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Federal Reserve Chairman Jerome Powell on Wednesday seemed to close the door on using negative interest rates as a policy tool, even as financial markets flirt with the idea.
“The committee’s view on negative rates really has not changed. This is not something we’re looking at,” Powell said during a moderated discussion sponsored by the Peterson Institute for International Economics.
Instead the Fed would use forward guidance and asset purchases, he said.
Powell noted that in October “all” 17 senior Fed officials who meet to discuss interest rates agreed negative rates was not currently an attractive monetary policy.
“That’s not a sentence you get to say very often,” Powell said, referring to the unanimity of the view.
Europe and Japan have already moved gingerly into negative-rate territory.
Powell said “the evidence on the effectiveness” of these experiments “is very mixed.”
“I know that there are fans of the policy, but for now it’s not something that we’re considering,” he said.
The Fed chairman said negative rates could interrupt the well-known process where banks take funds from depositors and lend them out to borrowers.
Supporters of negative rates, led by Harvard economic professor Kenneth Rogoff, argue negative rates could boost demand, raise employment and save firms from default.
Opinion:To save the economy, the Fed should drop interest rates to less than zero
In his speech, Powell was grim about the economic outlook, saying the path ahead “is both highly uncertain and subject to significant downside risks.”
Read: Powell says there is a growing sense recovery will come slowly
Analysts said Powell’s stance could disappoint markets.
Traders appear to still be pricing in expectations that policy makers will push rates below zero next year, based on trading in the fed futures contracts.
The yield on 10-year Treasury notes TMUBMUSD10Y, 0.649% fell after Powell’s remarks, falling 3 basis points to 0.658%.
