On the heels of the Bank of Japan dropping a key interest rate to negative 0.1% late last month and indicating it is willing to go deeper into negative territory, Bloomberg reports that American analysts see an increasing likelihood that the Federal Reserve is willing to follow suit:

If the world's biggest economy weakens enough that traditional policy measures don't help, the Fed may consider pushing rates below zero, according to Bank of America Corp. and JPMorgan Chase & Co. That step would broaden the Fed's toolkit beyond what was available during the financial crisis, when it slashed its overnight benchmark near zero and bought bonds to stimulate the economy.”

With negative interest rates, banks literally charge customers to hold their money. Central planners believe negative rates can spur spending. If it costs money to keep cash in banks, the thought is people will just go ahead and spend their money, thus jump-starting the economy.

The European central bank went negative in the summer of 2014, and went on to cut its deposit rate to negative 0.2% in September of that same year. Some European countries have cut even deeper. For example, in Sweden, the benchmark interest rate sits at negative 0.35%. The Swiss and Danish central banks have cut all the way to negative 0.75%.

With Japan now on the negative rate bandwagon, resistance to such cuts in the US continue to evaporate. Janet Yellen told a congressional committee that she would consider negative rates last fall:

Potentially anything – including negative interest rates – would be on the table. But we would have to study carefully how they would work here in the US context.”

Negative interest rates are a tool of last resort. As the New York Times put it:

Moving to negative rates reflects a measure of desperation on the part of central banks. Their traditional tools have been largely exhausted, as most countries' interest rates have been pushed to almost nothing.”