The Case Against Negative Interest Rates

    Facebook Twitter LinkedIn Email

By Charles Tan - October 2019

Even though interest rates in Europe and Japan have recently dipped into negative territory, the United States has never experienced negative rates.

Positive rates are a fundamental part of our financial system. Lenders get paid with interest payments for loaning money; borrowers are charged with interest until the debt is paid off. So, the current talk of negative rates feels like a monetary experiment—one that has several potential long-term consequences.

Negative rates upend the relationship between lenders and borrowers and could transfer wealth from savers to debtors. Furthermore, it could distort pricing in financial markets and erode our pension and banking systems.

So far, the Federal Reserve has resisted pressure to lower rates to zero or below. How will we get back to a normalized rate environment? Click on my video below for more insight.


    Facebook Twitter LinkedIn Email
Charles Tan
Global Fixed Income

Insights from our CIOs

Get additional insights in our latest Investment Outlook.

Discover More
  • Related Articles
  • More From Author

3 Potential Market Disruptors No One is Talking About, Yet

Liquidity, volatility and credit spreads may all have a role to play in the year ahead, according to Head of Investment Solutions Cleo Chang.

Investing in Emerging Markets in 2020

Emerging markets face a tough year ahead with the status of the U.S.-China trade war and the U.S. presidential election still up in the air.

Voters Say, ‘Bring on Brexit’

The conservative Tories gained a substantial majority in December’s general election. Here’s what that could mean for Brexit negotiations and more.

    The Case Against Negative Interest Rates

    Negative interest rates—what are they, who’s using them and how might they affect the U.S. economy? Charles Tan, fixed income Co-CIO, breaks it down.

    The Downside of Negative Interest Rates

    Negative-yielding debt has been steadily increasing throughout the world, and many investors worry the U.S. won’t remain immune from this bond market anomaly. Co-CIO Charles Tan shares why negative rates could present significant risks.

    Recession Worries Sink Stocks

    An inverted yield curve may signal trouble in the water. Despite the bond market’s warning, we still believe the U.S. economy may remain resilient.

      Generally, as interest rates rise, bond prices fall. The opposite is true when interest rates decline.

      Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.

      The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

      American Century Investments is not responsible for and does not endorse any comments, content, advertising, products, advice, opinions, recommendations or other materials on or available directly or via hyperlinks from Facebook, Twitter or any third-party website. Facebook, Twitter and LinkedIn are registered trademarks of their respective owners.