Tag: "excess bank reserves"

Monetary Policy is Not Interest-Rate Policy

(The FOMC Should Start Making that Distinction)   Monetary policy is not interest-rate policy. Neither is it Fed balance-sheet policy. Monetary policy is money-supply policy. Sometimes these distinctions aren't important, but they are important now, and the Federal Open Market Committee (FOMC) should begin educating the public on them because soon it may need to […]

Systemic Risk and the Federal Reserve

If I hadn't worked at the Fed for 36 years, I wouldn't know its history either. Several misconceptions muddy the current debate about the future role of the Fed as systemic risk regulator. The following statements, frequently heard in some forms, are very misleading. 1. The Fed was created to conduct monetary policy; so let […]

The Fed’s Box: Quantitative Easing and Rising Long-Term Interest Rates

Once upon a time, people took rising interest rates as evidence of tighter money. Then, circumstances and growing sophistication led to recognition that rising inflation and/or rising inflationary expectations would show up in higher interest rates, especially longer-term rates. Then, apparently, everyone decided that rising long rates could ONLY be explained by easy money and […]

U.S. Monetary Policy & Economic Recovery

In my guest appearance on CNBC's "The Call" program Tuesday morning, the topics were "Should the Fed Stick to Monetary Policy?" and "Is the Economy Back on Track?" On the economy, I made the same point about excess reserves and the Fed's mistake regarding excess reserves in the 1930s that I made in my June 10 posting.

The Fed’s Balance Sheet and Excess Bank Reserves

People keep talking and writing about the explosion of the money supply and the coming inflationary tsunami. Let me point out once again that the M1 and M2 measures of the money supply spiked but have since come back down. There is no explosion of the money supply. I The monetary base (currency outstanding plus […]

Purchasing Treasuries, Printing Money, And Runaway Inflation

I've tried to straighten this out before, but it obviously didn't take; so I'll try again. Over and over on financial TV, I hear commentators and guests alike talk about how the Fed is printing money when it buys Treasuries (meaning long-term) and how runaway inflation is the inevitable result. *The Fed doesn't literally print […]