Negative interest rates: Bankers at the International Monetary Fund meeting weigh-in
One of the hot topics of discussion at the International Monetary Fund's annual meeting was negative interest rates, which have been utilised by central banks in the eurozone and Japan to boost growth. Here are the major comments made in the past few days:
Moran Stanley's Chief Executive, James Gorman
"What Europe is experiencing with negative rates, obviously is really bad. Not just for the financial sector, but for the broader economy. Do I worry about them being too low? Listen, the Fed’s job is to manage the excesses and to prop up the weaknesses in any economic cycle. There's no rulebook that Jay Powell’s got on his shelf behind saying at this point, with this information, you should do X. There's a judgement call. I personally would be more cautious bringing [United States] rates down because you are using up one of the tools that you have... At this point, I would probably price one more cut for the rest of the year, and then I would really sit back, watch and wait”, Gorman said.
JP Morgan Chase's Chief Executive, Jamie Dimon
“I think this is a lesson. I think they did it early on to save Europe basically from coming apart with the monetary union. We don't know. I think they’ll be writing books about this in 50 to 75 years'', Dimon said.
“[Negative rates] has huge negatives for savers and low-income people, for investors and for the capital markets. I, personally, would not buy debt below zero… There's something irrational about it…I'm not sure the monetary rules are the same for a negative rate as they are for a positive one”, Dimon added.
Tobias Adrian, Financial Counsellor and Director of International Monetary Fund's Capital Markets Department
“Remarkably, the amount of government and corporate bonds with negative yields has increased to about $15 trillion (11.6 trillion pounds). Moreover, markets expect about one-fifth of government bonds will have negative yields for at least three years. With rates staying lower for longer, financial conditions have eased, helping contain downside risks and support global growth for now. But loose financial conditions have encouraged investors to take more risks in a quest to achieve their return targets”, Adrian said.
Daniel Pinto, Co-President and Chief Operation Officer of JP Morgan Chase (R)
“I think one of the problems with negative (interest) rates is that it tends to have less effect today than a few years ago'', Pinto said.
“Before this current interest rate environment, if rates were going to be so low for so long, we would have started to get worried about the future. But today, as the population gets older and their priorities change, the distribution of rate changes don’t affect the economy as much. For our business, we prefer high-interest rates more than low-interest rates, but in general, it doesn’t make much of a difference... In the insurance business and pension business, it makes more of a difference because they have certain liabilities that become more difficult to manage as rates go lower and lower'', Pinto added.
Ray Dalio, founder of Global Macro Hedge Fund Bridgewater Associates
Dalio said he was worried perpetually low or negative interest rates was creating a “crazy or odd” reality in which debtors barely had to service their debt.
“Interest rates become negative or near negative so the debt service payments for the interest rate are down a lot. And it’s almost a situation where there’s guaranteed debt rollover”, Dalio added
Italian Central Bank Chief Ignazio Visco
"Being very unconventional, I think we have to be very careful of the possible negative effects of negative rates," Visco told a conference on the sidelines of the IMF and World Bank fall meetings. "I would be very, very careful in going further in this direction", Visco added.