Buffett Pondering Negative Interest Rates

(Business Insider) Warren Buffett says 'the most important question in the world' is what negative interest rates would do to markets.

The Federal Reserve slashed interest rates to between 0% and 0.25% last week in response to the coronavirus outbreak, raising the prospect of negative rates in the US for the first time in history.

Warren Buffett can't say what that would mean for financial markets, but he recognizes it's a big deal.

It's "unbelievable," the billionaire investor and Berkshire Hathaway CEO told Yahoo Finance last week.

Central banks often stimulate their economies by reducing interest rates to cut the cost of borrowing and encourage spending and investing rather than saving.

Japan and some European countries have gone further, slashing rates below zero. Negative rates mean lenders must pay their central bank to hold their reserves. Some banks pass those costs on to consumers, demanding storage fees to take their money.

If negative rates were rolled out in the US, the implications for financial markets would be unclear, even to Buffett.

"I would say that's the most important question in the world," Buffett told Yahoo Finance. "And I don't know the answer.

"Now, if we knew the answer, it wouldn't be the most important question," he added.

Regardless of what negative rates would mean, Buffett said he wasn't worried.

"They puzzle me," he said. "But they don't scare me."

Buffett also expressed astonishment at plunging yields on government bonds — the entire Treasury yield curve fell below 1% for the first time ever last week — describing it as "really crazy."

'I can't do any of those things'

Buffett cheerfully admitted he had no idea what the future holds for interest rates. However, the so-called Oracle of Omaha said that was irrelevant.

"It's the same way as predicting what business is going to do, what the stock market's going to do," he said.

"I can't do any of those things. But that doesn't mean I can't do well investing over time."


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