JANET YELLEN: I won’t completely rule out negative interest rates
Federal Reserve Chair Janet Yellen will not rule out the Fed using negative interest rates.
In response to a question submitted by Rep. Brad Sherman (R-CA) as to what the Fed plans to do in the event of another economic downturn, Yellen said negative rates are not completely off the table.
“Negative interest rates are a tool employed by countries in Europe and elsewhere,” Yellen said.
“By some accounts, these policies appear to have provided additional policy accommodation. As I have noted previously, we certainly are trying to learn as much as we can from the experience of other countries. That said, while I would not completely rule out the use of negative interest rates in some future very adverse scenario, policymakers would need to consider a wide range of issues before employing this tool in the United States, including the potential for unintended consequences.”
Now, this is not really news.
Yellen said back in February (Sherman’s question answered Thursday was submitted as a follow-up to that testimony) that it was unclear whether the Fed possessed the legal authority to make rates negative. Based on Yellen’s response issued Thursday it appears the legal issue remains murky.
In response to another question about negative rates her March post-FOMC press conference,Yellen said the Fed is not actively considering negative rates.
It would, in my view, be crazier if Yellen explicitly ruled out any tool the Fed could use to combat a future economic downturn because then markets would know what can and cannot happen, hampering potential economic progress that could be achieved by taking an unconventional policy measure.
As former Fed Chair Ben Bernanke once famously said, “The problem with QE is that it works in practice, but it doesn’t work in theory.”
which most likely means they will at some stage go underwater..
“policymakers would need to consider a wide range of issues before employing this tool in the United States, including the potential for unintended consequences.”
when it comes they wont be considering anything because it will be pure panic..
“As former Fed Chair Ben Bernanke once famously said, “The problem with QE is that it works in practice, but it doesn’t work in theory.”
the grand logic of the banker class..