CNBC: Ben Bernanke Says the Fed Shouldn't Rule Out Using Negative Interest Rates

Article by Jeff Cox in CNBC financial

The Federal Reserve should consider negative interest rates as a potential weapon to fight future economic downturns, former central bank Chairman Ben Bernanke said.

In a blog post released over the weekend, Bernanke cited the benefits of at least keeping the option alive to take short-term rates below zero. Doing so, he said, would give the Fed flexibility at a time when its policy toolkit is limited.

“The Fed should also consider maintaining constructive ambiguity about the future use of negative short-term rates,” Bernanke said in a post released in conjunction with a presentation at the American Economic Association conference in San Diego. The option “would provide useful policy space” particularly with historically low rates already in place.

Negative rates, he said, have been used to positive effect elsewhere in the world. In Europe, rates across the spectrum went below zero earlier this year, with about $11 trillion of sovereign debt still possessing negative yields. At one point, the entire German government yield curve was negative.

‘Unwise’ to ‘categorically’ rule out

Bernanke is not the only central bank authority to talk about negative rates.

Former Chairman Alan Greenspan told CNBC in September that it’s “only a matter of time” before below-zero yields come to the U.S.

When she was chair, Janet Yellen said in a letter that she would “would not completely rule out the use” of negative rates. Current Chairman Jerome Powell has said he does not expect the Fed to go that route.

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