0% Interest Rates !

Zero interest rates are on their way. They could be days off in Japan, weeks off in the US and, maybe, months off in the UK. The decade beginning in the year 2000, and finishing in 2010, may be known as the noughties for more than one reason.

Yesterday, the Fed cut interest rates to 1 per cent. And its chairman, Ben Bernanke dropped a big hint they will be cut again. “Downside risks to growth remain,” said the official Fed statement, and then talked about “levels consistent with price stability.”

Rumours that the Central Bank of Japan is set to cut rates back to zero have been doing the rounds for a couple of days now. In fact, it is these rumours that have lain behind the surge in stock markets around the world over the last couple of days, with the Dow enjoying its second-highest daily rise ever, on Tuesday, and the FTSE 100 its third-best day ever, yesterday.

And what about the UK? Yesterday, Capital Economics said: “Extraordinary circumstances require extraordinary actions. With the current recession likely to be deeper than that in the early 1990s and the credit crunch impairing the effectiveness of monetary policy, we now expect UK interest rates to fall to an all-time low of just 1 per cent.”

Earlier this week, former MPC member and extremely illustrious economist, Charles Goodhart, told Channel 4: “Interest rates will go down from now, by how far and how fast nobody knows… They could go to zero. They went to zero in Japan in the 1990s when the Japanese had a recession or depression which went on for a long time and was quite severe.”