Legal Considerations In A Negative Interest Rate Environment

Introduction

On March 15, 2020, citing the disruption in economic activity as a result of the COVID-19 outbreak, the Federal Open Market Committee (FOMC) lowered the target federal funds rate (the target rate set by the FOMC to implement monetary policy) to 0 to 0.25 percent, its lowest rate since December 2015. And in a flight to quality, on March 25, 2020, the yields (though not the coupons) on one-month and three-month US Treasury bills fell below zero for the first time since 2015.

While those yields suggested the possibility of negative rates, the FOMC has never imposed them, and Jerome Powell, Chairman of the Federal Reserve, said recently that negative borrowing costs are not likely to be appropriate policy for the US. Such rates, however, are not uncommon in Europe and Asia. In mid-2014, for example, the European Central Bank (ECB) cut its deposit facility rate (DFR) to -0.10, becoming the first major central bank to implement negative interest rates as