Will The Fed Follow The BoJ Down The NIRP Rabbit Hole?

On Monday, in “JPM Looks At Draghi’s ‘Package,’ Finds It ‘Solid’ But Underwhelming,” we noted that according to Mislav Matejka, investors would do well to fade the ECB’s latest attempt to jumpstart inflation, growth, and of course asset prices with Draghi’s version of a Keynesian kitchen sink.

“Overall, we believe the latest package is far from a game changer,” Matejka opined.

What was especially interesting about that particular note was the following graph and set of tables which show just how “effective” NIRP has been for the five central banks that have tried it so far.

As you can see, once you go NIRP, it’s pretty much all downhill from there whether you’re talking inflation, the economy, or even equities.

Given that, and given that the entire idea is absurd on its face for a whole laundry list of reasons, one wonders why any central banker would chase down this rabbit hole only to find themselves the protagonist in the latest retelling of “Krugman in Wonderland”.

In any event, for those wondering whether the Fed will join the ECB, the BoJ, the Riksbank, the SNB, and the NationalBank in this increasingly insane monetary experiment, below, courtesy of Bloomberg, find a chronological history of Fed and analyst commentary on NIRP in America.

FED COMMENTARY

March 16: Yellen said during post-FOMC press conference Fed isn’t actively considering negative rates, studying effects in other nations
March 2: San Francisco President Williams said “we’re not doing negative interest rates”; Williams Feb. 25 said negative rates are “potentially in the toolbox” but may have “unintended consequences”
March 1: Former Fed Chairman Alan Greenspan said on Bloomberg Radio and TV negative interest rates, if pursued for an extended period of time, will eventually distort saving and investment
Feb. 26: Fed Governor Brainard said negative rates not relevant to current U.S. policy
Feb. 24: Dallas Fed President Kaplan said he sees negative repercussions to negative rates in U.S.; said central bankers never want to rule out any policy tool
Feb. 24: Fed Vice Chairman Fischer said after speech Fed has no plans at present to use negative rates
Feb. 23: Kansas City Fed President George said in Bloomberg Radio interview she doesn’t think negative rates is a question for the U.S.
Feb. 19: Cleveland Fed President Mester said after speech she wants to stay away from negative interest rates; said central banks have other tools besides negative rates
Feb. 18: Former Treasury Secretary Larry Summers said during Bloomberg TV interview loose policy and negative rates are stimulative
Feb. 17: St. Louis Fed President Bullard said during Q&A U.S. isn’t remotely close to need for negative rates
Feb. 16: Philadelphia Fed President Harker said during Q&A Fed needs to study legality of negative rates
Feb. 12: Dudley said during press briefing they’re not spending much time on negative rate discussion
Feb. 10-11: Chair Yellen said during testimony Fed should look at negative rates for prudent planning
- Said not aware of legal ban on negative rates
Feb. 9: Former St. Louis Fed President William Poole said in WSJ op-ed negative central bank rates won’t create growth any more than Fed’s near-zero rates
Feb. 9: Former Minneapolis Fed President Kocherlakota said on his website “going negative is daring, but appropriate monetary policy”
Feb. 1: Fed Vice Chair Stanley Fischer said negative rates are working “more than I expected”
Jan. 29: Former Fed Chairman Ben Bernanke said in interview with MarketWatch the central bank “will and probably should consider if the situation arises”; also said there’s limits to how negative rates could go
Jan. 15: NY Fed President Dudley said would consider negative rates if economy weakened
Jan. 12: Fischer said negative rates would be difficult to do quickly in U.S., citing risk money funds break the buck or shut down
Nov. 4: Yellen said during Q&A before House Committee on Financial Services no need now for negative rates, yet won’t rule it out
Oct. 8, 2015: Former Minneapolis Fed President Kocherlakota said Fed should consider ways to make monetary policy more accommodative, including negative interest rates
Sept. 16-17, 2015: FOMC’s policy assessment included one forecast of negative fed funds rate in 2015 and 2016 (Dec. 16, 2015 policy assessment included only positive forecasts)
Dec. 14, 2010: FOMC transcript (p. 97) shows Kocherlakota said eventual expansion of UST holdings to $2t would push fed funds down 250bps and combined with 25bp IOER, getting a “policy stance right now of negative 225 basis points”
Aug. 10, 2010: FOMC transcript (p. 106) shows Chicago Fed President Evans discussed conducting a “thought experiment” that allowed negative interest rates
- NOTE: Fed announced QE2 at Nov. 2-3 meeting
Aug. 5, 2010: Fed discussed negative IOER cuts in memo, said there were “several potentially substantial legal and practical constraints” to implementing a negative IOER rate regime; also said it wasn’t clear that Federal Reserve Act permitted negative IOER

STRATEGIST COMMENTARY

March 16: Negative Rates an ‘Alice in Wonderland’ Policy, Zandi Says
March 11: NIRP May Increase Risk of ‘Breaking the Buck’ in U.S. Funds: SG
Feb. 16: Markets Perceive Negative Rates as ‘Shockingly Flawed,’ WFS Says
Feb. 8: U.S. Neg Rates Would Have Money Funds Emulating Europe, JPM Says
Feb. 8: U.S. Needs ‘Recession-Like’ Conditions Before Negative Rates: JPM
Feb. 4: Fed May Consider Negative Rates After Exhausting Options: BofAML
Feb. 3: Negative Rates Path a ‘Prisoners’ Dilemma’ for Fed, Scotia Says
Jan. 28: Negative Rates May Displace QE as First Policy of Choice: Oxford Economics
Oct. 19, 2015: U.S. Money Mkts Would Complicate a Fed Negative Rates Plan: Citi
Feb. 13, 2015: Money Funds More Important Issue for Fed, Not Negative Rates: GS
Dec. 13, 2013: IOER Cut, Reverse Repo, Tapering Too Much ‘Fine Tuning’: Barclays
Dec. 11, 2013: Blinder Negative IOER May ‘Wreak Havoc,’ Barclays Says
Nov. 20, 2013: Fed May Not Cut IOER Without Full Operation of RRP, RBS Says
Sept. 4, 2012: IOER Cut ‘Non-Starter’ For Policy Makers: BofAML
July 23, 2012: Risk of Fed IOER Cut ‘Will Always Remain’: CS * July 10, 2012: Fed IOER Cut May Destroy U.S. Money Market Industry: DB
Sept. 14, 2011: 50% Chance Fed May Cut IOER Rate at Sept. FOMC Meeting: GS