Hello everyone on this week we will focus on a couple of articles which were very relevant during the middle of 2017 that brought an unprecedented debate in monetary policy and interest rate determination. By the second quarter of 2017 the country had already been in out of the Great Recession for about 7 years, but the expected decreases in unemployment and real GDP growth (although positive) had not been what were expected of carrying a policy of close-to-zero interest rates. Think about it, zero interest rates indicate that the central bank intends to make borrowing so inexpensive, that the yield is close to zero. During a meeting of the Federal Open Markets Committee at the Fed on September 2017, one of the members suggested that after 7 years of having a close to 0% interest rate, leaving it as it was no longer enough, the recommendation of the policy maker was that the rate should be below zero through 2016. That is, rates should go to a place the U.S. has never had them before. In theory, it shouldn't be possible for a central bank to keep short-term interest rates below zero. Banks would have to pay the Federal Reserve to hold reserves. Consumers would have to pay banks to hold deposits. Banks and people can hold physical cash, which charges no interest. This is why economists see zero as the lowest possible rate. It's just theory, though; real-world experience shows the actual lower bound is somewhere below zero.

The first is a short-paper from the Federal Reserve Bank of St. Louis in which it indicates the rational, of why negative-nominal-interest rates could actually potentially work.

The second is an article from Bloomberg, discussing from an investor/public perspective, why it might not.

first read: file:///Users/Shared/Fed%20Negative%20Interest%20Rates.pdf

second read: file:///Users/Shared/Quicktake%20Bloomberg%20Negative%20Interest%20Rates.pdf

Please read both articles and answer the following questions:

1. From the first read, please respond what is the argument that the Fed has for lowering interest rates to below zero levels.
2. From the second read, please respond what is the argument for the investors/public for not lowering the interest rates below zero.
3. Finally I want you to discuss, who do you think is right and most importantly why?