Ultra-Low Rates, Still High Savings
November 2016
By William Sokol, Product Manager, VanEck
By driving down the costs of financing,ultra-low interest rates have been supposed to deter savings and encourageborrowing, therefore stimulating the economy through increased consumption andinvestment.
It would appear, though, that in anumber of countries with negative interest rate policies (NIRPs), for example,Denmark, Sweden, and Switzerland, exactly the opposite has happened.1)
As far back as April 2015, the Bank forInternational Settlements noted that, in such environments, “Ultra-low or negative interest rates willadd to their [households’] worries bymaking it more difficult for them to build up enough retirement savings. Thus householdsare more likely to increase their savings rate then reduce it.” 2)
Even in the U.S. over the past severalyears there has been no evident trend of a decreasing saving rate. The questionis, now: What can central banks do instead?
U.S. Personal Saving Rate3)
vs.
Effective Federal Fund Rate4)
Source: Federal Reserve Bank of St. Louis
About the Author:
William Sokol joinedVanEck in 2016 as a product manager for VanEck Vectors ETFs, focusing on thefirm’s international fixed income products. Prior to joining VanEck, Mr. Sokol heldvarious product development roles at Prudential Financial, and was aderivatives structurer at BNP Paribas. Mr. Sokol holds a B.S. in Finance fromNew York University and is a CFA and CAIA charterholder.
The articleabove is an opinion of the author and does not necessarily reflect the opinionof MV Index Solutions or its affiliates.
Footnotes:
1) Zero Hedge: Is The Fed “Seriously Considering” NegativeInterest Rates?
2) Bank for International Settlements: Ultra-low ornegative interest rates: what they mean for financial stability and growth
3) Personal Saving Rate, Percent, Monthly, SeasonallyAdjusted Annual Rate
4) EffectiveFederal Funds Rate, Percent, Monthly, Not Seasonally Adjusted
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