NEW YORK: The fed funds futures market is pricing in negative US interest rates next year, a scenario the Federal Reserve has said it wants to avoid as many doubt that it would be an effective tool to stimulate growth.
"Even before rate futures went negative, the options markets also had a lot of interest in that," said Mark Chandler, chief market strategist, at Bannockburn Global Forex in New York. The European Central Bank launched negative rates in June 2014, cutting its deposit rate to -0.1 per cent to stimulate the economy.
Negative rates also hurt savers. As returns from savings accounts fall, individual investors that rely on a fixed income may be pushed to invest in riskier assets such as stocks or corporate bonds to make ends meet. This puts them at greater risk of investment losses.
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