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Illustration: Aïda Amer/Axios

The European Central Bank (ECB) is expected to push forward with deeper negative interest rates next month and the Fed looks to be considering implementing them in the U.S. should the current economic slowdown accelerate.

The big picture: There's growing evidence that the experimental policy designed to increase spending, boost inflation and stimulate the economy has done more harm than good.

What they're saying: Recent research from the San Francisco Fed finds that after the Bank of Japan announced negative rates in 2016, "market expectations for inflation over the medium term fell immediately."

  • "The reaction stresses the uncertainty surrounding the effectiveness of negative policy rates as expansionary tools," especially when inflation is as stubbornly low as it is now, researchers Jens Christensen and Mark Spiegel write.

Research on Europe's experiment with negative yields has drawn similar conclusions.

  • A study from the University of Bath concludes that negative interest rates have weakened demand and decreased lending because the additional costs reduce banks’ profit margins.
  • “This is a good example of unintended consequences,” said Ru Xie, one of the study’s authors. “Negative interest rate policy has backfired, particularly in an environment where banks are already struggling with profitability.”

Even so, incoming ECB president Christine Lagarde insists the eurozone would be "worse off" without negative rates, and the Fed looks to be headed toward an embrace of negative rates as well.

  • Minutes from July's FOMC meeting mention “ELB" 15 times. (ELB is the effective lower bound, a reference to the lowest level interest rates can go.) That's up from 0 mentions in the June meeting’s minutes, notes Ed Yardeni, president and chief investment strategist of Yardeni Research.
  • "The presumption is that the federal funds rate can’t fall below zero," he says in a note to clients. "Yet the minutes hinted that Fed officials might be thinking that if they have to lower the federal funds rate to zero, it’s a slippery slope from there to considering going negative."

Watch this space: European bankers are increasingly worried about the harm negative rates are doing to the business of banking and are trying to pass the cost onto consumers.

  • If that happens, people may start stuffing cash in their mattresses, worries Jesper Berg, director general of the Financial Supervisory Authority in Denmark. That would likely put more pressure on banks and shrink the financial industry.
  • “If you continue to stay in this environment,” Berg told Bloomberg recently, "something needs to give."

Go deeper: Fed tweets show Trump doesn't understand central banking

Go deeper

14 hours ago - Health

Food banks feel the strain without holiday volunteers

People wait in line at Food Bank Community Kitchen on Nov. 25 in New York City. Photo: Michael Loccisano/Getty Images for Food Bank For New York City

America's food banks are sounding the alarm during this unprecedented holiday season.

The big picture: Soup kitchens and charities, usually brimming with holiday volunteers, are getting far less help.

16 hours ago - Health

AstraZeneca CEO: "We need to do an additional study" on COVID vaccine

Photo: Pavlo Gonchar/SOPA Images/LightRocket via Getty Images

AstraZeneca CEO Pascal Soriot said on Thursday the company is likely to start a new global trial to measure how effective its coronavirus vaccine is, Bloomberg reports.

Why it matters: Following Phase 3 trials, Oxford and AstraZeneca said their vaccine was 90% effective in people who got a half dose followed by a full dose, and 62% effective in people who got two full doses.

Updated 18 hours ago - Politics & Policy

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Health: Coronavirus cases rose 10% in the week before Thanksgiving.
  2. Politics: Supreme Court backs religious groups on New York coronavirus restrictions.
  3. World: Expert says COVID vaccine likely won't be available in Africa until Q2 of 2021 — Europeans extend lockdowns.
  4. Economy: The winners and losers of the COVID holiday season.
  5. Education: National standardized tests delayed until 2022.

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