Going Negative?

The Fed Futures market indicates a 94% chance of a 0.25% rate cut next week. A December rate cut is also priced in to market expectations. 30 Day LIBOR is now 1.82% (appropriately since the Fed Funds target is now 1.75-2.00%). This means LIBOR should close the year out at 1.25%, leaving very little room for further cutting (assuming the U.S. does not “go negative” on rates). That assumption may be in question as a leading Fed economist analyzed 5 other central banks that instituted sub zero rates starting in 2012. The U.S. Fed held rates at near zero from 2008-2015. The paper suggested that the U.S. recovery would have benefited from negative interest rates, so the next recession may feature sub-zero in the U.S. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners