Negative growth, negative interest rates?A weak economy often causes interest rates to fall. However, with average rates on savings accounts, money market accounts and short-term CDs all below 0.10 percent already, do they really have anywhere to fall? Could they actually drop into negative territory? In theory, this is possible. Since banks are not particularly hungry for deposits right now, they could decide to charge interest in return for providing record keeping, custody of deposits and FDIC insurance. That effectively would be a negative interest rate. More likely, banks could start charging fees on smaller deposits that would exceed any interest those deposits could earn. Again, this would amount to negative interest. In real terms, interest rates are already negative. With savings accounts, money market accounts and most CDs earning considerably less than the current 2 percent inflation rate, most of the money on deposit today is shrinking rather than growing in value.
Is the worst in the rear-view mirror?The GDP announcement is certainly bad news, but at this point the first quarter is a couple months back in the rear-view mirror.
There is reason to think things have gotten better since then. The most tangible reason for optimism is employment growth. Job growth has picked up in recent months, which is a sign that businesses are feeling more constructive, as well as a source of new spending for the economy.