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The Fed may be preparing for the unthinkable — negative interest rates in America

Janet Yellen arrives at the 2016 annual meeting of central bankers in Jackson Hole, Wyoming. AP Photo/Brennan Linsley

Negative interest rates are spreading like a virus. Central banks in the Eurozone, Switzerland, Sweden, and Japan all have below-zero policy rates. “NIRP,” as economists call a negative interest rate policy, is a desperation move—but the only move those central banks have.

The Federal Reserve hasn’t followed—yet. When the next recession strikes, I believe Janet Yellen will choose to break the zero lower bound. The rationale was laid out in Jackson Hole. Look behind the headlines and you’ll see the Fed already preparing for NIRP.

In theory, negative rates should encourage consumers and businesses to spend more freely and stimulate growth. It hasn’t worked out that way. NIRP just punishes savers and makes everyone miserable.

The Fed Moves Slowly

Major Fed policy changes unfold very slowly. Remember “The Taper” plan to end quantitative easing? Ben Bernanke first floated the idea in May 2013. It took until October 2014—a full 18 months—to finally end the bond-purchasing program. And then it was another 14 months before the Fed hiked rates with a baby step in December 2015.

The Fed shouldn’t let markets dictate its decisions, but we all know it does. They start hinting months, even years ahead of time in hopes markets...