Yellen Doesn’t Rule Out Negative Rates in Letter to Congressman

[Purveyor]

Federal Reserve Chair Janet Yellen didn’t rule out using negative rates in a future crisis but emphasized that they would be adopted as a last resort.

In written responses Thursday to questions from Representative Brad Sherman, Yellen said that “while I would not completely rule out the use of negative interest rates in some future very adverse scenario, policy makers would need to consider a wide range of issues before employing this tool in the United States, including the potential for unintended consequences.”

Sherman submitted his queries following the Fed chief’s Feb. 10 hearing before the House Financial Services Committee, of which he is a Democratic member. It comes at a time when the Fed is debating whether to raise interest rates, even as global economies including the euro area and Japan employ negative-rate policies to stoke economic growth and inflation.

“By some accounts, these policies appear to have provided additional policy accommodation,” Yellen wrote. “We certainly are trying to learn as much as we can from the experience of other countries.”

Sherman had asked what the Federal Open Market Committee planned to do in the event of another economic downturn, and whether it has the legal authority to implement negative interest rates. While Yellen didn’t directly address the legality question, Sherman said in a phone interview that he took the response as an “implicit statement that they have legal authority.”

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http://www.bloomberg.com/news/articles/2016-05-12/yellen-doesn-t-rule-out-negative-rates-in-letter-to-congressman

[bemildred]

1. Bank run.

You want to know why the banks want a cashless society? Because they want to charge you to deposit money in them. Because they are lousy investors and can't make money on your money honestly.

[Wellstone ruled]

2. For many people,they are paying a deposit fee,

it is wrapped into various activities fees. Or if you use a ATM that is out of their system,you will get a ding.

[AdHocSolver]

3. The Fed's policies are based squarely on the premise of "trickle down" economics.

If the Fed was interested in using low interest rates to spur buying, they would reduce the interest on loans to consumers, such as credit card balances and education loans.

Low interest rates on such loans would put more spendable funds into the hands of consumers and spur economic activity such as purchases of consumer goods.

Similarly, paying only 0.1 percent on savings deposits, while collecting 14 percent or more on credit card balances takes money out of the hands of the middle class who might otherwise use that to buy goods and services thereby boosting the economy, and instead, funnels that money into the coffers of the banks.

The Fed policies do exactly the opposite of stimulating the economy while stripping the middle class of its savings.