“If there were to be a negative shock to the economy…we don’t have a lot of room using our traditional tried and true methods to respond.”
These were words of Federal Reserve Chair Janet Yellen, who delivered her semi-annual testimony on the United States economy to Congress on Tuesday.
Yellen essentially conceded to the fact that the U.S. central bank has no other options should a recession transpire in the next couple of years. The Fed only has three options:
- Cut interest rates to zero or in negative territory (SEE: Yikes! Janet Yellen would consider negative interest rates if economy collapses).
- Introduce a fourth round of quantitative easing, or QE (SEE: Peter Schiff still sees gold soaring to $5,000, Fed launching QE4).
- Embrace helicopter money (SEE: Central banks will try latest monetary policy tool: Helicopter Money).
Although once price inflation starts ramping up, the central bank will have no other choice but to raise interest rates similar to the early-1980s under Paul Volcker.
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Bye bye cruel world, welcome currency reset!