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Chart: The Downward Spiral in Interest Rates

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During the onset of an economic crisis, national governments are thought to have two chief policy tools at their disposal:

  1. Fiscal Policy
    How the central government collects money through taxation, and how it spends that money
  2. Monetary Policy
    How central banks choose to manage the supply of money and interest rates

Major fiscal policy changes can take time to be implemented — but since central banks can make moves unilaterally, monetary policy is often the first line of defense in settling markets.

As the ripple effect of the COVID-19 pandemic rages on, central banks have been quick to act in slashing interest rates. However, with rates already sitting at historic lows before the crisis, it is possible that banks may be forced to employ more unconventional and controversial techniques to try and calm the economy as time goes on.

The Fed: Firing at Will

The most meaningful rate cuts happened on March 3rd and March 15th after emergency meetings in the United States.

First, the Federal Open Market Committee (FOMC) cut the target rate from 1.5% to 1.0% — and then on Sunday (March 15th) the rate got chopped by an entire percentage point to rub up against the lower bound of zero.

Fed rate cuts historical

As you can see on the chart, this puts us back into familiar territory: a policy environment analogous to that seen during the recovery from the financial crisis.

ZIRP or NIRP?

It’s been awhile, but with interest rates again bumping up against the lower bound, you’ll begin to see discussions pop up again about the effectiveness of zero interest rate policy (ZIRP) and even negative interest rate policy (NIRP).

Although the latter has been used by some European banks in recent years, NIRP has never been experimented with in the United States or Canada.

Here’s a quick primer on both:

NIRP and ZIRP

With rates sitting at zero, it’s not impossible for the Fed and other central banks to begin toying more seriously with the idea of negative rates. Such a move would be bold, but also seen as highly experimental and risky with unforeseen consequences.

Global Rate Slashing

Since only the beginning of March, the world’s central banks have cut interest rates on 37 separate occasions.

The only exception to this rule was the National Bank of Kazakhstan, which raised its key rate by 2.75% to support its currency in light of current oil prices. Even so, the Kazakhstani tenge has lost roughly 15% of its value against the U.S. dollar since February.

Here’s a look at cumulative interest rate cuts by some of the world’s most important central banks, from January 1, 2020 until today:

Central Bank Moves YTD

Going into the year, rates in developed economies were already between 0% and 2%.

Despite not having much room to work with, banks have slashed rates where they can — and now out of major developed economies, Canada has the “highest” interest rate at just 0.75%.

Helicopters on the Horizon

With central banks running out of ammo for the use of traditional measures, the conversation is quickly shifting to unconventional measures such as “helicopter money” and NIRP.

Life is already surreal as societal measures to defend against the spread of COVID-19 unfold; pretty soon, monetary measures taken around the globe may seem just as bizarre.

Put another way, unless something changes fast and miraculously, we could be moving into an unprecedented monetary environment where up is down, and down is up. At that point, it’s anybody’s guess as to how things will shake out going forward.

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Maps

Mapped: The 10 U.S. States With the Lowest Real GDP Growth

In this graphic, we show where real GDP lagged the most across America in 2023 as high interest rates weighed on state economies.

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The Top 10 U.S. States, by Lowest Real GDP Growth

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

While the U.S. economy defied expectations in 2023, posting 2.5% in real GDP growth, several states lagged behind.

Last year, oil-producing states led the pack in terms of real GDP growth across America, while the lowest growth was seen in states that were more sensitive to the impact of high interest rates, particularly due to slowdowns in the manufacturing and finance sectors.

This graphic shows the 10 states with the least robust real GDP growth in 2023, based on data from the Bureau of Economic Analysis.

Weakest State Economies in 2023

Below, we show the states with the slowest economic activity in inflation-adjusted terms, using chained 2017 dollars:

RankStateReal GDP Growth 2023 YoYReal GDP 2023
1Delaware-1.2%$74B
2Wisconsin+0.2%$337B
3New York+0.7%$1.8T
4Missississippi+0.7%$115B
5Georgia+0.8%$661B
6Minnesota+1.2%$384B
7New Hampshire+1.2%$91B
8Ohio+1.2%$698B
9Iowa+1.3%$200B
10Illinois+1.3%$876B
U.S.+2.5%$22.4T

Delaware witnessed the slowest growth in the country, with real GDP growth of -1.2% over the year as a sluggish finance and insurance sector dampened the state’s economy.

Like Delaware, the Midwestern state of Wisconsin also experienced declines across the finance and insurance sector, in addition to steep drops in the agriculture and manufacturing industries.

America’s third-biggest economy, New York, grew just 0.7% in 2023, falling far below the U.S. average. High interest rates took a toll on key sectors, with notable slowdowns in the construction and manufacturing sectors. In addition, falling home prices and a weaker job market contributed to slower economic growth.

Meanwhile, Georgia experienced the fifth-lowest real GDP growth rate. In March 2024, Rivian paused plans to build a $5 billion EV factory in Georgia, which was set to be one of the biggest economic development initiatives in the state in history.

These delays are likely to exacerbate setbacks for the state, however, both Kia and Hyundai have made significant investments in the EV industry, which could help boost Georgia’s manufacturing sector looking ahead.

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