Friday, August 7, 2009
Exit Stage Theft
Grant's Interest Rate Observer
Volume 27, number 16
August 7, 2009
GRANT: The philosophical question to complement the technical one is whether human beings are fit to manage a system of uncollateralized paper currency?
YELLEN: I will be the first to say that it is always difficult to get monetary policy just right. but the Fed's analytical prowess is top-notch and our forecasting record is second to none.
DUDLEY: The Federal Reserve needs to set an IOER rate(that's the interest rate on excess reserves) consistent with the amount of required reserves, money supply and credit outstanding consistent with its dual mandate of full employment and price stability. If demand for credit exceeds what is appropriate, the Federal Reserve raises the IOER to reduce demand. If the demand for credit is insufficient to push the economy to full employment, then the Federal Reserve reduces the IOER rate, recognizing that the IOER rate cannot fall below zero.
GRANT: Our hunch is that it[the Fed] will overstay its radical easing and mishandle its brand-new "interest on excess reserves" policy device.