In my last post, I discussed how the run-up of U.S. mortgage debt during the last decade was funded. One important element was the sale of commercial paper that helped fund the purchase of some mortgage-related securities. Here I comment on why it was hard for some institutions to resist buying that commercial paper.
Category Archives: Federal Reserve
Bank supervision and the Federal Reserve
In testimony today before Congress, Fed Chair Ben Bernanke outlined his reasons why the Federal Reserve is uniquely suited to be the regulatory supervisor for U.S. banks.
Modeling problems in credit markets
On Friday I joined fellow blogger Mark Thoma (and a good many other economists) at a very interesting conference on financial markets held at the Federal Reserve Bank of San Francisco. Here I share some ideas I expressed at the conference about the directions I feel this research ought to go.
Treasury Supplementary Financing Program (SFP)
The SFP, the U.S. Treasury’s program for assisting with the balance sheet of the Federal Reserve, is making a sudden and dramatic comeback.
The Fed’s discount rate hike
The Federal Reserve Board announced on Thursday that it is raising the interest rate at which banks borrow from the Fed’s discount window to 0.75%, a 25-basis-point increase, and intends to return discount lending primarily to the traditional overnight loans.
“The rate hike cycle begins,” declared 24/7 Wall St, and
Business Week reported:
Treasuries fell, pushing yields to the highest levels in at least five weeks, amid concern the Federal Reserve’s increase in the discount rate signaled policy makers are moving closer to lifting benchmark borrowing costs.
But I don’t believe that’s what the discount rate hike means at all.
The new normal
Also included in Federal Reserve Chair Ben Bernanke’s statement to Congress last week were some guidelines for what we might expect Federal Reserve decisions and communications to look like as we make the gradual adjustment to more normal conditions.
Bernanke on the Fed’s balance sheet
Federal Reserve Chair Ben Bernanke last week released a statement of how the Fed intends to manage its bloated balance sheet over the next few years. Here I offer my interpretation of what his plan involves.
John Cochrane on the credit crisis
University of Chicago Professor John Cochrane (hat tip: Capital Spectator) has an interesting analysis of the causes of the financial problems of the last few years.
“No rate hikes likely in 2010…”
Despite the somewhat startling conclusion (at least to me), the implications are pretty straightforwardly arrive at. From Michael Rosenberg, Financial Conditions Watch (Bloomberg, Jan. 27, 2010) (link added 1/29 8am) [not online]:
Fed Funds Rate Outlook — A Taylor Rule Perspective
With U.S. real GDP growth moving back into positive
territory in the second half of 2009 following four consecutive
quarters of negative growth (see Figure 1), the
economic forecasting community appears to be increasingly
optimistic about the U.S. economy’s growth prospects
for 2010-11….
Why Bernanke should be reconfirmed
Econbrowser readers are well aware that there are a number of issues on which I have concerns about some of the decisions the Fed has made, such as
dropping the ball on regulation ([1],
[2]),
keeping interest rates too low for too long over 2003-2005 ([1],
[2]),
taking some real risks with the Fed’s new balance sheet ([1],
[2],
[3]), and
pretending the Fed had nothing to do with the commodity price boom of 2008 ([1],
[2]). Notwithstanding, there is no question in my mind that Bernanke should be reconfirmed as Chair of the Federal Reserve Board. Here’s why.