SAN FRANCISCO (Reuters) - Central bankers in Europe and Japan have used negative interest rates to try to boost their economies and lift sagging inflation expectations, but Federal Reserve policymakers have been generally skeptical of doing so in the United States.
New research from the San Francisco Federal Reserve Bank published Monday is likely to increase their doubts.
When the Bank of Japan announced its plan to move to negative policy rates in 2016, inflation expectations actually fell rather than rose as policymakers had hoped, researchers at the San Francisco Fed wrote in the bank’s latest Economic Letter.
Although the decline might have been a response to the deteriorating economic conditions that prompted the BOJ’s move rather than to the move itself, “the reaction stresses the uncertainty surrounding the effectiveness of negative policy rates as expansionary tools when inflation expectations are anchored at low levels,” they wrote.
Fed policymakers have struggled with low U.S. inflation, cited as one of the reasons why they cut rates last month for the first time in more than a decade. Monday’s research may add to arguments for “preemptive steps” to avoid allowing rates to fall near zero levels in the first place, the economists wrote.
Reporting by Ann Saphir; Editing by Chizu Nomiyama