Bernanke has considered negative interest rates

During questioning at the House Financial Services Committee today, Democrat representative Gregory Meeks asked Fed chairman Ben Bernanke if he had considered zero or negative interest rates.

Bernanke said that nominal negative interest rates as a policy was on the table and is an idea that is "discussed periodically" but that the stimulatory effects of such a change would likely be outweighed by a loss of proper market functioning. He did say that negative rates would lead to a move in the "right direction" for the US economy but that they are "not a powerful tool", so that move would be slight.

Allister Heath has written today on the danger that nominal negative interest rate policies would pose:

In theory, if the Bank of England were to cut its interest rate to below zero, and your bank were to start charging you to keep cash, you might choose to withdraw everything and keep the cash under your pillow. This would annihilate the banking system and cause an immediate depression.

(Full article)