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Sunday, October 23, 2016

Mortgage Rates Just Hit a 4-Month High

Reuters

OCTOBER 20, 2016, 11:52 AM EDT

It’s returning to pre-Brexit levels.

Interest rates on U.S. 30-year mortgages rose to their highest levels in four months in line with rising Treasury yields on a bond market sell-off spurred by speculation about reduced stimulus from global central banks, mortgage finance agencyFreddie Mac said on Thursday.

The average 30-year mortgage rate was 3.52% in the week ended Oct. 20, Freddie Mac said in its latest mortgage rate survey. This was the highest level since the 3.56% recorded in the week of June 23.

“This is the first week in over four months that rates have risen above 3.50%. This month, mortgage rates seem to be catching up to Treasury yields and returning to pre-Brexit levels,” Sean Becketti, Freddie Mac’s chief economist, said in a statement.

Benchmark 10-year Treasury yields were at 1.74% early on Thursday, down more than 1 basis point (a tenth of a percentage point) on the day. On Monday, it reached 1.81%, which was its highest since June 2, Reuters data showed.

Sunday, October 16, 2016

Fed may have to hike interest rates faster, Rosengren says

Boston Fed president sees unemployment rate dropping to 4.5% next year

Federal Reserve Bank of Boston President Eric Rosengren

The Federal Reserve may have to be more aggressive in raising interest rates than the measured pace it currently projects, Boston Fed President Eric Rosengren said on Friday.
The Fed’s latest economic forecast sees interest rates a little above 1% by the end of next year and just under 2% in 2018.
“My own view is that if the unemployment rate falls as much as I’m expecting, then it is possible that we’ll have to raise rates faster than the summary of economic projections,” Rosengren said in an interview with CNBC.
The Boston Fed president was one of three dissenters at the September Fed meeting, wanting the central bank to lift interest rates by a quarter percentage point.

Rosengren said he thinks the unemployment rate will drop to around 4.5% by next year. He said he was concerned this was unsustainable, and may force the Fed to hike rates much more quickly than he hoped would be needed.
The Boston Fed president said some new research has cast doubt on whether disaffected workers will continue to return to the labor force and keep the unemployment rate from falling.
Traders have priced in a small chance that the Fed will move at its next meeting on Nov. 1-2 given that it is six days from the presidential election. At the same time, investors have priced in a greater than 60% chance of a rate hike at the Fed’s December meeting, when Fed Chairwoman Janet Yellen is scheduled to hold a press conference.
“To me that seems quite appropriate,” Rosengren said Friday. “We have tended to move around the time the Fed chair has a press conference,” he added.
Read: Fed hold rates steady for the time being
Rosengren noted in the interview that his outlook for the pace of interest rate hikes is also faster than the market has priced in.
He said he was concerned that the 10-year Treasury rate TMUBMUSD10Y, -0.39% and the commercial real estate capitalization rate are at historic lows. The 10-year rate “is roughly at where we think inflation is right now. It is quite a low rate,” he said.
This low rate suggests investors have no confidence in the Fed’s ability to offset weak growth, the Boston Fed president said.
“So the fact that long rates are so low, and that there are some sectors of the economy that we’re starting to see very rapid asset growth—like commercial real estate, is a source of concern as people start moving to try to get higher returns because we’ve had low rates for a long period of time,” he said.

The Fed could use its balance sheet to steepen the yield curve if one was worried about potential financial stability concerns from these low rates, he said.
“If one were concerned about the historically low 10-year Treasury and commercial real estate capitalization rates, perhaps because of potential financial stability concerns, the balance sheet composition could be adjusted to steepen the yield curve,” he said.
This suggests that Rosengren is in favor of using the balance sheet as a tool for policy, either buying or selling securities to raise long-term rates.
The Boston Fed president did not elaborate on his comment. Most Fed officials have come out in active use of the $4 trillion balance sheet. They have supported a plan to gradually let the balance sheet shrink but not until short-term interest rates are about 1% and the expansion is on firmer ground.
In her recent speech on the Fed’s policy tools in Jackson Hole, Yellen said uncertainty and potential costs caused the Fed to decide against using the balance sheet

Sunday, September 25, 2016

Fed, With 3 Officials in Dissent, Stands Firm on Interest Rates While Noting Improving Economy

When Donald Trump began his improbable run for president 15 months ago, he offered his wealth and television celebrity as credentials, then slyly added a twist of fearmongering about Mexican “rapists” flooding across the Southern border.

