Should the Federal Reserve rule out negative interest rates so soon? No, says former Fed Chair Ben Bernanke.
Writing in a blog post on the Brookings Institution website, Bernanke argued that policymakers should consider implementing subzero rates. He stated that installing negative rates, something that has been done by the Bank of Japan (BOJ), the European Central Bank (ECB) and several other central banks, wouldn’t be as drastic as it may seem.
As a matter of fact, according to Bernanke, negative rates could “be extremely helpful.”
“It would be extremely helpful if central banks could count on other policymakers, particularly fiscal policymakers, to take on some of the burden of stabilizing the economy during the next recession,” Bernanke wrote on Tuesday.
“Since that can’t be assured, and since the current low-interest-rate environment may persist, there are good reasons for the Fed and other central bankers to consider changes in their policy frameworks. The option of raising the inflation target should be part of that discussion. But … it is premature to rule out alternative or potentially complementary approaches, including the possibility of using negative interest rates.”
But who says the Fed has ruled out subzero interest rates at all?
Late last year, Fed Chair Janet Yellen, Bernanke’s successor, told a congressional committee that the United States central bank would consider installing negative rates should the national economy collapse (SEE: Yikes! Janet Yellen would consider negative interest rates if economy collapses).
“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 U.S. context,” she said.
In February, Yellen once again told the House of Representatives that negative rates are not being taken off the table (SEE: Fed Chair Janet Yellen reiterates that negative interests aren’t ‘off the table’).
“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 would need (to increase) accommodation. We haven’t finished that evaluation. We need to consider the institutional context and whether they would work well here. It’s not automatic,” Yellen said. “We wouldn’t take those off the table, but we have work to do to judge whether they would be workable here.”
According to one Fed member, the central bank actually debated negative rates during a policy meeting in 2014.
In addition, Fed Vice Chair Stanley Fischer explained that subzero interest rates are working all over the world (SEE: Fed’s Stanley Fischer says negative interest rates ‘seem to work’).
Where is Bernanke getting the idea that the Fed is dismissing negative rates? Yellen and Co. seem very open to the concept.
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