“What we are learning is that, in my view, negative rates may not have helped and may have hurt,” Taylor, a professor at Stanford University in California, said in a telephone interview this week. “It could be counterproductive, no question.”
A potential problem is that the strategy of charging banks for a portion of their reserves squeezes the availability of credit.
Bank of Japan Governor Haruhiko Kuroda last week rejected the idea that the negative-rate policy adopted in January had hurt banks’ “intermediary functions” -- their ability to channel savings to lending. Even so, he acknowledged that the move had spurred a powerful drop in long-term yields. That, in turn, hurt earnings on savings including pensions, generating some risk for the “sustainability of the financial function in a broad sense.”
Negative rates have had a big effect on long-term yields, Taylor said, agreeing with Kuroda’s thinking on the dynamic by which they were brought down. “I don’t know how long that will continue,” he said. “It has not had a big impact on inflation and the economy,” he also said.
Taylor reiterated his thinking that, in the U.S., the Federal Reserve is behind the curve in raising rates. “The evidence is very weak” for the view shared by some at the Fed that the neutral level for the benchmark rate is now lower than it once was, he said.
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