Federal Reserve Chairman and new Donald Trump target, Janet Yellen, hinted at switching from zero-interest rate policy to negative rates if the economy were to “deteriorate in a significant way”.
NIRP has been recently introduced into the Fed’s vernacular when non-voting member Narayana Kocherlakota said in an interview that it was an arrow in the Fed’s quiver. But this is the first time it’s been uttered from Yellen’s mouth. The Yellen Put on the Stock-Market-that-Must-Never-Again-Crash continues unabated.
The real irony is that the odds of a December rate hike, as gleaned by traders, has risen to 58%. This is a trial balloon; we will see negative rates before we ever again see policy normalization. It’s happened in Japan and Europe already. The Franken-economy can in no way handle a hike of any kind without crushing the housing and stock markets. Politician$ and banker$ will never cleanse a system that benefits them so grandly.
NIRP is a signal that the economy is broken beyond repair. It is the natural progression of heavily indebted nations that cannot grow organically anymore. If you don’t believe me, check out what the New York Fed itself wrote three years ago:
“The take-away from this post is that if interest rates go negative, we may see an epochal outburst of socially unproductive—even if individually beneficial—financial innovation. Financial service providers are likely to find their products and services being used in volumes and ways not previously anticipated, and regulators may find that private sector responses to negative interest rates have spawned new risks that are not fully priced by market participants.”
Better hold some gold and physical currency if/when NIRP arrives.
So tell us again, Obama and Yellen, how the economy is doing just swell when a measly 25 basis point raise in the Fed Funds rate would kickstart the mother of all crashes…