The European Central Bank just announced that they will be instituting negative interest rates.

That means bank customers (banks holding deposits at the European Central Bank) will have to pay to keep their money there.

The move was designed to encourage banks to increase their lending.

Banks that pay the ECB to hold their Euros are not going to want to pay interest to depositors for their Euros. European banks may eventually pass along this "cost" to their depositors. This will make holding money in the bank not just futile but a money losing endeavor.

Could negative interest rates be coming to the United States?

Federal Reserve Chair, Janet Yellen is on record of being in favor of negative interest rates.

“Accommodative policy is appropriate, in my view, because the economy is operating well below its potential and inflation is undesirably low. If it were positive to take interest rates into negative territory I would be voting for that” – San Francisco Federal Reserve Bank President Janet Louise Yellen – February 2010

Upon receiving word that Ms. Yellen would be the nominee we wrote: “…we will have gone from the low interest rate policies of Alan Greenspan, to the no interest rate policies of Ben Bernanke to the negative interest rates of Janet Yellen.”

Ms. Yellen will most likely follow the policies of her immediate predecessor and as her quote above indicates, may be more willing to extend quantitative easing (QE) than to “taper” it.

With European Central Bank pushing rates into negative territory, what impact will that have on Fed policy and the current tapering of quantitative easing? Will the Fed go negative?

Or perhaps the ECB move is a coordinated central bank ploy to get European banks to hold more U.S. Treasuries as the Fed tapers its QE program.

Read more about Janet Yellen and Negative Interest Rates.