--- title: Do We Need Negative Interest Rates in the U.S.? description: Are negative interest rates a good idea for the U.S.? Commonwealth CIO Brad McMillan says the damage would outweigh any benefits. image: https://blog.commonwealth.com/hubfs/Brad_Images_IMO_Blog/2017/InterestRates_2.jpg --- [![The Independent Market Observer](https://blog.commonwealth.com/hubfs/IMO-Title-1.png "The Independent Market Observer")](https://blog.commonwealth.com/independent-market-observer) [![Commonwealth Financial Network](https://blog.commonwealth.com/hubfs/lockup_citron-1.png "Commonwealth Financial Network")](https://www.commonwealth.com/) - [Home](https://blog.commonwealth.com/independent-market-observer) - [About](https://learn.commonwealth.com/about/) ### ![print this page](https://blog.commonwealth.com/hs-fs/file-1376458285-gif/images/print.gif)Print # [Do We Need Negative Interest Rates in the U.S.?](https://blog.commonwealth.com/independent-market-observer/do-we-need-negative-interest-rates-in-the-u.s) Posted by [Brad McMillan, CFA®, CFP®](https://blog.commonwealth.com/independent-market-observer/author/brad-mcmillan-cfa-caia-mai) Find me on: [LinkedIn](https://www.linkedin.com/in/bradmcmillancfa) [Twitter](https://x.com/BradMcMillanCFA) This entry was posted on Sep 12, 2019, 2:23:02 PM and tagged [Commentary](https://blog.commonwealth.com/independent-market-observer/topic/commentary) [Leave a comment](https://blog.commonwealth.com/independent-market-observer/do-we-need-negative-interest-rates-in-the-u.s#comments-listing) ![negative interest rates](https://blog.commonwealth.com/hs-fs/hubfs/Brad_Images_IMO_Blog/2017/InterestRates_2.jpg?width=300&name=InterestRates_2.jpg)I am working on my talk for Commonwealth’s upcoming [National Conference](https://www.commonwealth.com/joinus/events.aspx), all about interest rates in the new world. The tagline is going to be “Less Than Zero.” Yesterday, I got an endorsement (sort of) from the president, who tweeted that the Fed should lower rates to zero or even below. Clearly, I got the hot topic right this year! Thinking this idea through has been interesting, as it really is outside the box. Despite the fact that a significant fraction of outstanding bonds around the world are trading at negative yields (i.e., you get back less at maturity than you pay for them), the sense is that negative rates are somehow an aberration and that markets will certainly return to normal at some point. The U.S. has been singled out as an island of stability in the madness, with rates low but still comfortably in positive territory. Until recently, the Fed was talking about raising rates even further. Even now, it is decreasing them slowly rather than quickly. Looking at the U.S. alone, negative rates were not even in the picture. Until yesterday. That absence is actually kind of surprising when you think about it, especially when you consider what has been going on in Japan for decades and in Europe for the past several years. Why hasn’t the U.S. been thinking about negative rates? Should we be thinking about them now? What would negative rates actually mean? Let’s take a closer look. ##### Why invest in negative rates? Let’s start with defining what we mean. Negative rates are those where you invest a certain amount with the knowledge that, if everything goes perfectly, you will lose some money. Put that way, it sounds crazy. So, why would anyone do it? One possible explanation comes from expected price changes. The nominal value of the money you hold does not matter, but its purchasing power does. Inflation makes money worthless. Historically, interest rates have been higher to compensate for that relationship. Lower inflation meant rates could move lower, as we have seen in the U.S. But what if prices actually went down instead of up, a process called *deflation*? In that case, your money today would be able to buy more, and be worth more, tomorrow. In that case, you could accept a lower interest rate—with no reason why it couldn’t be below zero—in the expectation that even if you lost money, you would still have greater purchasing power at maturity. The nominal interest rate can easily be below zero in a sustained deflationary environment, and that may well be what negative rates are signaling in Europe and Japan. With populations shrinking, deflation is a real concern. And it is one the bond markets are responding to. ##### No deflationary drag in U.S. Which brings us back to the U.S. Our economy has been growing, and our population is expanding. So, we don’t have that deflationary drag pulling international rates down—and we are not likely to have it over the next couple of decades. In fact, there are signs that inflation may be rebounding a bit. From a fundamental basis, negative rates here in the U.S. have never been needed and are not needed now. This is just as well, because lower rates have not worked as an economic stimulant wherever they have been tried. Europe and Japan continue to grow slowly at best, and negative rates have not helped to reaccelerate them in the face of demographic weakness. ##### The side effects Negative rates also have significant side effects. Savers who depend on interest for their income are out of luck; the banking system loses its profit engine and has to shift to fees to survive; and although asset prices may increase in the short term, their long-term growth prospects are eroded. Again, we have seen all of these scenarios play out in Japan and Europe, and negative rates would mean the same situation here. ##### Damage versus benefits Should we be thinking about negative rates here? Probably, since they are now part of the conversation. Should we be trying to get them? No. We don’t need them at all. And even if we got them, the damage would outweigh the benefits, if any. - [Tweet](https://twitter.com/share) ### Subscribe via Email ![TMO\_IMO\_615x408\_sidebar](https://blog.commonwealth.com/hs-fs/hubfs/TMO_IMO_615x408_sidebar.png?width=1033&height=686&name=TMO_IMO_615x408_sidebar.png "TMO_IMO_615x408_sidebar") [Episode 20](https://vimeo.com/1201911815/0f4f028be9?share=copy&fl=sv&fe=ci) June 17, 2026 [Episode 19](https://vimeo.com/1191658257/1b43ce84dd?share=copy&fl=sv&fe=ci) May 13, 2026 [Episode 18](https://vimeo.com/1183174918/e227cf7d80?share=copy&fl=sv&fe=ci) April 15, 2026 [Episode 17](https://vimeo.com/1174554734/636f0f7aba?share=copy&fl=sv&fe=ci) March 18, 2026 [Episode 16](https://vimeo.com/1163757312/bc2f802d74?share=copy&fl=sv&fe=ci) February 11, 2026 [More](https://learn.commonwealth.com/monthly-media-placements) [![Insights\_CTA\_IMO\_233x400-1](https://no-cache.hubspot.com/cta/default/295024/interactive-187935228457.png)](https://blog.commonwealth.com/hs/cta/wi/redirect?encryptedPayload=AVxigLIfqSxHt%2Fqc0E3OkGtZ7N492Z1vZZml%2Flge0fwL0A6gJKicGwXKOSG4i9L8oaEHxQ2hIjVbeN3%2B2ihWf7nDSXRxHXJQGdWA%2Ffs1EVw%2FwcpYwu32%2FYy6HMScD%2Bfh0AOBhFWfK7clts2VtgePRcHV0whR%2Fp1QEARC%2FEMk0xAwEM7KeV47NzHZX2%2B49sQk4Zg3pMU1U9kYz9YkK0g%3D&webInteractiveContentId=187935228457&portalId=295024) ### Hot Topics Select Category Ask Brad Commentary Economic Risk Factor Updates Economics Lessons Market Thoughts Videos In the News Investing Market Updates On My Bookshelf Politics and the Economy [![New Call-to-action](https://no-cache.hubspot.com/cta/default/295024/5f46d9ce-4d40-495c-a126-d4502b647bbf.png)](https://cta-redirect.hubspot.com/cta/redirect/295024/5f46d9ce-4d40-495c-a126-d4502b647bbf) ### Archives - 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