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.
I’m turning Japanese, I think I’m turning Japanese, I really think so!
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.
