If coronavirus causes Fed to reduce interest rates to near zero, US 10-year treasury rate could follow close behind
Such a scenario means there would be little room for fed to lower rates through large purchases of long-term treasury securities
Such a situation would raise new challenge for federal reserve policymakers
Such an approach should require an explicit guarantee with US treasury to indemnify the fed against losses
In that case the fed should be allowed to purchase a broader range of securities or assets
Alternatively, the Fed could consider a facility to buy a broader set of assets
Remains sceptical about using negative interest rates in the US.
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