From that moment of combustion, it became clear that Mr. Trump’s views were matters of dangerous impulse and cynical pandering rather than thoughtful politics. Yet he has attracted throngs of Americans who ascribe higher purpose to him than he has demonstrated in a freewheeling campaign marked by bursts of false and outrageous allegations, personal insults, xenophobic nationalism, unapologetic sexism and positions that shift according to his audience and his whims.

Now here stands Mr. Trump, feisty from his runaway Republican primary victories and ready for the first presidential debate, scheduled for Monday night, with Hillary Clinton. It is time for others who are still undecided, and perhaps hoping for some dramatic change in our politics and governance, to take a hard look and see Mr. Trump for who he is. They have an obligation to scrutinize his supposed virtues as a refreshing counterpolitician. Otherwise, they could face the consequences of handing the White House to a man far more consumed with himself than with the nation’s well-being.

Here’s how Mr. Trump is selling himself and why he can’t be believed.

A financial wizard who can bring executive magic to government?

Despite his towering properties, Mr. Trump has a record rife with bankruptcies and sketchy ventures like Trump University, which authorities are investigating after numerous complaints of fraud. His name has been chiseled off his failed casinos in Atlantic City.

Mr. Trump’s brazen refusal to disclose his tax returns — as Mrs. Clinton and other nominees for decades have done — should sharpen voter wariness of his business and charitable operations. Disclosure would undoubtedly raise numerous red flags; the public record already indicates that in at least some years he made full use of available loopholes and paid no taxes.

Mr. Trump has been opaque about his questionable global investments in Russia and elsewhere, which could present conflicts of interest as president, particularly if his business interests are left in the hands of his children, as he intends. Investigations have found self-dealing. He notably tapped $258,000 in donors’ money from his charitable foundation to settle lawsuits involving his for-profit businesses, according to The Washington Post.

A straight talker who tells it like it is?

Mr. Trump, who has no experience in national security, declares that he has a plan to soundly defeat the Islamic State militants in Syria, but won’t reveal it, bobbing and weaving about whether he would commit ground troops. Voters cannot judge whether he has any idea what he’s talking about without an outline of his plan, yet Mr. Trump ludicrously insists he must not tip off the enemy.

Another of his cornerstone proposals — his campaign pledge of a “total and complete shutdown” of Muslim newcomers plus the deportation of 11 million undocumented immigrants across a border wall paid for by Mexico — has been subjected to endless qualifications as he zigs and zags in pursuit of middle-ground voters.

Whatever his gyrations, Mr. Trump always does make clear where his heart lies — with the anti-immigrant, nativist and racist signals that he scurrilously employed to build his base.

He used the shameful “birther” campaign against President Obama’s legitimacy as a wedge for his candidacy. But then he opportunistically denied his own record, trolling for undecided voters by conceding that Mr. Obama was a born American. In the process he tried to smear Mrs. Clinton as the instigator of the birther canard and then fled reporters’ questions.

Since his campaign began, NBC News has tabulated that Mr. Trump has made 117 distinct policy shifts on 20 major issues, including three contradictory views on abortion in one eight-hour stretch. As reporters try to pin down his contradictions, Mr. Trump has mocked them at his rallies. He said he would “loosen” libel laws to make it easier to sue news organizations that displease him.

An expert negotiator who can fix government and overpower other world leaders?

His plan for cutting the national debt was far from a confidence builder: He said he might try to persuade creditors to accept less than the government owed. This fanciful notion, imported from Mr. Trump’s debt-steeped real estate world, would undermine faith in the government and the stability of global financial markets. His tax-cut plan has been no less alarming. It was initially estimated to cost $10 trillion in tax revenue, then, after revisions, maybe $3 trillion, by one adviser’s estimate. There is no credible indication of how this would be paid for — only assurances that those in the upper brackets will be favored.

