Negative Interest Rates Increasing

On the Trey Ware Show this morning, Karl discussed the power of the Federal Reserve.  Despite tension with Iran and what appears to be a stalemate regarding a trade deal with China, markets continue to push higher because of an accomodative Fed.

Trey Ware:                         Eight minutes away from Ware & Rima on KTSA as we kick off another week, but first to Karl Eggerss who is a senior wealth advisor and partner at Covenant joining me every Monday at this time to talk about what to expect with the markets and your money for the week. What can we expect this week, Karl?

Karl Eggerss:                      Well, it’s about the G20 minute with Xi and President Trump trying to resolve these trade disputes. It’s just amazing to me, Trey, because we’ve seen obviously all the conflict with Iran. We’ve seen a trade deal with the two biggest countries in the world economically, and yet we see the power of the Federal Reserve. Last week, they said, hey, we’re basically going to cut next month. They essentially said that, and the markets are sitting at all-time highs practically, so regardless of what’s going on, the Federal Reserve and what they do with interest rates really is, in the short term … People benefit the most from that in terms of the Federal Reserve cutting rates or not raising them, and that’s really what’s been going on the last couple of weeks.

Karl Eggerss:                      But this week obviously the focus is on that G20.

Trey Ware:                         When you look at what’s happening with the economy as well, the underpinnings of the economy, we’ve got another report on unemployment, and here in Texas, man, things are going extremely well for Texans and right here in San Antonio as well.

Karl Eggerss:                      Yeah, and see, that’s what’s interesting because when you have an economy that is doing well, and you have unemployment that is doing extremely well, then generally speaking, the Federal Reserve is saying, look, we don’t want that to get out of hand in terms of inflation, because if too many people have jobs and things are too good, prices go up too fast, and that’s what we’re trying to prevent. In this case, the President is saying “We need lower rates,” the Fed is saying, “You know what? We’re kind of worried about a trade war that’s escalating, so we’re going to cut rates next month.” It’s kind of counterintuitive, and so it may be premature for them to do that, but we have seen some things slowing around the globe.

Karl Eggerss:                      And, look, we have over $13 trillion of bonds around the world that are negative, that have negative interest rates literally. There’s countries where if you buy a 30 year bond for them, you lend your money for 30 years, you pay them interest. So those types of things are a little scary longer term, and that doesn’t seem sustainable, and so for the Federal Reserve to be cutting rates in an economy that’s supposed to be good, and unemployment this low, it’s something we need to watch out for because how low can they cut?

Trey Ware:                         Sounds good. Karl Eggerss who is Senior Wealth Adviser over at Covenant. Thank you, Karl. He’ll be back next Monday at this same time with more on this.

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