Citigroup Treasurer Michael Verdeschi said on Friday that he doesn't think the U.S. Federal Reserve is ready to “seriously consider” negative rates as an option to further help the economy bounce back from the fallout it is experiencing due to the ongoing global pandemic.
Verdeschi said at the virtual BancAnalysts Association of Boston Conference that he believes the Fed has “a lot” of other options it can consider to manage the crisis, such as increasing the volume of quantitative easing or moving the securities purchases “further out on the curb” or going into other asset classes before deciding to take rates negative.
“I don't think the Fed is quite ready to seriously consider negative rates quite yet,” he said. “I think they certainly do urge fiscal stimulus and I think we will get some sort of fiscal stimulus, and maybe that even steepens out the curve, so I think the Fed will like to see how that all plays out before seriously considering negative rates.”
“I think there’s still things in their toolbox that they would use before considering negative rates seriously,” he added.
In addition, as the Fed continues to increase liquidity in the system by purchasing more securities and with fiscal stimulus contributing to the liquidity levels, Verdeschi said he sees the deposits in the system and the bank’s own deposit levels remaining “elevated.”
“Our view on these deposits will evolve, as we see economic activity and market conditions evolve, which ultimately will lead the Fed to unwinding quantitative easing, but I would expect this to be probably gradual and transparent, no different than how they unwound their last QE operations some years ago,” he said.
His comments come as banks in the U.S. have been seeing a robust deposit growth in their balance sheets since the beginning of the year, while the Fed has been purchasing securities worth around $120 billion each month.
Citibank saw its deposits grow over $160 billion year over year since the beginning of March, he said. It raised around $30 billion in consumer deposit, with another $10 billion in high net worth clients from the private bank. As for the remaining growth, roughly 60% came from corporates, while 40% came from financial institutions. In general, 90% of the growth was driven by the “deepening” of its existing client relationships, he said.
All in all, with the combination of some fiscal stimulus, which he expects to come out post-election, and the Fed “remaining accommodative,” he expects there will be continued improvements to the economic conditions.
“Of course, the trajectory of the virus is going to be perhaps the most meaningful part, but I do think there's sufficient stimulus that will give the broader economy some confidence,” he said. “I think you're seeing now signs of a very resilient U.S. economy.”