Federal Reserve economist says growth would have been better with negative interest rates

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In a recent research paper, San Francisco Fed economist Jens H.E. Christensen looked at the results of five foreign central banks that implemented subzero rates starting in 2012, when the Danish National Bank first went negative. In each case, the move immediately brought government rates down and helped loosen up those economies.

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Had the U.S. done the same, Christensen wrote, its growth rate after the financial crisis might have been better. The U.S. Federal Reserve took its benchmark rate down to a target range of zero to 0.25% at one point, but never crossed the threshold to go negative.

“Evidence that the U.S. post-crisis economic recovery was constrained by this policy choice ... suggests that mildly negative U.S. policy rates from 2009 to 2011 could have supported higher economic growth and eventually pushed up inflation closer to the Federal Reserve’s target,” he said.

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Using those subzero rates, he said, reflects “the shared belief that zero is either a real or self-imposed constraint was wrong and was no longer valid.”

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