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Negative Interest Rates? Don't Bank on it.

Federal Reserve Chair Janet Yellen was asked by Congress last week whether negative interest rates are a possibility in the U.S. Her response: the Fed wouldnt take those off the table as an option, should the economy falter.2.22.16

Negative interest rates are already a reality in Europe and Japan. Retail banks must pay interest on reserves held at the central bank. Banks can then decide whether to pass negative rates on to consumers through low rates on loans, or low or even negative deposit rates. The aim is to encourage banks to lend and discourage consumers from saving, thereby stimulating the economy.

We believe negative rates are unlikely in the U.S. any time soon. If the Federal Reserve did not resort to negative rates during the 2008 financial crisis, it is unlikely they will in the future absent extreme circumstances. Should the economy head south, the Federal Reserve would first be able to cut rates to zero. The likely next step would be additional bond purchases (so-called quantitative easing).

Bottom line: investors should treat negative interest rates as more of a hypothetical scenario than a potential reality at this point.

 

DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.
Investment Advisory Team
Hefren-Tillotson

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Hefren-Tillotson Inc. is a leading diversified financial services firm providing investment and retirement plan management and comprehensive, financial planning through MASTERPLAN® for individuals and businesses. The firm’s wealth management services are administered by Certified Financial Planner (CFP) professionals, Chartered Financial Analyst (CFA) Charter holders, attorneys, Chartered Life Underwriters, and CPA/PFS’s. Hefren-Tillotson offers corporate services including 401(k) retirement planning, executive financial counseling, fiduciary reviews and workplace financial planning seminars. Founded in 1948, the firm is headquartered in Pittsburgh and has offices located in Pittsburgh, Butler, Greensburg, North Hills, and South Hills.