Just after the market began digesting the increasing odds of a December rate hike, Yellen made comments to the contrary. If the economy sours, she wants investors to know that the FED would consider negative interest rates to keep the markets afloat.
“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,” Yellen told a House of Representatives committee.
This would happen if the economy were to “deteriorate in a significant way,” she said, adding that she believed negative rates “would have some at least modest favorable effect on banks’ incentives to lend.”
ZeroHedge pointed out how the U.S. may follow Japan in raising rates 250 basis points, only having to reverse course within months:
… just as it was aborted in Japan in August of 2000 when the BOJ also decided to send a signal how much stronger the economy is by hiking 25 bps, only to cut 7 months later and to proceed to monetize not only all net Japanese debt issuance a decade later, but to hold half of all equity ETFs.
The FED clarified by saying they don’t see the need for negative rates now, but it is curious that Yellen should bring up this potential at all. It is almost as if she wanted to reassure markets ahead of some potential turbulence. I pointed out to GSB premium members yesterday that the major stock indices are looking overbought and could be due for another major pullback in the near term.
Gold and silver are also trading near key support and the price action over the next few trading sessions should determine the trajectory for the remainder of the year. One would think that the FED mentioning the possibility of negative rates might send precious metals higher, but both gold and silver are down today and very close to triggering technical stop loss selling.
Of course, the proper course of action would be for the FED to get out of the way and allow the markets to determine rates. Instead we have central planning, despite rich history showing the follies of such hubris. They can keep up the charade a while longer I assume, but there will eventually be a reckoning and I would not want to be caught with a large percentage of my wealth in paper assets, in the bank or long the stock market when it happens.