How can the Fed push Fed Funds rate to negative? I think I understand how it works with >= 0 -- they just lend reserves for bonds until they hit their targets, but what about <0? Has this something to do with purchasing bonds until their yield becomes negative, making banks which hold bonds as cash to have negative interest on them?
I am not sure about the institutional limitations on policies, but this is easily done in principle. Banks hold deposits at the Federal Reserve banks (reserves/excess reserves). If the Fed sets the interest rate on those deposits to a negative level, that pricing would ripple out everywhere.
For example, assume the rate was -1%. Banks would buy Treasury bills until their yields were comparable to -1%, as they could replace excess reserves with bills to reduce the cost associated with the negative rates. These lower rates then affect the traded yields of other instruments traded in the bond/money markets.