The Case Against Negative Interest Rates

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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.

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Charles Tan
SVP & Co-CIO
Global Fixed Income

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      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.

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