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>Our new statement explicitly acknowledges the challenges posed by the proximity of interest rates to the effective lower bound. By reducing our scope to suppor

>Our new statement explicitly acknowledges the challenges posed by the proximity of interest rates to the effective lower bound. By reducing our scope to support the economy by cutting interest rates, the lower bound increases downward risks to employment and inflation. To counter these risks, we are prepared to use our full range of tools to support the economy. What other tools do they have besides setting interest rates? They keep alluding to these tools but do not explicitly say what they are. Should we expect another round of quantitative easing?

surfmike 6y ago
NGDP targeting has been advocated by some as superior to interest rate targeting. https://en.m.wikipedia.org/wiki/Nominal_income_target https://en.m.wikipedia.org/wiki/Nominal_income_target
alexmingoia 6y ago
“Other tools” has previously meant quantitative easing (Newspeak for buying assets with printed money), flash loans, and swap lines. The Fed has been mentioning they want the power to buy stocks: https://www.cnbc.com/2020/04/06/yellen-says-the-fed-doesnt-need-to-buy-equities-now-but-congress-should-reconsider-allowing-it.html https://www.cnbc.com/2020/04/06/yellen-says-the-fed-doesnt-n...
- neffy 6y ago
  We should I think take note that the head of the Fed is a Trump appointee, and Trump's definition of a "good economy" is one with a booming stock market. Which is something that pumping $3 trillion into M2 will certainly achieve. https://fred.stlouisfed.org/series/M2 https://fred.stlouisfed.org/series/M2 What else it will achieve is another matter entirely
  - beachbau 6y ago
    I think it’s very unfair to paint trump in that light. Stock market is the main focus for any president, but that’s because companies on the stock market employed A TON of PEOPLE. Of course there are companies who lay-off while stocks go vertical, but in general, stock prices rise allow companies to raise capital and hire more workers. Also, this administration has been very active in getting money into the hands of the consumers directly. And also trying to shift work away from China back to the states
    - avmich 6y ago
      You're having things backwards, and I don't know where to start educating you, so I won't. Just remember some good rules of thumb: stock market isn't economy, allowing hiring workers isn't the same as hiring workers, US government is quite able to pursue conflicting goals at the same time. And welcome to Hacker News.
    - stubtoe 6y ago
      You have a 12 year old’s understanding of the world.
    - arxv33 6y ago
      While I think it is unfair to downvote someone just for offering their point of view but I do disagree with your point of view. Trump got elected because of the working class who typically don’t see the light of increasing stock market. May be they should and may be having some kind of mandatory 401k match the administration was proposing at some point would help them but by and large they don’t. China is one area I think he has been more consistent with. But the market largely doesn’t benefit from that. That’s why market cheered when the trade deal was signed and now Wall St is largely behind Biden camp hoping the status quo persists. If anything stock market wants to see rising China and stable relationships even though it might hurt long term bottom line and jobs here in US.
  - bertjk 6y ago
    Don't you think you might be viewing this through an excessively partisan lens? Before Jerome Powell was the Fed Chair, he was a 5 year veteran of the Fed Board of Governors, having been nominated by Barack Obama. His appointment was approved in votes that included the vast majority of Democrats. Are his dovish views all that different from his predecessors, Janet Yellen or "Helicopter Ben" Bernanke? You seem to be insinuating that he is an undeserving lackey, something like a Betsy DeVos. But I just don't see the evidence for that.
    - neffy 6y ago
      Possibly, but let me put that another way. Something like this has never happened to a systemically import currency before in the history of reserve currencies of the world - the US dollar since Bretton Woods, Sterling roughly the hundred years before that. The quality essentially required of a reserve currency being that it doesn't do this. Definitely popcorn time - also don't own long date low interest rate bonds time. Which would be most of them. Oops.
BurningFrog 6y ago
The art of being a central bank is to sound like you say something, in a cryptic way, open to interpretation, yet not empty of real content. It's a place that requires economic as well as poetic expertise.
- koolba 6y ago
  If you due it just right you can instill a continuous irrational exuberance in the markets.
gottareply2020 6y ago
Normally the US Fed has the following four tools at their disposal: the discount rate, reserve requirements, open market operations, and interest on reserves. But now due to a very florid interpretation of the CARES Act [0], the US Fed has decided it is legal to buy both corporate debt and stocks[1]. This helps explain why the market is on such a bull run. The Fed has said they will be bailing out 401ks. The republicans (who would normally abhor this type of fiscal overreach) are delighted and the democrats don't know enough to read the writing on the wall. [0] https://www.bloomberg.com/opinion/articles/2020-06-18/fed-seems-to-skirt-the-law-to-buy-corporate-bonds https://www.bloomberg.com/opinion/articles/2020-06-18/fed-se... [1] https://www.forbes.com/sites/kevincoldiron/2020/07/18/the-fed-is-going-to-buy-stocks/#5491fcb6eb49 https://www.forbes.com/sites/kevincoldiron/2020/07/18/the-fe...
- toomuchtodo 6y ago
  To be fair, the Fed is going to bail out social security as well when they buy Treasuries to replenish the SS trust fund gap. The path to an attempted soft landing is inflating away the constraints the economy is encountering. We’re going to print, not repay, our way out of this.
  - baconandeggs 6y ago
    > We’re going to print, not repay, our way out of this. Try to, we're going to try to print our way out of it.
    - ethbro 6y ago
      If the Fed wants to print their way out of this, the Fed can print their way out of this. https://fred.stlouisfed.org/series/M2 https://fred.stlouisfed.org/series/M2
      - baconandeggs 6y ago
        Nominally you can do whatever you want, that it solves anything is another question. And in fact, they've been printing money for over a decade and things have only gotten worse. The Enron balance sheet could handle a lot too.
aniro 6y ago
Eliminating reserve requirements (the net effect of which is to allow banks themselves to print money at will). This has already been done.
neilwilson 6y ago
They don’t have anything material, because the whole notion of controlling an economy with debt and unemployment demonstrably doesn’t work. That’s why we are where we are. This idea sprung up in the 1960s and took hold in the 1970s because some people couldn’t answer the inflation question that was a result of the failure of Bretton Woods and the oil shock. We’re about the see another paradigm shift away from Central Banks as Wizard of Oz. Hence the rise in interest in Modern Money Theory which puts the central bank Debt toy away and concentrates on what actually matters - ensuring everybody has an opportunity to contribute and gets an income from doing that.
- tupputuppu 6y ago
  It's safe to say Modern Monetary Theory is rejected by most if not all mainstream economists.

