Central bank

The central banks of five countries now have negative interest rates. This counter intuitive concept is used when central banks want banks to invest. Normally a bank will hold excess reserves in the central bank and collect interest but in these five countries banks have to pay central banks to hold their money. This is to encourage them to make loans with the money and hopefully stimulate the economy. In the US the Fed rate is 2.25% and the inflation rate is under 2%. If the inflation rate falls into negative territory then people hold off spending feeling that prices will fall and this can lead to a recession. Thus the Fed sets 2% as its target for inflation.