President Donald Trump says he 'loves' the idea of negative rates, but Fed Chair Jerome Powell disagrees.
. That means banks have an incentive to lend money out, and are discouraged from keeping too much cash on deposit.
, allowing them to pay less interest overall and use those savings to increase spending or pay off the debt more aggressively. Under normal circumstances, people are rewarded for saving money in the bank through interest earned on their deposits. And it generally costs people to borrow money, since they have to pay interest on their loans. In a negative interest rate environment, however, the opposite is true.Instead, consumers would be incentivized to spend their cash and disincentivized to build it up.
With no incentive to keep money in banks, consumers could also pull their savings out and hide it under the mattress, à la the Great Depression. That massive drain of cash from the banking system would actually work to push rates higher.
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