Fed was afraid of negative interest rates: ex vice chair Fischer

JERUSALEM (Reuters) – A fear of negative interest rates kept the Federal Reserve from raising rates earlier than some policymakers had hoped, former Fed vice chairman Stanley Fischer said on Sunday.

“The possibility of having a negative interest rate frightened the heck out of everybody who had to set the interest rate,” Fischer, who served as vice chair for 3-1/2 years until last October, told a farewell conference for Bank of Israel Governor Karnit Flug in Jerusalem.

The Fed started to raise rates in late 2015.

Fischer spent eight years as Israel’s central bank chief before giving way to Flug in 2013.

“What really concerned people was, ‘If we raise the interest rate, will we have to reduce it, and if we have to reduce it, will it go negative?’” Fischer said. “This led to interest rate raising aversion. So the interest rate was kept between zero and 25 basis points for several years.”

“There was a large public aversion to going negative, so it was fortunate that we didn’t get into that situation”.

The Fed’s benchmark overnight lending rate now stands at 2.25 percent.

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