Here’s the plan, timing and repercussions the unknown

By Peter Boockvar - February 10th, 2010, 10:56AM

Bernanke is laying out the exit steps the Fed will take but not sure when. The first and not surprising move the Fed will make is increasing the discount rate, thus widening the spread (modest) between it and the FF rate. It’s been talked about for a while so not a surprise. He wants us to focus more on the tool of raising interest rates on reserves which would entice banks to keep money with the Fed instead of lending it out. Using this instead of first raising the FF rate is because the Fed feels they have lost some control on getting the effective fed funds rate to meet its target. With respect to their purchases of MBS, they will not be selling them anytime soon. He mentions using reverse repo’s and term deposits to take money out of the system. He remains very dovish on inflation and repeats the “exceptionally low” “for extended period” phrase for the the FF rate. Put on your seat belt when all this begins.

PERMALINK
Category: MacroNotes.

Comments

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

2 Responses to “Here’s the plan, timing and repercussions the unknown”

KidDynamite Says:
February 10th, 2010 at 12:00 pm
peter – isn’t one problem (in terms of reduced velocity of money, and the reason that “main street” isn’t seeing the effects of the massively increased liquidity) that the banks already ARE holding all this excess liquidity as reserves Fed banks instead of lending it out?!?!?! in other words, there already are just keeping the money instead of using it…
The Window Washer Says:
February 10th, 2010 at 2:31 pm
The problem is what happens if the banks do start lending. Remember the 10 to 1 ratio they do it at. That money explosion is what they want to control.