If Mr. Trump were to become president, his open doubts about the value of NATO would present a major diplomatic and security challenge, as would his repeated denunciations of trade deals and relations with China. Mr. Trump promises to renegotiate the Iran nuclear control agreement, as if it were an air-rights deal on Broadway. Numerous experts on national defense and international affairs have recoiled at the thought of his commanding the nuclear arsenal. Former Secretary of State Colin Powell privately called Mr. Trump “an international pariah.” Mr. Trump has repeatedly denounced global warming as a “hoax,” although a golf course he owns in Ireland is citing global warming in seeking to build a protective wall against a rising sea.

In expressing admiration for the Russian president, Vladimir Putin, Mr. Trump implies acceptance of Mr. Putin’s dictatorial abuse of critics and dissenters, some of whom have turned up murdered, and Mr. Putin’s vicious crackdown on the press. Even worse was Mr. Trump’s urging Russia to meddle in the presidential campaign by hacking the email of former Secretary of State Clinton. Voters should consider what sort of deals Mr. Putin might obtain if Mr. Trump, his admirer, wins the White House.

A change agent for the nation and the world?

There can be little doubt of that. But voters should be asking themselves if Mr. Trump will deliver the kind of change they want. Starting a series of trade wars is a recipe for recession, not for new American jobs. Blowing a hole in the deficit by cutting taxes for the wealthy will not secure Americans’ financial future, and alienating our allies won’t protect our security. Mr. Trump has also said he will get rid of the new national health insurance system that millions now depend on, without saying how he would replace it.

The list goes on: He would scuttle the financial reforms and consumer protections born of the Great Recession. He would upend the Obama administration’s progress on the environment, vowing to “cancel the Paris climate agreement” on global warming. He would return to the use of waterboarding, a torture method, in violation of international treaty law. He has blithely called for reconsideration of Japan’s commitment not to develop nuclear weapons. He favors a national campaign of “stop and frisk” policing, which has been ruled unconstitutional. He has blessed the National Rifle Association’s ambition to arm citizens to engage in what he imagines would be defensive “shootouts” with gunmen. He has so coarsened our politics that he remains a contender for the presidency despite musing about his opponent as a gunshot target.

Voters should also consider Mr. Trump’s silence about areas of national life that are crying out for constructive change: How would he change our schools for the better? How would he lift more Americans out of poverty? How would his condescending appeal to black voters — a cynical signal to white moderates concerned about his racist supporters — translate into credible White House initiatives to promote racial progress? How would his call to monitor and even close some mosques affect the nation’s life and global reputation? Would his Supreme Court nominees be zealous, self-certain extensions of himself? In all these areas, Mrs. Clinton has offered constructive proposals. He has offered bluster, or nothing. The most specific domestic policy he has put forward, on tax breaks for child care, would tilt toward the wealthy.

Voters attracted by the force of the Trump personality should pause and take note of the precise qualities he exudes as an audaciously different politician: bluster, savage mockery of those who challenge him, degrading comments about women, mendacity, crude generalizations about nations and religions. Our presidents are role models for generations of our children. Is this the example we want for them?

Bobby Darvish of Platinum Lending Solutions

Robert Darvish of Platinum Lending Solutions

Robert Bobby Darvish Platinum Lending Soltuions.

Sunday, September 18, 2016

Why Raising Interest Rates Has Been Such a Tough Call for the Fed

When the Federal Reserve raised its benchmark interest rate last December after keeping it near zero for seven years, Fed officials were in general agreement that they might increase rates as many as four times in 2016.

They thought the United States economy was finally strong enough — and the prospect of inflation close enough — that it was time to start raising interest rates back toward the level regarded as normal before the financial crisis.

But the economy did not follow that script. The Fed has not raised rates once this year, and it’s unclear when it might do so.

Economic growth has continued, but it has not accelerated. There is still no sign of stronger inflation. And, more broadly, Fed officials have increasingly concluded that the world itself has changed. They no longer expect to return interest rates to precrisis levels. As a result, they are no longer in as much of a hurry to get started.

