Has the Fed lost all control?

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Has the Fed lost all control? - 12/23/2008 10:45:54 AM

UncleNasty

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It dawns on me that the Federal may have used the last arrow in its quiver when it reduced the Federal Funds rate to between 0 and .25% This is essentiall a negative number when inflation is considered. If inflation is 5% and the funds rate is at .25% then the rate is -4.75%

Do they have any other options or means of altering the course of our economic and monetary systems left?

Uncle Nasty

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RE: Has the Fed lost all control? - 12/23/2008 10:50:38 AM

Steponme73

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Yep...they pretty much don't have a clue....

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RE: Has the Fed lost all control? - 12/23/2008 10:53:45 AM

celticlord2112

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quote:

Do they have any other options or means of altering the course of our economic and monetary systems left?

To quote Ben Bernanke, Chairman of the Board of Governors of the Federal Reserve:

quote:

But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.

_____________________________

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RE: Has the Fed lost all control? - 12/23/2008 11:39:50 AM

UncleNasty

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Helicopter Ben. I always did get a kick out of his nickname.

uncle Nasty

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RE: Has the Fed lost all control? - 12/23/2008 2:58:57 PM

Musicmystery

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Hi N,

Actually no--just the last arrow in the quiver it prefers.

Setting interest rates, open market operations, controlling the supply of currency (as well as the supply of money, not the same thing), setting bank reserve requirements--the Fed has a lot of options. Some are more dramatic (and disruptive) than others.

The Fed at present seems to be happy fiscal policy is promising to address economic woes. In the short run, inflationary policies will help, while the Fed will need to then incrementally reign in that inflation--making it yet again unpopular, but important, and yet another reason why the Fed is designed to be as politically independent as possible.

Cheers.

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RE: Has the Fed lost all control? - 12/23/2008 6:08:35 PM

corysub

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Lets not forget that the programs put in place by the Treasury and the Fed only a few months ago take time to work into the system. It's not like they can give the economy a shot for instant gratification by the masses. Interest rates have come down significantly and money is available if you have good credit
which, by the way, was always a requirment for a loan until the past decade. Mortgage rates are now available for 30 years below 5%! I can't remember a time during my adult life when rates have been this low. The ability to refinance high cost loans is causing a stampede by consumers as any mortgage broker or bank will tell you. The stock of houses for sale fell significantly and, I believe, those people paying increasing rents and holding back buying a home could easily provide a tremendous bounce in new home purchases by first time buyers. The fed has had a target of 4 1/2% for new home borrowers which would mean that a $250,000 mortgage for 30 years fixed would cost a bit more than $1600/month. Add on your local taxes and it could easily mean that buying home would make a heck of a lot of sense rather than paying rent to a landlord. And, importantly, the interest and taxes payed would be a tax deduction...making the net cost even cheaper.

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