This Chart Perfectly Exemplifies Why Fed Was Right to Avoid Negative Rates

Many central banks, notably the European Central Bank, still have a negative interest rate policy or NIRP.

Basically, this zero-bound monetary policy urges companies and consumers to put their money to work in the economy or the stock market.

But here’s a chart that shows the negative consequences of that policy for European financials versus their counterparts in the U.S., where the Federal Reserve refused to indulge in negative rates.

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by Charlie Bilello, Founder & CEO, Compound Advisors

For those arguing that interest rates should be held at 0% forever or cut even further into negative territory, the following data point may be instructive.

Since the ECB implemented negative rate policy more than seven years ago, European Financials ($EUFN) are down 2% versus a 138% gain for U.S. financials ($XLF).

The lesson? Just because a central bank can do something, doesn’t mean they should. There are unintended consequences to everything, including excessive easy money and negative rates.