As Fed policy makers look ahead to their meeting on Sept. 20-21, they are increasingly divided over the best way forward. Some say the time has come for another increase in the Fed’s benchmark rate. A number of these officials are particularly concerned that low rates are encouraging excessive speculation in areas like commercial real estate. Others, however, argue that the economy is still benefiting from low rates – and, in the absence of inflation, they see little reason to pull back.

Janet L. Yellen, the Fed’s chairwoman, must extract a consensus from her increasingly fractious committee. She has offered relatively little insight into her own views. In a speech in August, she said the case for raising rates had “strengthened,” but she did not answer the crucial question: Strong enough? Or not yet?

Mistiming a rate increase has consequences. If the Fed moves too soon, it could derail what remains a relatively weak economic expansion. If it waits too long, it could be forced to hit the brakes even harder.

Photo

Janet L. Yellen, the Fed’s chairwoman.CreditDrew Angerer for The New York Times
The Fed is wrestling with three big, intertwined questions:
1. How many people want jobs?

During an economic recovery, the number of people who can’t find work gradually dwindles. Employers start chasing applicants. Wages start to rise. And the Fed starts raising interest rates to prevent the economy from overheating.

Seven years into the current recovery, the unemployment rate has fallen to 4.9 percent, a historically normal level, but the rest of the picture doesn’t look quite right. The unemployment figure counts only people who are actively seeking work, but millions of adults remain on the sidelines.

By keeping rates low, the Fed could draw more of those people back into the work force. And so far there is no sign of overheating.
2. How low are interest rates?

The Fed cut its benchmark rate by five percentage points in response to the Great Recession. That is five points of stimulus, right? Well, Fed officials are increasingly convinced that it has become more like three points of stimulus.

Global interest rates are in a historic swoon. The problem can be described as a glut of money or an absence of attractive investment opportunities. The consequence is a narrowing gap between the market rate and the Fed’s benchmark rate.

That means the Fed is providing less stimulus than it thought, which in turn means it doesn’t need to pull back quite so quickly, since it doesn’t have as far to go. But …
3. What damage is done by doing nothing?

The Fed usually increases rates because it fears inflation, and inflation remains sluggish, in part because of the weakness of the global economy. But Fed officials have other worries. Notably, they are worried about creating future financial crises.

Low rates are intended to encourage financial speculation. But too much risk-taking is not a good thing. And the longer rates stay low, the greater the risks. Fed officials have highlighted some areas, like commercial real estate, but they are also worried about the problems they cannot see. After all, the next crisis usually comes from a different place than the last one.

This fear of the unknown has become a major argument for moving more quickly to raise the benchmark rate.
Same Numbers, Different Meanings

Although their meetings are closed to the news media and the public, Federal Reserve officials are economic experts who often like to express their views in speeches and interviews. And although they are all looking at the same numbers, they come away with different judgments about raising interest rates. Behind nuanced, technical language, a debate has played out among Fed policy makers in recent weeks.
Lael Brainard: In Favor of Patience

Member of the Fed’s Board of Governors, speaking Sept. 12.

“Although we have seen important progress on employment, this improvement has been accompanied by evidence of greater slack than previously anticipated. This uncertainty about the true state of the economy suggests we should be open to the possibility of material further progress in the labor market.”

TRANSLATION: We predicted inflation would be rising by now, but it’s not. It turns out the supply of people looking for work was larger than we thought. Let’s keep our foot on the gas.
Eric Rosengren: It’s Time to Gradually Raise Rates

President of the Federal Reserve Bank of Boston, speaking Sept. 9.

The Fed’s current “degree of accommodation increases the chances of driving the core inflation rate closer to the Federal Reserve’s 2 percent target, but it also increases the chances of overheating the economy. So if we want to ensure that we remain at full employment, gradual tightening is likely to be appropriate.”

TRANSLATION: There can’t be that many more people looking for work. If we wait to raise rates, we may to have to increase more sharply — and that could cut the recovery short. Better to start now, so we can do it slowly.
20

%

Paul A.

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Alan

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Ben S.

Bernanke

Janet L.

