Interest on Fed reserves is the wrong market policy to criticize

Opinion: The Federal Reserve is making a huge policy mistake. The Fed should realize that low inflation gives it a chance to score an historic achievement, reversing 45 years of wage stagnation, by running a near-full-employment economy, that has been both a huge long-term growth retardant and a massive injustice.

The Federal Reserve has been criticized as not meeting its goals of greater stability and low inflation. This has led to a number of proposed changes including advocacy of different policy rules or dramatic restructuring of the system itself.

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"For most of the history of the Federal Reserve, no interest was paid on reserves. But requiring banks to hold a portion of their assets in the form of a non-interest-bearing reserve against their deposits effectively reduced bank earnings and functioned as a tax."

That’s not wrong, but there are substantial changes brewing in the way economists think about two of the most critical areas of economic policy, monetary policy run by the Federal Reserve. interest.

What Could Make the Fed Cut Interest Rates? The Federal Open Market Committee won’t make any changes in its policy interest rates this coming week. As for the basic headlines, the Federal Reserve’s policy-setting panel is certain to leave.

BankThink Interest on Fed reserves is the wrong market policy to criticize Christopher Whalen Chairman Whalen Global Advisors LLC. The expansion of the Federal Reserve’s portfolio of Treasury debt and mortgage-backed securities has a bigger impact on the credit markets than paying banks interest on excess reserves.

Monetary policy in the United States comprises the Federal Reserve’s actions and communications to promote maximum employment, stable prices, and moderate long-term interest rates–the three economic goals the Congress has instructed the Federal Reserve to pursue.

interest rates can be preserved fully by employing interest on reserves as a monetary policy instrument. The financing of interest on reserves is considered in Section IV. Paying a market rate of interest on reserves could very well increase net interest transfers from the central bank to the Treasury.

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The Federal Reserve Board of Governors in Washington DC. Board of Governors of the Federal Reserve System. The Federal Reserve, the central bank of the United States, provides the nation with a safe, flexible, and stable monetary and financial system.

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