Money Finance News

The ideal rate of interest for the American economy in the current conditions would be minus 5%, according to an internal study prepared for the last meeting of strategists of the Federal Reserve Bank, writes The Financial Times. The interest rate impacts home loans, credit cards, and more.

The analysis was based on an approach that estimates the best interest rate on the rate of unemployment and inflation.

A central bank cannot reduce interest rates below zero, but the study suggests that the institution headed by Ben Bernanke should maintain a series of unconventional policies that provide incentives to broadly equivalent to an interest rate of minus 5 %.

Separately, the study’s authors estimated what type of unconventional operations would be needed and what scale should have it, to generate this level of stimulation. They suggested that the central bank should expand its purchases of assets even over the level, which was agreed in last meetings of Fed strategists.