Strategist at Rabobank Philip Marey has assessed the likeliness of a recession in the US economy.
Key Quotes
“Things will become more complicated for the Fed if the economy indeed appears to be heading for recession”.
“A single cut of a quarter will bring the target range for the fed funds rate back to the zero bound. This will rekindle the debate about a negative policy rate”.
“It should be noted however, that in seven years of extremely loose monetary policy the FOMC never resorted to negative rates, but instead carried out three rounds of quantitative easing and Operation Twist. This shows that the preferences of the FOMC differ substantially from other central banks that were quick to cross the zero bound”.
“Therefore, in case of an imminent recession the Fed is more likely to announce ‘QE4’ and enter negative rate territory only as a last resort”.
(Market News Provided by FXstreet)