Courtesy of ZeroHedge. View original post here.
Ever since early 2015, we have repeated that with the world caught in a negative rate "race to the bottom", which even S&P now admits, it is inevitable that the US will join the rest of the DM central banks, especially after the flawed and much delayed attempt to hike rates into what is at least a quasi recession.
Now, with sellside chatter that it is only a matter of time before the Fed will likewise join the fray despite stern warnings by the likes of Deutsche Bank that more easing will only exacerbate conditions for global financial firms, JPM's Michael Feroli has set the "bogey" or the catalyst for what will be needed for the Fed to finally admit defeat and go not only back to zero but below it:
While we earlier mentioned that negative nominal rates should affect the economy no differently than ordinary policy easing, there is some evidence that the exchange rate channel is particularly pronounced in the case of NIRP. The leadership role of the Federal Reserve in the global monetary system may lead to some hesitancy to engage in what may be uncomfortably close to a skirmish in the currency wars. Lastly, there is the political issue. To be sure, political concerns about NIRP are not unique to the Fed; presumably one reason central bankers abroad sought to limit the pass-through to retail depositors was to avoid pushback from the political establishment. Even so, it seems reasonable to judge that the Fed’s current political situation is more parlous than is the case among its overseas counterparts. For all of the above reasons, we believe the hurdle for NIRP in the US is quite high, and we would need to see recession-like conditions before the Fed seriously considered this option.
So the "hurdle is quite high", but all that will be needed for Yellen and co. to surpass this hurdle is for "recession-like" conditions to emerge.
Which means be on the lookout for "recession-like" conditions because a few more days of stocks crashing and wiping out years of the Fed's carefully planned out "wealth effect" and the Fed wil have no choice but to beg the Department of Commerce to come up with quadruple seasonal adjustments that make every data release as bad as during the depth of the credit crisis, something which will be urgently needed to provide the Fed with the much needed "political cover" to admit the latest central bank defeat.
