Commentary from The Wall Street Journal [1] questions whether interest rates in the U.S. could fall into the negative.
While investors feel interest rates could fall into the negative are in the minority, there is more than $15 trillion in government debt around the world.
“Not all investors are convinced U.S. yields are destined to fall further, and those that think they could go negative remain in the minority,” the report states. “While the U.S. economy has slowed recently, it has continued to grow faster than either the eurozone or Japan.”
The latest jobs report from the Labor Department [2]found that U.S. economy continued to grow in July, although showing signs of deceleration. U.S. employers added 164,000 jobs during the month and the unemployment rate held at 3.7%.
Bloomberg reported [3]that despite continued growth, the three-month average increase of 140,000 was the slowest in almost two years, which is line with forecasts for a gradual slowing of job gains.
Investors, according to the report, have expressed concern over the ongoing trade war between the U.S. and China, which has caused market volatility and financial uncertainty of late.
The Wall Street Journal said a main item to pay attention to is the The U.S. Treasury Department's monthly budget report.
“A key market barometer of the risk of future recessions is sounding its loudest warning since April 2007, months before the start of the last financial crisis, Daniel Kruger and Peter Santilli report,” the report said. “Shorter-term bond yields have climbed above longer-term ones, a phenomenon known as an inverted yield curve. That tends to happen ahead of recessions. Yet economic growth remains steady and the labor market strong, stoking debate among investors about what the signal means now.”
Speculation of negative interest rates has arisen following the Fed’s decision in July to cut interest rates for the first time in a decade. Interest rates were cut by a quarter of a point.
The Washington Post [4] reported that the Fed is ready to “cut more to stimulate the economy, if necessary.”
“Uncertainties about this [economic] outlook remain,” the Fed wrote, adding, “As the [Fed] contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”