Federal Reserve Chairwoman Janet Yellen said Tuesday the Fed wouldn't rule out using negative interest rates to boost the economy but she cautioned such a move would have to be carefully studied.
"While I would not completely rule out the use of negative interest rates in some future very adverse scenario, policymakers would need to consider a wide range of issues before employing this tool in the United States, including the potential for unintended consequences," she wrote in a letter to Rep. Brad Sherman (D., Calif.) and released by his office.
Ms. Yellen also wrote she expected the economy would strengthen and inflation would return to the Fed's 2% target "over time."
"If the economic outlook evolves in an unexpected way, the Federal Reserve will adjust the stance of policy appropriately to foster progress toward its long-run goals of maximum employment and stable prices," she wrote.
The Fed chief also shot down a suggestion that the central bank could intervene to help troubled municipalities such as Detroit or Puerto Rico. The Fed can only provide help to a broad group of borrowers, not to individual institutions, she said.
"The Federal Reserve does not have the legal authority to lend to a specific borrower, including a municipality, that is failing or seeking to avoid resolution," she wrote, adding that such assistance "involves political judgments" that are best left to Congress and the White House.
The letter came in response to written questions Mr. Sherman submitted after Ms. Yellen's Feb. 10 appearance before the House Financial Affairs Committee, on which Mr. Sherman serves.
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