Negative rates have not worked for the ECB, Sweden, Japan, or Switzerland. Nonetheless, Fed Chair Janet Yellen is back on that idea today in Congressional testimony. Specifically, Yellen Says Fed Evaluating Possibility of Negative Rates in US.

“We had previously considered them and decided that they would not work well to foster accommodation back in 2010,” Yellen said Thursday, answering questions during a second day of testimony before Congress. “In light of the experience of European countries and others that have gone to negative rates, we're taking a look at them again because we would want to be prepared in the event that we needed to add accommodation.”

A 2010 Fed staff memo posted on the central bank's website late last month showed Fed economists grappled with a number of issues related to implementation of negative rates at the time, including possible legal obstacles. Yellen said Thursday that negative rates might be legal, but the question remained open to further examination.

“I am not aware of any legal restriction that would mean that we could not establish negative rates, but I will say that we have not looked carefully at the legal side of this,” Yellen said Thursday.

“We haven't finished that evaluation,” Yellen said. “We need to consider the U.S. institutional context and whether they would work well here. It's not automatic. There are a number of things to consider. So I wouldn't take those off the table, but we would have work to do to judge whether they would be workable here.”

Negative Interest Rate Club

Low Rates and Asset Bubbles

Low interest rates foster economic bubbles. Those bubbles always do two things.