There are many economists who speculate on the economic policies of the Federal Reserve. Some believe that the Fed will continue to increase the interest rate. Others say that the interests rate may continue its decline until it becomes negative. Is it more likely that the US’s interest rate will rise or fall? If we do experience negative interest rates in the future what kind of affect will that have on student loan debt? If interest rates do become negative how will that affect the Government Debt of the United States?

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Posted by Moses R (MONEY FORUMS: 6, Answers: 1)
Asked on February 10, 2016 12:42 pm
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here is another good discussion of negative interest rates: The Upshot ‏@UpshotNYT
What’s the deal with negative interest rates?
http://nyti.ms/1o7dYQF

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Posted by Beth Tallman (MONEY FORUMS: 1, Answers: 61)
Answered: February 12, 2016 4:21 pm
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Moses, you have lots of good questions here. Let’s tackle them one at a time. Regarding negative interest rates, other countries who have used negative interest rates (Switzerland, which turned to negative interest rates to offset the Swiss Franc’s high and ever increasing value), have somewhat simpler economies and authorities are more certain of the impact a negative rate will have on the rest of the financial system. Just yesterday, when asked about negative interest rates at a Congressional hearing, Janet Yellen brought up the complexity of the US monetary markets and legal issues yet to be worked out as two reasons negative interest rates are not in the Fed’s toolbox (yet.) In terms of impact of negative rates on Government debt, the impact would be like any other rate decrease…those that hold existing debt paying or yielding a higher rate will now have a more valuable bond. For any debt actually issued at a negative interest rate, the Government would be paid, yes. Student loan interest rates are set by congress annually, and still have to cover factors such as risk, so the rate might go down but would not go negative.

Regarding what will happen with interest rates in the US in the near future, up or down, there are many factors that go into that decision, and they all have to be looked at as a whole and in relation to one another. “The FOMC has described its monetary policy decisions as being ‘data dependent,’” to quote Loretta Mester, the President of the Cleveland Federal Reserve Bank. She gives great insight into how she and the other members of the Federal Open Market Committee (FOMC) reach policy decisions in a recent speech: https://www.clevelandfed.org/en/newsroom-and-events/speeches/sp-20160204-a-monetary-policymakers-lexicon.aspx . Its a good read!

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Posted by Beth Tallman (MONEY FORUMS: 1, Answers: 61)
Answered: February 11, 2016 8:13 am