Fed Staff Sees Ideal US Interest Rates at -5%

Chief U.S. economic correspondent for the Financial Times Krishna Guha says the ideal interest rate for the US economy in current conditions would be minus 5%, according to internal analysis prepared for the Federal Reserve’s last policy meeting.

From FT: The analysis was based on a so-called Taylor-rule approach that estimates an appropriate interest rate based on unemployment and inflation.

A central bank cannot cut interest rates below zero. However, the staff research suggests the Fed should maintain unconventional policies that provide stimulus roughly equivalent to an interest rate of minus 5 per cent.
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Fed staff…suggested that the Fed should expand its asset purchases by even more than the $1,150bn..increase policymakers authorised at the last meeting, which included $300bn of Treasury purchases.
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The Fed is not likely to embark on any substantial new programmes…though policymakers probably still see these risks as overall weighted to the downside.
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This could set the stage for a more detailed discussion of the framework that will ultimately govern the Fed’s exit strategy.

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