Don’t worry, ladies and gents. It is only a test. Had this been a real emergency, your stock market would be falling apart and our allies abroad would be drowning in negative rates.
In its latest addition to perversion on Wall, the wonderful Federal Reserve are stress testing negative rates and how our banks might fair under an unbelievable, far fetched, environment.
As interest rates turn negative around the world, the Federal Reserve is asking banks to consider the possibility of the same happening in the U.S.
In its annual stress test for 2016, the Fed said it will assess the resilience of big banks to a number of possible situations, including one where the rate on the three-month U.S. Treasury bill stays below zero for a prolonged period.
“The severely adverse scenario is characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities,” the central bank said in announcing the stress tests last week.
In that particular simulation, the unemployment rate doubles to 10 percent, the same level it reached in the aftermath of the last financial crisis.
Three-month bill rates have slipped slightly below zero several times in recent years, including in September after the Fed delayed rate liftoff amid global financial market turmoil, touching a low of minus 0.05 percent on Oct. 2.
But in the stress test, banks would have to handle three-month bill rates entering negative territory in the second quarter of 2016, and then falling to negative 0.5 percent and holding there through the first quarter of 2019.
Not a Forecast
“This scenario does not represent a forecast of the Federal Reserve,” the central bank said. It also assumes “that the adjustment to negative short-term rates proceeds with no additional financial market disruptions.”
Fed officials have made clear that they are a long way from contemplating a reduction in rates below zero in their benchmark overnight policy rate. Some, though, have suggested they’d be more open to such a move than in the past should the economy deteriorate significantly.
It’s not a forecast, but only a test. Please remember that. Okay, now back to your regularly scheduled program.
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On the other hand we have HAWK Ester George saying “Monetary policy cannot respond to every blip in financial markets,” George said in a speech on the economic outlook at the Central Exchange in Kansas City. There has been no “substantial shift” in the outlook that would justify pausing further gradual rate hikes, she said. They stress test everything, but George gets to vote.
Next thing you know they hire Crazy Eddie to explain Fed Policy.
The next Exodus spy signal is the one.
esther told bulls ‘bye felicia’
rofl…true.
Time for Bullard to say “hey, we’re just fuckin’ with you. Buy something.”