Yellen Confirms Fed Has "Legal Basis" To Pursue Negative Rates

Tyler Durden's picture

Back in February, just after Japan launched its own NIRP, a conundrum was unveiled when it was revealed that the Fed may not have the legal basis to pursue negative interest rates. Specifically, in a recently declassified Fed staff memo from August 2010 titled "Reducing the IOER Rate: An Analysis of Options", the Fed explicitly said that it may not have the legal authority to set negative interest rates in the U.S. To wit:

"There are several potentially substantial legal and practical constraints to implementing a negative IOER rate regime, some of which would be binding at any IOER rate below zero, even a rate just slightly below zero. Most notably, it is not at all clear that the Federal Reserve Act permits negative IOER rates, and more staff analysis would be needed to establish the Federal Reserve’s authority n this area."

This was followed by a question during Janet Yellen's February trip to Congress when Rep. Hensarling asked the following question:

"There are several potentially substantial legal and practical constraints to implementing a negative IOER rate regime, some of which would be binding at any IOER rate below zero, even a rate just slightly below zero. Most notably, it is not at all clear that the Federal Reserve Act permits negative IOER rates, and more staff analysis would be needed to establish the Federal Reserve’s authority n this area."

All of this was resolved moments ago, when in a follow up question whether the Fed has concluded if it has the legal authority to puruse negative interest rates, Yellen replied:

  • YELLEN: WE DO HAVE LEGAL BASIS TO PURSUE NEGATIVE RATES

It is unclear based on what Yellen has made this determination, although as we said in February:

No legal authority? No problem. Just call in Mario Draghi's lawyer, or any other legal representative of Goldman Sachs and/or its former employees, and whatever amendments need to be made to the Federal Reserve Act, will be made.

However, before said legality was deemed sufficient and necessary to launch NIRP, she clarified that the central bank has found “significant shortcomings” to prospect of negative rates and such policy is “not something that’s on our list” if additional accommodation is needed. “I want to emphasize it is not something we are considering” or “actively looking at,” Yellen said.

We leave it up to readers to interpret this statement as they wish, however it is worth also noting that in the same response she also said that the Fed can’t give a "precise timetable" for balance sheet normalization.

Considering last week's shocking Bullard "trial balloon" U-turn which confirmed at least one Fed president is now in the "one and done" camp, we are confident that far from normalizng its balance sheet, the Fed's next step will be a denormalization one.

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nibiru's picture

erm 'I told you so', I guess(?)

 

"It's ridiculous. She, by far can be the knight in white armor and rather would cut the rates down to NIRP just like Draghi and Kuroda - to bail out cronies than she is really interested in following logic. Anyways her increasing rates would push the economy into recession - it's just matter of time not 'if'.

http://independenttrader.org/was-the-last-euphoria-the-harbinger-of-rate-cut-and-qe-in-the-us.html"

Damn she is fugly... 

Looney's picture

 

Yellen would look more trustworthy with her head shaved bold and a stately goatee, just like Lloyd Blankfein’s.   ;-)

Looney

nibiru's picture

Man I would take that just to have a break from her combo of cranky voice and white helmet

Pinto Currency's picture

 

Yellen's 'legal basis' is the insanity defence.

espirit's picture

I'm game for NIRP.

Pay me enough of my monthly premium on a $10 million dollar loan, and I'm all in.

If not, burn it down.

jcaz's picture

"Just slightly below zero"= "Just let me stick the tip in".....

espirit's picture

...in Yellen?

You're a sick puppy.

Falling Down's picture

Where's banzai when we need him?

TahoeBilly2012's picture

Legal basis for paper money, legal basis for negative rates...yada yada

nibiru's picture

When it comes to screwing you (and me, and the rest of us) they have been very trustworthy. 

MANvsMACHINE's picture

I have the "legal basis" to punch myself in the face and kick myself in the balls.

doctor10's picture

"legal basis" -WTF?!!

