Taylor Rule Calls For Negative Rates Of -10%, Powell Says No

Fed Chair Jerome Powell is adamant that the US will not go where other Central Banks have gone before … to negative rates.

Even though the Mankiw specification of the Taylor Rule model says that The Fed Funds Target rate should be -10.01% based on the surge in unemployment (14.70%) and the lack of core inflation (1.70%). The Fed Funds Target rate remains at 0.25%.

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As unemployment surges (green line) with the lockdown, banks are expecting a tsunami of loan delinquencies and defaults. Hence, bank excess reserves have spiked as well (white line fever).

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Hopefully with states opening up again, this is simply temporary.

Instead of losing my blues, Powell is giving me the blues.

queenjanetprincejerry