Over the last month, a consensus seems to have emerged that (1) the Fed has the ability to depress long-term yields further, and (2) the Fed has the intention to implement such measures. That raises the possibility that recent market moves represent a bet already placed by market participants on the basis of the logical implications of (1) and (2).
Category Archives: Federal Reserve
QE2: estimates of the potential effects
As the conviction grows that the Federal Reserve will adopt a second round of quantitative easing (dubbed by some as “QE2”), I thought it might be helpful to survey some of the different estimates of what effect this might have on long-term interest rates.
What’s the Fed signaling?
There’s an aspect of Tuesday’s statement from the FOMC that’s not being emphasized by many analysts.
Should the Fed try to depress long-term yields further?
I’ve been sharing with readers my recent research with Cynthia Wu, in which we found that the Fed could likely lower long-term interest rates further by buying more long-term securities, even though the short-term rate is essentially zero and even though the newly created reserves would simply sit idle in banks’ accounts with the Fed. Here I’d like to take up the question of whether such a policy would be desirable.
Policy tools that could lower interest rates further
Even though the overnight interest rate has been stuck near zero for 20 months, are there options available to the Federal Reserve or the U.S. Treasury to bring longer-term yields down further? I have been looking into this question with Cynthia Wu, an extremely talented UCSD graduate student. We present our findings in a new research paper, some of whose results I summarize here.
New database on the maturity structure of publicly-held debt
I have been working on a project with UCSD graduate student Cynthia Wu to try to assess the potential for the Federal Reserve to continue to influence long-term interest rates even when the short-term interest rate is essentially at zero. I’ll be relating the conclusions from that research in a few days. But first I’d like to call attention to a new data set that we developed on the maturity structure of publicly-held debt which may be of interest to other researchers. As Paul Krugman likes to warn, this one is just for the wonks.
More thoughts on what to expect from the Fed
There is disagreement within the FOMC. How will it be resolved?
Will the Fed do more?
If conditions deteriorate further, I believe the answer is yes.
Ever so slightly less contractionary
What is the significance of yesterday’s statement from the FOMC?
Options for monetary stimulus
The latest economic data have surely warranted a downward revision in the Federal Reserve’s assessment of near-term economic performance. It therefore might be a good time to review the steps the Fed could take if it wishes to provide further economic stimulus.