FOMC Minutes: Negative interest rates not an attractive policy tool

"Although the rates implied by federal funds futures contracts settling next year had fallen to slightly negative levels in May, survey respondents attached very little probability to the possibility of negative policy rates," the FOMC Minutes of June meeting showed on Wednesday.

Market reaction

The US Dollar Index largely ignored this publication and was last seen losing 0.26% on the day at 97.13.

Additional takeaways

"Market-implied forward rates referring to 2021 and 2022 turned slightly negative for a few days beginning on May 7, though market commentary suggested that this development did not reflect investors expecting the FOMC to lower the federal funds rate target range below zero."

"This view was supported by Federal Reserve communications that negative interest rates did not appear to be an attractive policy tool."

"Members agreed Fed was committed to using its full range of tools to support the US economy."

"Discussed whether yield curve caps or targets could support forward guidance and complement asset purchases."

"Participants agreed that the data for the second quarter would likely show the largest decline in economic activity in post–World War II history."

"Staff economic simulations suggested that financial conditions would need to be highly accommodative for many years" to meaningfully quicken the recovery."

"Most Fed policymakers thought Fed should give more explicit forward guidance on rates, more clarity on bond-buying, once economic trajectory clearer."

"Fed staff presentation said liquidity conditions continued to improve in general, but some stress was still evident in several financial markets."

"A number of participants judged forward guidance on rates and bond-buying should aim to support rapid economic recovery, foster durable return to 2% inflation."

"Participants expected social distancing, saving and lower levels of employment and income to restrain the pace of expansion over the medium term."

"Participants generally indicated support for forward guidance based on economic outcomes."