Yellen

15

Each Fed

chairman’s

tenure

10

5

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Note: Rate is the federal funds rate until Sept. 27, 1982, the federal funds target rate until Dec. 15, 2008, and thereafter the upper limit of the federal funds target rate range.

By The New York Times

Life in a Low-Interest World

It seems like a distant fever: In the late 1970s and early ’80s, energy prices soared and the inflation rate rose into the double digits, spiking at nearly 15 percent. To bring inflation under control, Paul A. Volcker, as Fed chairman, pushed the benchmark rate up to 20 percent (and home buyers looking for a 30-year fixed mortgage paid up to 18 percent). The higher rates plunged the economy into a deep recession.

Since then, inflation has fallen sharply, but the economy has had a harder time delivering broad-based prosperity as inequality has widened and incomes for most Americans have stagnated. This pattern has continued even as the United States has slowly recovered from the collapse of the housing market and the subsequent financial crisis.

Fed officials, like sailors trying to make headway on a windless sea, have resorted to a number of extraordinary measures, including pumping trillions of dollars into the banking system and leaving short-term rates near zero for years, in an effort to revive the economy. But the Fed’s inability to restore growth to historical levels has exposed shortcomings in current macroeconomic theory and set off a vigorous debate over how to navigate a changing economic environment.

Putting the United States in a global frame, Ms. Yellen recently discussed the “marked decline” in the interest rate levels necessary to bring about maximum employment and output. The reasons are varied, she said: a slowdown in population growth in many countries, smaller productivity gains and a “decreased propensity to spend” because of various financial crises around the world since the late 1990s.

But in an admission that underscored the Fed’s difficult position, she expressed how difficult it is to see into the future.

“Our understanding of the forces driving long-run trends in interest rates is nevertheless limited,” she said, “and thus all predictions in this area are highly uncertain.”

To learn more about the issues the Fed is wrestling with, read the full text of the speeches mentioned above:

+ Janet L. Yellen: “The Federal Reserve’s Monetary Policy Toolkit: Past, Present, and Future”

+ Lael Brainard: “The ‘New Normal’ and What It Means for Monetary Policy”

+ Eric S. Rosengren: “Exploring the Economy’s Progress and Outlook”

For more background and perspectives on the Fed and the United States economy, from The Times and elsewhere:

+ “Yellen Sees Stronger Case for Interest Rate Increase,” on Janet Yellen’s outlook leading into the September Fed meeting.

+ “What Happens When the Fed Raises Rates, in One Rube Goldberg Machine,” a whimsical, enlightening video from The Upshot.

+ “Why Are Interest Rates So Low?” an essay by Ben S. Bernanke, the former Fed chairman. (Brookings.edu)

+ “The Fed Is Searching for a New Framework. New Minutes Show It Doesn’t Have One Yet,” an analysis of the questions raised in Fed officials’ closed meetings.

+ “Changes in Labor Participation and Household Income,” a look at some reasons why fewer people are looking for work, from the Federal Reserve Bank of San Francisco. (Frbsf.org)

+ “A History of Fed Leaders and Interest Rates,” ranging from Paul Volcker to Janet Yellen.

Sunday, September 11, 2016

Interest Rate Hike: What Will The US Federal Reserve Do At Its September Meeting?

Come Tuesday, investors will be reading the silence ahead of next week’s U.S. Federal Reserve policy committee meeting, with the last word coming Monday afternoon from Fed Governor Lael Brainard, who is scheduled to speak at the Chicago Council on Global Affairs.
Also making appearances earlier Monday are Atlanta Fed President Dennis Lockhart before the NABE conference in Atlanta and Minneapolis Fed President Neel Kashkari at a question-and-answer session in St. Paul, Minn.

Investors sent stocks down nearly 400 points Friday amid indications from two other Fed governors last week that the central bank could raise interest rates at the Sept. 20-21 meeting — something investors had thought was off the table until December.

Brainard is seen as the most dovish member of the Fed board, and Peter Boockvar told CNBC any hawkish comments from her would pretty much guarantee a hike.

“For a stock market that is wholly unprepared for that, not only could it get messy, it will get messy,” he said. “The only reason why we're at these [stock market] levels is because of low interest rates and central bank policy. ... When the Fed removes accommodation, things are seen for what they really are, not for what people want them to be.”

