A former Federal Reserve official says the central bank may consider negative interest rates if the economic recovery faces obstacles in the wake of the COVID-19 crisis.
Narayana Kocherlakota, who headed the Federal Reserve Bank of Minneapolis from 2009 to 2015, told Yahoo Finance on Monday that he does not expect the Fed to take target interest rates below zero, but said a “very slow” recovery could force a re-think down the line.
“I do think there are outcomes that I can foresee – not this year, but maybe next year -that would lead the Fed to start to think about going negative,” said Kocherlakota, now a professor at the University of Rochester. “That would be very bad news.”
Kocherlakota has previously called on the Fed to take rates negative, writing in mid-May that taking rates even “deeply” negative could provide the stimulus needed to bring down longer-term interest rates.