ben bernanke says he is going to taper off the fed bond buying program but he is going to be
super "accomodative" in keeping interest rates low for "a long time". So how will the fed
be able to keep interest rates low without open market operations like bond buying?
will he lower reserve requirements, increase leverage ratios (which is rarely done), adjust fed fund rate (probably not very effective)???
It just doesnt make sense to me. Anyone know???
Anonymous
Favorite Answer
Japan has done it since January. Why can't the FED? It can also use operation twist to increase long term rate instead. The bond rate is now on the increasing and has reached 2.65% from 1.85% already. The problem is not the rate, but the state of the economy, and the effectiveness of his QE. Banks' excess reserves are on the rise which are deposited at the FED and taken out of money supply. Because the dollar has appreciated and capital inflow has increased recently, the monetary policy will not anymore jack up anything.
david
They are hoping that 'forward guidance' i.e. talking about their intention to keep overnight rates low for the foreseeable future, will cause long term rates to remain low, even if the bond buying program is terminated. The idea is that if you know overnight rates are going to be low, then you are going to get very low interest in a savings account for along time, so bonds will be attractive.
Hahha348
He won't be able to keep them low forever...ultra low Rates to keep up the borrow and spend economy are dependent on Ben's asset buying. if he buys too much, we'll really begin to see the higher prices. Bernanke can either allow rates to rise (like they need to) or hyperinflate the economy into oblivion. We need higher rates to get the savings back up.
?
USA has reached 1.5% and 150 points from zero, Japan is only 50 point away and does not know what to do .
He has seen turmoil of Japan and knows better not touch rates anymore.
But, it has become common in USA to give big names to small steps.
like if I am sleeping off ... I would say " I am tapering off my awakeness."
I think he does not have to do anything because his forecast of inflation and growth are encouraging, besides dollars is rising every odd day.