The CME Group fed funds futures indicated there is a 27 percent likelihood of a September rate hike and a 46 percent chance of one in December, TheStreet reported.
A final decision likely will rest on retail sales and producer price data, the Philadelphia Fed Business Outlook Survey, the Empire State Manufacturing Survey and industrial production data out on Thursday, and consumer price data Friday. Friday also constitutes a quadruple witching session.
Jobs data, car sales and data from the services and manufacturing sectors all have undershot forecasts so far this month, Reuters noted.
“It would take a big increase in retail sales, increase in inflation to get the Fed to even think twice [about September],” said Paul Christopher, head global market strategist at Wells Fargo Investment Institute in St. Louis.

Speculation about an interest rate hike also is being fueled by the European Central Bank’s decision not to extend its asset-buying program beyond March.
“Expectations that the Fed could raise interest rates this month are on the upswing again following Thursday’s ECB meeting where it apparently didn’t discuss new stimulus — a shift from dovish to neutral that has opened the door for the Fed to raise interest rates soon,” Colin Cieszynski, chief market strategist at CMC Markets, told MarketWatch.

Monday, September 5, 2016

Trump says U.S. interest rates must change as Fed weighs rate hike

By Steve Holland | YOUNGSTOWN, OHIO

Republican presidential nominee Donald Trump, who has previously accused the Federal Reserve of keeping interest rates low to help President Barack Obama, said on Monday that the U.S. central bank has created a "false economy" and that interest rates should change."They're keeping the rates down so that everything else doesn't go down," Trump said in response to a reporter's request to address a potential rate hike by the Federal Reserve in September. "We have a very false economy," he said.
"At some point the rates are going to have to change," Trump, who was campaigning in Ohio on Monday, added. "The only thing that is strong is the artificial stock market," he said.

Fed Chair Janet Yellen said last month that the U.S. central bank was getting closer to raising interest rates, possibly as early as September, saying that the Fed sees the economy as close to meeting its goals of maximum employment and stable prices. The Fed raised interest rates last December for the first time in nearly a decade, and at that time projected four more hikes in 2016. The Fed later scaled back that projection to two rate hikes this year in the wake of a slowdown in global growth and continued financial market volatility.
Trump, during the primary campaign, as he took on 16 Republican rivals, had called Yellen's tenure "highly political" and said the Fed should raise interest rates but would not do so for "political reasons."
The Fed has been a target of some conservative critics in the U.S. Congress, who say the bank risked sparking inflation with its easy monetary policies in response to the global financial crisis.
Fed officials say their independence is critical to making sound policy decisions.
(Reporting by Steve Holland in Youngstown; Additional reporting and writing by Amanda Becker in Washington; Editing by Leslie Adler)
Brought to you by Robert Bobby Darvish, Platinum Lending Solutions

Sunday, August 28, 2016

Fed’s Dislike of Negative Interest Rates Points to Limits of Stimulus Measures

Federal Reserve officials are content to watch others’ experience of negative rates from a distance

JACKSON HOLE, Wyo.—Federal Reserve officials are turning a cold shoulder to a controversial idea being tried in Japan and much of Europe to boost anemic economies: negative interest rates.
Fed officials don’t think negative rates are needed in the U.S. because the economy and job market are improving, and they are hoping they will never have to use them in the future given their uncertainty about whether the policy works.

Fed Chairwoman Janet Yellen didn’t even mention the idea in a discussion of the Fed’s options for the economy should recession hit the U.S., and other officials speaking on the sidelines of the Fed’s annual retreat here over the weekend made clear it is an approach they would like to avoid.

