lehman Brothers.
This Wednesday, investors’ eyes are once again on the Fed, which is widely expected to deliver its first rate hike since 2006. Across Europe, fund selectors have been impatiently waiting for this for months. There is one exception though: investors in Scandinavia prefer the FOMC to defer a first rate hike to next year.
