Fed Will Trap U.S. Economy in Recession With 0% Interest Rates

W. E. Messamore, CCN•March 9, 2020

If the Fed cuts rates to zero like markets believe it will, that will put the U.S. in the same boat as the rest of the world.

Markets are pricing in near-100% odds the Federal Reserve will drive interest rate targets down to zero percent next week.

If that happens, the Fed will trap itself between a recession and runaway inflation should prices skyrocket while GDP falls.

That is a horrific situation for the economy to be in: stagflation. It happened in the U.S. before, and it could easily happen again.

Earlier today, the market’s confidence that the Federal Reserve will slash its benchmark interest rate target to zero by next week temporarily soared to nearly 95%.

But if the Fed cuts interest rates all the way to zero, there’s a real danger of inflation making the financial crisis worse

The market briefly priced in a 93% probability of a massive interest rate cut that would take the Fed’s target down to zero. | Source: CME

Because the economy could slip into recession despite monetary intervention with record-low interest rates.