Why Negative Interest Rates May Be 'Problematic' in U.S.

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So, the Democrats have put together a second coronavirus relief package. However, many do not expect this first iteration of the bill will pass. 

But let's take a look at what we're going to need to see from an economics perspective. 

And, because it's once again in the headlines, are negative interest rates a real possibility? Jerome Powell, speaking earlier this week, said that the Federal Reserve isn't considering negative rates "for now" but could anything change the Fed's mind?

Steve Skancke, chief economic advisor at Keel Point, joined TheStreet to weigh in. 

Watch the video above for more.

Video Transcript:

Katherine Ross: Nancy Pelosi and the Democrats put together a bill for Coronavirus relief, and while it's not believed that this bill will pass, it does beg the question of, what are we gonna see in terms of economics for the next bill? Well, joining us today is Steve Skancke, Chief Economic Advisor at Keel Point. Steve, I want to start there. What kind of economic legislation are we going to need to see in the next bill to, kind of, put more than just a bandaid on a gaping wound?

Steve Skancke: It's clear that more fiscal stimulus is going to be required but just how and when is really the outstanding question. We heard Fed Chairman Powell yesterday, uh, change really, the tone of how he's been describing this and introducing, words like deep job and economic losses, significant downside risks that need more fiscal stimulus. And, uh, it's not coincidental that that comes as the tragedy of economic and job loss just continues to be in front of us. Notwithstanding some high frequency data, that are showing the positive impact of turnaround. What we see in the house bill that Nancy Pelosi has unveiled is three-trillion dollars in additional stimulus focused in some obvious areas, but also in the traditional democratic constituencies. And so, I believe it and I see it as really laying out her markers for where she'd like to start negotiating on a package that would be acceptable to Senate Republicans and the White House.

Ross: Steve you mentioned Powell earlier and I want to circle back to that because there is one thing that Powell said, which is that the Federal Reserve, for now, is not considering negative interest rates. Do you think that that could change as we continue to try and fight off the economic impact that the Coronavirus Pandemic is having?

Skancke: Well Katherine, certainly anything is possible and he didn't say, 'never', but the Federal Reserve has a lot more tools than the central banks of other countries that have tried negative interest rates. We have the advantage of seeing how they've worked and more to the point really didn't work and how hard it is to get out of them once you're in them. The Federal Reserve has tools that reflect the U.S. Being the strongest economy in the world and the dollar being the reserve currency of the world and as a result, the Fed can do a lot more with quantitative easing, the unlimited bond-buying it's committed to, the eleven emergency credit facilities that it's only started to roll out and so it has all of that that it can use before it even has to think about negative interest rates. Negative interest rates in the United States are also more problematic because of the huge money market mutual fund business we have here. Close to seven-trillion dollars that really are not equipped to handle the concept of negative nominal interest rates.

Ross: Steve as always, thank you for joining us today and for more on the Coronavirus Pandemic, head on over to TheStreet.com

You can follow Katherine Ross on Twitter at @byKatherineRoss.

Read more from Katherine Ross here

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