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What’s in the Fed’s Toolbox?
• In a sharp departure from past practice, the Federal Open Market Committee announced last week that economic conditions “are likely to warrant exceptionally low levels for the federal funds rate at least through mid-
2013.”
• Although the words technically give the Fed an “out,” it has shown no sign of trying to disabuse the market of the expectation that fed funds is a fixed point for
at least the next two years. Moreover, the FOMC went on to suggest it would employ its available policy tools “as appropriate” to strengthen the recovery. • Now that the Fed has long since hit the zero bound on the federal funds rate and has expanded its balance sheet some 250%, what tools remain available for it to provide still more monetary accommodation? That’s the first question;
the second is whether further Fed easing would actually help boost growth.
• The US economy shows significant symptoms of being in a “liquidity trap,” which very much attenuates the potency of monetary policy.
Nonetheless, we would not expect Chairman Bernanke to stand idly by as cyclical economic momentum fizzles, risk assets swing wildly, and European
financial stability veers precariously near the edge.
• In his Semiannual Monetary Policy Report to Congress last month, Bernanke
cited several easing possibilities. We evaluate the suggestions the Chairman offered. Then we consider other easing options, ranging from the most
realistic to the borderline fantastic.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
What’s in the Fed’s Toolbox?
• In a sharp departure from past practice, the Federal Open Market Committee announced last week that economic conditions “are likely to warrant exceptionally low levels for the federal funds rate at least through mid-
2013.”
• Although the words technically give the Fed an “out,” it has shown no sign of trying to disabuse the market of the expectation that fed funds is a fixed point for
at least the next two years. Moreover, the FOMC went on to suggest it would employ its available policy tools “as appropriate” to strengthen the recovery. • Now that the Fed has long since hit the zero bound on the federal funds rate and has expanded its balance sheet some 250%, what tools remain available for it to provide still more monetary accommodation? That’s the first question;
the second is whether further Fed easing would actually help boost growth.
• The US economy shows significant symptoms of being in a “liquidity trap,” which very much attenuates the potency of monetary policy.
Nonetheless, we would not expect Chairman Bernanke to stand idly by as cyclical economic momentum fizzles, risk assets swing wildly, and European
financial stability veers precariously near the edge.
• In his Semiannual Monetary Policy Report to Congress last month, Bernanke
cited several easing possibilities. We evaluate the suggestions the Chairman offered. Then we consider other easing options, ranging from the most
realistic to the borderline fantastic.
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