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I honestly believe that this is how QE will be reintroduced. The article even mentions that a "solution" to the repo squeeze will be for the Fed to begin expand
by jdhn 7y ago
I honestly believe that this is how QE will be reintroduced. The article even mentions that a "solution" to the repo squeeze will be for the Fed to begin expanding its balance sheet in order to create more bank reserves.
My question is this: will interest rates ever be allowed to go back up to historical norms? This episode clearly shows that the Fed won't allow rates to go up even if it's a temporary spike, so why should we believe that Treasury yields will be allowed to go back up?
- ohazi 7y agoI'm no economist, but my intuition is that under normal circumstances, it makes sense for a country's interest rate to be close to the growth rate of that country's economy. Given that, it doesn't seem likely that the US will ever go back to 7% interest rates.
- guerrilla 7y agoI know you said intuition but can you elaborate why you think that?
- vladimirralev 7y agoIt's a matter of fiscal policy if we will see higher rates. If someone like Yang is elected with his free $1000 per month, we will see quick inflation and less people looking for work. The Fed mandate is to maintain some price stability and full employment (of people asking for jobs), so we will see higher rates in this case. If the banks start to crash and burn we can see non-leaking reserve QE in the same time. Some people believe the bond markets can force higher interest rates and QT, but this seems less likely now. If nobody is buying new bonds for example, people think Fed will be pressured to override normal mandate, even though they should be independent.