Just as we detailed last week, and it appears Rep. Hensarling has been reading... 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."
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.
Because, when pressed on The Fed's legal authority to take interest rates negative, Janet Yellen gushed that "Fed authority for negative rates is still a question." This appears to have been taken as bad news by the market (cutting off the potential easing paths of the future in a world of NIRP), and stocks, crude, USDJPY have all tumbled.
Furthermore, she sounded a little hawkish:
- *YELLEN: I DON'T EXPECT THE FOMC WILL FACE RATE-CUT OPTION SOON
- YELLEN: I DON'T THINK IT WILL BE NECESSARY TO CUT RATES
The reaction - more disappointment... as USDJPY crashes...
It is clear that her NIRP confusion has carry traders concerned as USDJPy plunges. As BofA details,
We previously recommended selling USD/JPY above 120.88 given the "Kuroda" oversold bounce. The move has quickly occurred and for this week we can estimate closing support of the 100wk average and cloud of 114.71-114.98. This area has been broken intraweek.
Holding it by the end of week would be an indication of a possible bounce next week. Breaking it and the trend may accelerate to levels shown on the next page of 114.35, 113.03 and 111.90.
Bear in mind that one week before The Bank of Japan unleashed NIRP, they also denied it would do so:
And then did it...