How about that passage of the Federal Reserve Act in the absence of Congressional quorum midnight December 23rd 2013?

I woke up's picture

drip, drip, drip

setting the stage for what is to come

Aubiekong's picture

When has "legal" stopped any government action?

BarkingCat's picture

Which war after WWII was a legal one?

Just which one did congress actually declare war???

Maybe Korea....but I am not sure.

I know that the closest they came was Iraq as congress voted to give the president the authority for military action. However the spineless fucks still failed in their duty to issue a formal declaration of war.

 

It is unconstitutional for the US to have a standing Army but at a time of war. Yet I cannot think of a time in history without one.

 

Federal level drug laws have zero constitutional authority yet thousands of people have been put in jail using these laws.

Oh hell, the whole Federal Reserve Act is unconstitutional.  The power to create money is with congress. There is no clause in the constitution that allows them to delegate that responsibility. 

Pick a topic and you can very likely find an instance where legal means nothing to them.

 

Fiction Peddler's picture

"Federal level drug laws have zero constitutional authority yet millions of people have been put in jail using these laws."

Nearly 1.3 million in 2014 for possession alone.

 

 

101 years and counting's picture

i want NIRP.  keep piling my money in TLT and watch it continue to go up.  this is the best way to front run the fed, imo. 

Latitude25's picture

Great play until all of a sudden it's not.

khakuda's picture

Dumbest. Idea. Ever.

How the Fed can realize that too high rates in the double digits are damaging to growth, but not realize that too low rates are equally damaging is beyond me.  They should normalize because maintaining bubble asset prices should not take priority over the solvency of savers, pensions, insurance companies, the banking system, etc.

froze25's picture

They realize it, they just don't care. They made the choice of who gets to get hurt. People that depend on interest rates being reasonable, they are the ones that get hurt, you know the little people.

GunnerySgtHartman's picture

And they are getting desperate.  It's to the point of 'damn the torpedoes, let's throw all the sh*t at the wall and see what sticks.'

scintillator9's picture

As she said, six years ago:
|
http://www.reuters.com/article/usa-fed-yellen-idUSN2222725320100222
|
"Even though the recession appears to be over, it does not mean that we are where we want to be. Even with my moderate growth forecast, the economy will be operating well below its potential for several years," Yellen said.
|
"If it were positive to take interest rates into negative territory I would be voting for that," she told reporters after the speech.
|
And, even in 2015, she said as much:
|
http://www.reuters.com/article/usa-fed-yellen-rates-idUSN9N0X501620151104
|
"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.

Latitude25's picture

Norhing says sell gold like jawboning NIRP.  What a fucking fraud.

Tall Tom's picture

 

 

 

 

You know that the PPT is doing this "selling" as the bitch yammers on.

 

Ultimately they will be forced to illegalize Physical Gold Ownership along with Physical Cash..

 

Everybody needs to sell US Treasuries now and not ever buy them again..

Latitude25's picture

When gold is illegal only Asians will have gold.  Fucking brilliant.

Romanov's picture

 

We have got to do something to stop this criminal cartel called the Federal Reserve, IMF, World bank, etc. Why does the US Federal Government, which is authorized by the Constitution to create and issue interest-free money, instead borrows that money at interest from a privately owned central bank, thereby plunging future generations into debt slavery to that bank

The idea of a Privately owned central bank printing what THEY call money and loaning this ink and paper out with interest is patently absurd.

aliki's picture

Negative rates are a tax, plain & simple

How come nobody challenging menendez? He ripped trumps plan to default on a portion of the debt. How come nobody asks him what's the alternative? Continue living outside our means forever? Where do u wanna stop bob? $30 trillion? $50 trillion? $100 trillion?

Not 1 of these dicks has a plan to deal with the debt EXCEPT trump

aliki's picture

Negative rates are a tax, plain & simple

How come nobody challenging menendez? He ripped trumps plan to default on a portion of the debt. How come nobody asks him what's the alternative? Continue living outside our means forever? Where do u wanna stop bob? $30 trillion? $50 trillion? $100 trillion?

