The Fed Can't Let Bond Yields Fall to Zero
Ultra-low rates on benchmark government debt would have negative consequences for the global financial system.
Jerome Powell, chairman of the U.S. Federal Reserve, confronts a new crisis.
Photographer: Bloomberg
The Federal Reserve has a lot to worry about these days. And while it's not often mentioned, at the top of the list should be preventing rates on longer term U.S. Treasuries, the world’s risk-free benchmark securities, from falling to zero.
Treasuries play a critical role in providing ample liquidity to the global financial system because they are a manifestation of the dollar’s reserve currency status. As such, they are the most important store of value and a critical hedging instrument for global market participants. The Treasury market is also the primary vehicle through which the Fed transmits monetary policy.