The Federal Open Market Committee meets on Tuesday and Wednesday. If it could, it'd probably cut interest rates to minus 5 percent. From the FT today:
The ideal interest rate for the US economy in current conditions would be minus 5 per cent, according to internal analysis prepared for the Federal Reserve’s last policy meeting.
The analysis was based on a so-called Taylor-rule approach that estimates an appropriate interest rate based on unemployment and inflation.
A central bank cannot cut interest rates below zero. However, the staff research suggests the Fed should maintain unconventional policies that provide stimulus roughly equivalent to an interest rate of minus 5 per cent.
No stranger to unconventional monetary policy is Japan, who probably could do with more of it. From AFP/CNA today:
Japan said on Monday it expects the economy to shrink 3.3 per cent over the coming year, its worst slump in at least half a century, as the government presses ahead with a record stimulus package.
Still, for all the bad news, including the outbreak of swine flu, Japanese stocks closed up today. From Bloomberg:
Japanese stocks rose, led by banks and drugmakers, on speculation two local lenders will merge and an outbreak of swine flu will spur sales of antiviral treatments. Indexes pared gains as earnings fell at shipping lines...
The Nikkei 225 Stock Average added 18.35, or 0.2 percent, to close at 8,726.34 in Tokyo, after swaying between gains and losses eight times. The broader Topix index climbed 3.05, or 0.4 percent, to 833.10.
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