The Fed’s Next Big Policy Rethinking
Next year, the US Federal Reserve will undertake an exercise with global implications: the periodic monetary policy framework review, at which it rethinks its approach to managing the world’s largest economy.
March 2022, interest rates were still near zero and the Fed was still buying Treasuries and mortgage-backed securities to push down longer-term rates providing extraordinary stimulus even as the economy overheated.
Fed needs a framework for quantitative easing, the asset purchases it has used to provide added stimulus (and for its reversal, known as quantitative tightening).
Second, a regime is needed to assess the costs and benefits of quantitative measures
March 2022: the Fed purchased $1.4 trillion in asset at a time when it was pretty clear that the development of Covid vaccines and the Biden administration’s immense fiscal stimulus would obviate the need for the added monetary stimulus.
Those purchases will end up costing the U.S. taxpayer more than $100 billion. The total cost of the pandemic-era quantitative easing could reach $500 billion.
Fed should change its interest-rate target.
The federal funds rate is obsolete, tracking a market that banks mostly don’t use anymore because bank reserves are so plentiful.
There’s also one issue that’s not worth considering: Whether the Fed should raise its inflation target above 2%, to reduce the risk of getting stuck at the zero lower bound.
Bill Dudley Bloomberg 2 December 2024
Bill Dudley, a Bloomberg Opinion columnist, served as president of the Federal Reserve Bank of New York from 2009 to 2018.
Tillbaka till Rolfs länktips 2 ecember 2024
https://englundmacro.blogspot.com/2024/12/rolfs-lanktips-2-ecember-2024.html
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