“Stay Positive” and Other Clues in the Fed Notes

Lot’s of talk (and tweets) lately about “going negative”, that the U.S. should consider negative interest rates just like Japan and Germany.  Today’s notes from last month’s Fed meeting indicated that the “benefits of negative rates abroad are mixed” and would create “significant complexity or distortions to the financial system”.  However, other esoteric tools for stimulus may be considered, such as a form of quantitative easing called “yield curve control” whereby the Fed sets an upper limit for short term treasury securities by purchasing enough of them to “cap” the yield.  This would be another large commitment to expanding the balance sheet as these purchases could be massive.  Speaking of the yield curve, the 10 year T is again dropping, today at 1.71% after hitting 1.95 11 days ago.  Negative news on the possible US China trade deal, now complicated by Hong Kong unrest.  Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners