World Markets

Global recession not coming to the US: Kovacevich

A global recession won't touch the US: Kovacevich
VIDEO3:0803:08
A global recession won't touch the US: Kovacevich

It was a wild day on Wall Street Thursday. The health of the global economy has been gnawing at investors, but does the U.S. have anything to worry about?

"The rest of the world does have issues; I don't think they yet apply to the United States," Dick Kovacevich, former Wells Fargo CEO, said on "Closing Bell" Thursday.

A global market sell-off on Thursday was fueled by worries that central bank policies would drag global economies into recession. While there may be a risk of recession in the U.S., the former executive doesn't foresee a recession.

Fed Chair Janet Yellen, on Thursday during her second day of the semiannual congressional testimony, told senators that there's always a chance of recession. "But the evidence suggests that expansions don't die of old age," she said.

Meanwhile, Japan recently introduced negative interest rates into the country's economy, and Europe has continued to support its stimulative policy. European banks tumbled on Thursday as investors questioned the financial sector's ability to perform in a low-rate, low-growth environment.

The Dow Jones industrial average shed as much as 411 points during intraday trading before it cut its losses by nearly half. The Dow closed down 255 points.


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All of the S&P 500 sectors were negative on Thursday. The financial sector led all sectors to the downside; it was down by nearly 3 percent. The sector underperformed as the banks ETF hit a near three-year low. During midday trading, 49 percent of the S&P financials sector had already hit a 52-week low.

"I think this is more of a reaction to what is happening to banks overseas, and the possibility, quite frankly, of negative interest rates," Kovacevich said about a decline in the U.S. financial sector.

Congress questioned Yellen on whether the U.S. could adopt negative rates on Thursday, and the chair responded that the Fed had not yet ruled them out. Yellen said that negative rates could be a possibility in the case of a downturn ahead.

However, on Wednesday, Yellen said that in 2010 the committee had looked into negative rates, but never confirmed the policy's legality.

Arguing that negative interest rates cause currencies to devalue, and place strains on the banking system, Kovacevich said that negative rates are a bad idea.

"I think it's a big mistake," he said. "I can't image that the Federal Reserve would be dumb enough to do that."

— CNBC's Chris Hayes and Alexandra Gibbs contributed to this report.