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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

N.Y. Times faces culture clashes as business booms

Illustration: Sarah Grillo/Axios

New York Times columnist David Brooks' resignation from a paid gig at a think tank on Saturday is the latest in a flurry of scandals that America's biggest and most successful newspaper company has endured in the past year.

Driving the news: Brooks resigned from the Aspen Institute following a BuzzFeed News investigation that uncovered conflicts of interest between his reporting and money he accepted from corporate donors for a project called "Weave" that he worked on at the nonprofit.

America rebalances its post-Trump news diet

Illustration: Annelise Capossela/Axios

Nearly halfway through President Biden's first 100 days, data shows that Americans are learning to wean themselves off of news — and especially politics.

Why it matters: The departure of former President Trump's once-ubiquitous presence in the news cycle has reoriented the country's attention.

2021 sees a record number of bills targeting trans youth

Illustration: Annelise Capossela/Axios

Republicans in at least 25 states have introduced over 60 bills targeting transgender children — a legislative boom since January that has beaten 2020's total number of anti-trans bills.

Why it matters: LGBTQ advocates say the unprecedented push was catalyzed by backlash to Biden's election and the Supreme Court ruling that workers cannot be fired for being gay or transgender.

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