Negative rates in US? Here's why it could happen

Expect little impact from BOJ’s negative rates

Less than two months after the Fed enacted its first rate hike in more than nine years, market talk already has turned to whether the central bank's future may not be more hikes, but rather negative rates.

Intensifying recession fears, volatile financial markets and moves toward negative rates by other central banks have triggered speculation over whether the Fed may have to reverse course on its tightening policy.

Negative rates in the U.S. would be a highly unusual move. However, several high-ranking Fed officials, including Chair Janet Yellen, Vice Chair Stanley Fischer and New York Fed President Bill Dudley all have indicated the move would be something they would have to examine should financial conditions tighten and threats to economic growth increase.

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"While not our baseline scenario, if the U.S. economy were to sufficiently weaken we believe the Fed could consider negative rates as a means to ease policy," Mark Cabana, rates strategist at Bank of America Merrill Lynch, said in a note to clients.

Cleveland Fed President Loretta Mester said Thursday she likely would not favor negative rates.

"As a policy maker, it's incumbent on me to look seriously at it. But I'm still a little reluctant to there," she said during a question-and-answer session in New York Thursday evening. "I think our financial system is quite complicated. I'm not sure what the effects will. I have a feeling it wouldn't be that effective."