–– ADVERTISEMENT ––

“I’m treating [negative rates] as an experiment that we have the luxury to watch from a distance,” Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said in an interview at the Fed’s annual Jackson Hole conference in the Wyoming mountains.
The Fed’s aversion to negative rates shows how central bankers are confronting the limits of their efforts to stimulate the slow-growing global economy.
Negative rates are like a central bank’s version of the children’s game of hot potato—the potato being money nobody wants to get left holding. Commercial banks are charged for leaving funds on deposit with the central bank. By imposing a cost on parking money safely there, the policy aims to induce banks to lend their money elsewhere, to consumers and businesses, where they can earn higher returns. That risk-taking, in turn, is meant to spur economic growth.
Central banks in Japan, the eurozone, Denmark, Sweden and Switzerland have adopted negative rates with mixed effects. The Swiss National Bank ’s policy rate is -0.75%, the Bank of Japan ’s is -0.1% and ECB’s is -0.4%.

Negative rates are highly unpopular in many places because households are unhappy they earn such low returns on their savings and banks worry it squeezes their profit margins.
Subzero rates also have had some unintended effects. In Japan, negative rates were accompanied by a rising currency, the opposite of the central bank’s expectation.
In Switzerland, banks responded to negative rates by making mortgage borrowing more expensive and not less as hoped. Consumers are saving more in Germany, Japan, Sweden, Switzerland and Denmark, even though the aim is to prod consumers to save less and spend more.
Still, central bankers here said negative rates showed signs of working in many of their intended ways.

Yields on 30-year Japanese government bonds dropped from about 1.5% before Japan adopted negative rates in January to less than 0.5%. That could in turn drive borrowing, spending and investing in Japan, as intended.
“Declines in long-term borrowing costs have stimulated firms’ demand for long-term funding and households’ demand for mortgage loans, thereby benefiting a wide range of borrowers,” BOJ Governor Haruhiko Kuroda said here. “A significant increase in issuance of corporate bonds with a maturity of 20 years or even longer has been observed.”

European Central Bank data released this week showed loans to households were up 1.8% from a year earlier in July and loans to nonfinancial corporations up 1.9%. That is modest but still reverses a contraction in lending in the months before negative rates were introduced.
Some worry that negative rates squeeze bank profits. However net income at European banks rose to 51 billion euros in 2015, compared with 31 billion in 2014, according to the ECB.
“Negative rates work and are nothing extraordinary or immoral or absurd,” European Central Bank executive board member Benoît Coeuré said of the eurozone’s experience of negative interest rates so far. Still, speaking to the lingering trepidation about the policy among central bankers here, he said he is cautious about pushing rates “to much deeper negative levels .”

At a panel here, academics wondered whether central banks could push interest rates more deeply into negative territory by doing away with cash or imposing costs on households holding it. Cash is an impediment to imposing negative interest rates. Households and businesses can hoard it to avoid paying the penalties imposed when depositing funds in banks.
Central bankers here were reluctant to embrace the idea of pushing the policy much further, even as they defended its effects.

“There are many outstanding issues,” Marianne Nessén, who heads the Swedish central bank’s monetary policy department, said during a discussion at Jackson Hole. “Even if the experience with mildly negative interest rates has been roughly as expected, I’m not sure that we conclude that deeply negative interest rates will work in the same manner.”
“At the heart of all this lies concerns that future growth prospects are lower than we have seen in the past decades, but the remedy for that does not lie with monetary policy. It must be found elsewhere,” she said.

One growing source of uncertainty is the effect of negative rates on household saving behavior. Low and negative rates aim to induce households to spend, but critics of these policies say the effect is the opposite. People who are trying to stockpile funds for retirement might be induced to save even more if the funds they’ve got are bleeding returns.

“The idea that low interest rates are punishing savers is a very ripe issue,” said James Bullard, St. Louis Fed president. “Everyone is doing a lot of soul-searching about these issues.”
For now the Fed doesn’t need to contemplate negative rates because the U.S. economy is improving and officials are looking to gradually raise rates from exceptionally low levels.
Ms. Yellen in her talk Friday sought to lay out a roadmap for how the Fed will proceed the next time there is an economic downturn and it turns back to rate cuts to stimulate growth.
She said the Fed would seek to lean on tools it used during the postcrisis period. This includes purchases of Treasury or mortgage bonds to drive long-term interest rates lower. Ms. Yellen suggested the Fed might even expand its purchases beyond these conventional investments. The Fed would also turn to assurances that rates will stay very low far into the future, she said.
On negative rates Ms. Yellen was silent.