The former Chairman of central bank Ben Bernanke has said that the Federal Reserve must take into consideration the negative rates of interest as a weapon to potentially fight the economic downturns which happen in the future.
In Bernanke’s blog post over the weekend, he cited how keeping the option in mind may have a few benefits. He said that by doing so, he is going to give Fed the flexibility during a time when the toolkit of policy is extremely limited.
Bernanke has also said that Fed must also consider the maintenance of constructive ambiguity regarding the future usage of the negative rates when it comes to the short-term. The option as per him is going to give useful space in terms of policy in particular with the lowest rates in history being in place already.
The comments come in the wake of the Fed officials weighing in on how they are going to respond to the next crisis while they evaluate the tools which they had used in the last one. Bernanke has helped in the pioneering of the usage of interest rates near zero in addition to the quantitative easing and the purchasing of assets aggressively which had pushed the balance sheet of the Fed above the levels of $4.5 trillion as it was vying to take the economy out from the Great Recession.
He also cited the other countries where negative rates had been used to good effect. In Europe, the rates all across the spectrum had gone below the zero level earlier this year with close to $11 trillion of debt as of now too possessing the negative yields.
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