There is a lot of concern that the Federal Reserve is running out of bullets in its response to the current Depression. It has already lowered the Fed Funds rates to zero, engaged in extraordinary quantitative easing, and opened up the Federal Reserve’s balance sheet in a way that makes the Federal government an active player in US debt markets.

Narayana Kocherlochota, the former Chair of the Minneapolis Fed, makes a compelling argument on Bloomberg.com today for the Federal Reserve and Chairman Jerome Powell to lower the Federal funds rate to negative territory through at least a 25 basis point cut. Kocherlochota argues that the benefits in terms of stimulating bank activity far outweighs the risks in light of the fact that the unemployment in the US continues to spiral out of control.

In a 2015 article on CNBC, Goldman Sachs’ Jan Hatzius recommended that bringing interest rates negative for any length of time must be viewed as a last resort because of the resulting impact on banks’ financials and the dislocation that such a move would cause in the US.

Of course, since the US has not experienced negative interest rates before, it is more of less entirely hypothesizing what the impact on savings and CD rates would be. Today, even with the Fed funds rate sitting at a target of zero to 0.25%, online savings rates are holding firm at or over 1.50%, with one-year online CD rates still higher. (You may be able to find higher local savings rates and local CD rates where you live by checking here or here.)

It would seem that a quarter point move in the Fed Funds rate, bringing it so decisively into negative territory, would cut out any yield in savings and virtually everything in CDs.

This action would put further pressure not just on banks, but on savers who will not be able to maintain purchasing power of safely invested assets against a continued rise in US CPI of around 1%. It would also put still further pressure on local and federal governments who depend on taxation of earned interest.

Am I wrong? Please let me know below what you think happens if the Federal Reserve takes rates negative.

The Federal Reserve made emergency cuts to the Fed Funds rate, taking the benchmark rate to a range of zero to 25 basis points as the COVID-19 crisis hit our shores last month.

While the Fed move will cause savings rates to fall over time, savings rates at many of the leading and most recognized online banks have remained somewhat competitive as these banks have shown some deference to their customers. (They have also in most cases, maintained competitiveness in their CD offerings too).

But, some other banks really took the knife to things. Emigrant Bank, for example, quickly and quietly moved their My Savings Direct account rate to 1%. The Emigrant move was particularly appalling as Emigrant had offered a market leading 2.40% in the Fall in an effort to attract new clients and as Emigrant Bank also raised its Dollar Savings Direct affiliate to 1.50% at the same time as it cut My Savings Direct to 1%. Unfortunately, Emigrant’s games were not surprising to those who are familiar with the bank’s rate practices over the last decade.

Other banks did similar things, and just as quietly, but nothing was quiet as egregious as Emigrant.

Now, banks have the right to set their own rates, and to decide whether they want to be competitive or not at a given point. But, the major online banks – CIT, Synchrony, Marcus, Amex, Ally, Barclays, Citizens Access, Capital One and Discover – have made multiyear commitments to the online banking space in the US, and are extremely unlikely to undermine their competitiveness and their relationship with their customers with quick and powerful rate moves down.

If anything, this period reminds us that sticking with a large recognized name brand is a tried and true strategy in the online banking space.

Here at BestCashCow, we’ve been inundated by people thanking us for the work that we are providing in organizing and displaying bank rates over the last several weeks. We are grateful that we can continue to provide everyone with the ability to find the best savings rates, CD rates, mortgage rates and home equity rates during this difficult and unprecedented times.

Yet, some folks still aren’t getting the message. Just two weeks ago, before the markets’ latest fall, BestCashCow was attacked on Twitter by someone operating the Market Rebellion twitter handle. (Market Rebellion is the latest branding effort of Jon Najarian and Pete Najarian). The criticism read “Whatever with BestCashCow. We hope your followers enjoy their 2% CDs!”.

So, let’s make this clear. First, the stock market goes in all sorts of difficult directions. In spite of what we have been conditioned to believe over the last 11 years, it goes down too, sometimes dramatically. Over the last month, it has lost a third of its value and if you are blinded to that reality by screamers on CNBC on up days, you need to outline your assets on an Excel Spreadsheet to see how much you have lost. And, even now, you need to consider how much more you can tolerate, because all doctors and medical professionals are saying that our Coronavirus problems have not peaked. In fact, it may be many months or years, before this crisis in under control.

Second, there is always somebody of the other side of your trade. And, in the case of the buying that you were doing in February, we now know that among the people who were selling to you were North Carolina Senator Richard Burr and Georgia Senator Kelly Loeffler. They had information that you didn't have and may still not have.

If these two realities don’t cause you to reconsider your allocation to savings and CDs, nothing will.