Not 1 of these dicks has a plan to deal with the debt EXCEPT trump

ironicmerman's picture

And what is Trump's plan?

jcaz's picture

Try doing a little research- it's pretty fucking obvious.....

aliki's picture

default

and before u say that's not a "plan", ask yourself this:

what's LESS of a mess --- defaulting on $20 trillion or defaulting on $100 trillion???

we're fucking broke, it's getting worse, and NOT ONE of these people today have asked the hard question =

"WHY THE FUCK ARE YOU ENABLING AN OUT OF CONTROL GOVERNMENT TO SPEND THE NEXT SEVERAL GENERATIONS INTO BANKRUPTCY BY FINANCING ENDLESS DEFICITS YEAR AFTER YEAR??? 7 YEARS AFTER THE CRISIS IS NOT TRANSITORY ... ITS POLICY"

JailBanksters's picture

It is their money, the private banking cabals monopoly money, it's not the Governments money,

it's not your money it's their money.

They probably legally can do anything they like with their money, that and they really can do whatever

they want because they are totally immune from ANY Legal Challenge on anything by anyone or Government.

They are one level above those rodham clintons.

 

U4 eee aaa's picture

Give to God what is God's and to Caesar what is Caesar's

I'm thinking it is time to give Caesar back to God

Scuba Steve's picture

zero squad of professional nobodys, each with 1 target, 1 night.

FreeShitter's picture

A 4 foot nothing synagogue of satan witch has you completely by the balls. Think about that, sheeple.

The Bell Rang's picture

Well, short of default, they have no other options. When the government collects money on bond sales, they can fund debt until the boomers are all dead. If that doesn't work, there will be a mysterous virus that kills only old people...............

 

PirateOfBaltimore's picture

Bullshit.  Negative rates are theft without due process.

wherewasi's picture

Or taxation without, ummmm....

Falling Down's picture

Like Hill...ar...y she talks real...slow, they...talk...slow...so...the ..Volk...might...un...der...stand...them.

 

Lamp posts, piano wire, and muriatic acid for all of them.

CHoward's picture

And just why does the Federal Reserve have a "legal basis" for negative interest rates?

 

Anyone?!?

 

JUST BECAUSE THESE ASSHOLES SAID SO - ZERO statutory or legal opinions needed. 

 

You think we're not fucking doomed?!?  YOU HAD BETTER REEVALUATE THAT THINKING!!

Seasmoke's picture

Gold drops $20 every time this fucking tribe member speaks. If they just sent the cunt out for 60 days straight, they would be able to get Gold down to ZERO. Fuck you Mr. Yellen.

conraddobler's picture

Look it's not like there isn't precedent throughout history for all this horeshit.

The golden rule has morphed into the fiat rule.

He who OWNS the biggest guns gets to print the money.   This is the true rule we live by.

It's going to end in one big steaming blackened orb that glows at night if we aren't careful.

Eventually I expect that play if we don't see it now half the time.

Mess with our monopoly on money and guns and we'll kill everyone and every thing except for those in hardened bunkers.

That's what their next play will be and who's going to argue with that?

gatorengineer's picture

Lets say hypothethitcally the fed dropped a quarter for reason X....

This would push the euro rates negative out to probably 30 years.....

Dont Douche Bank and many Italian and Spanish Banks go poof?

Doesnt she almost have to raise to save DB?

iAmerican's picture

Time to default.

Expropriate the Anti-Christ's American Beast Fifth Column of Gog and Babylon to do what's right for legitimate creditors.

Restore constitutional money.

Rebuild the gallows at Ft. McNair.

Hang traitors.

Claim America/Zion as Heaven on Earth.

Live happily ever after, praise God.

two hoots's picture

"So it is said, so it shall be done"???  What have we become?