surfmike 6y ago

NGDP targeting has been advocated by some as superior to interest rate targeting. https://en.m.wikipedia.org/wiki/Nominal_income_target https://en.m.wikipedia.org/wiki/Nominal_income_target

alexmingoia 6y ago

“Other tools” has previously meant quantitative easing (Newspeak for buying assets with printed money), flash loans, and swap lines. The Fed has been mentioning they want the power to buy stocks: https://www.cnbc.com/2020/04/06/yellen-says-the-fed-doesnt-need-to-buy-equities-now-but-congress-should-reconsider-allowing-it.html https://www.cnbc.com/2020/04/06/yellen-says-the-fed-doesnt-n...

neffy 6y ago
We should I think take note that the head of the Fed is a Trump appointee, and Trump's definition of a "good economy" is one with a booming stock market. Which is something that pumping $3 trillion into M2 will certainly achieve. https://fred.stlouisfed.org/series/M2 https://fred.stlouisfed.org/series/M2 What else it will achieve is another matter entirely
- beachbau 6y ago
  I think it’s very unfair to paint trump in that light. Stock market is the main focus for any president, but that’s because companies on the stock market employed A TON of PEOPLE. Of course there are companies who lay-off while stocks go vertical, but in general, stock prices rise allow companies to raise capital and hire more workers. Also, this administration has been very active in getting money into the hands of the consumers directly. And also trying to shift work away from China back to the states
  - avmich 6y ago
    You're having things backwards, and I don't know where to start educating you, so I won't. Just remember some good rules of thumb: stock market isn't economy, allowing hiring workers isn't the same as hiring workers, US government is quite able to pursue conflicting goals at the same time. And welcome to Hacker News.
  - stubtoe 6y ago
    You have a 12 year old’s understanding of the world.
  - arxv33 6y ago
    While I think it is unfair to downvote someone just for offering their point of view but I do disagree with your point of view. Trump got elected because of the working class who typically don’t see the light of increasing stock market. May be they should and may be having some kind of mandatory 401k match the administration was proposing at some point would help them but by and large they don’t. China is one area I think he has been more consistent with. But the market largely doesn’t benefit from that. That’s why market cheered when the trade deal was signed and now Wall St is largely behind Biden camp hoping the status quo persists. If anything stock market wants to see rising China and stable relationships even though it might hurt long term bottom line and jobs here in US.
- bertjk 6y ago
  Don't you think you might be viewing this through an excessively partisan lens? Before Jerome Powell was the Fed Chair, he was a 5 year veteran of the Fed Board of Governors, having been nominated by Barack Obama. His appointment was approved in votes that included the vast majority of Democrats. Are his dovish views all that different from his predecessors, Janet Yellen or "Helicopter Ben" Bernanke? You seem to be insinuating that he is an undeserving lackey, something like a Betsy DeVos. But I just don't see the evidence for that.
  - neffy 6y ago
    Possibly, but let me put that another way. Something like this has never happened to a systemically import currency before in the history of reserve currencies of the world - the US dollar since Bretton Woods, Sterling roughly the hundred years before that. The quality essentially required of a reserve currency being that it doesn't do this. Definitely popcorn time - also don't own long date low interest rate bonds time. Which would be most of them. Oops.

BurningFrog 6y ago

The art of being a central bank is to sound like you say something, in a cryptic way, open to interpretation, yet not empty of real content. It's a place that requires economic as well as poetic expertise.

koolba 6y ago
If you due it just right you can instill a continuous irrational exuberance in the markets.

gottareply2020 6y ago

Normally the US Fed has the following four tools at their disposal: the discount rate, reserve requirements, open market operations, and interest on reserves. But now due to a very florid interpretation of the CARES Act [0], the US Fed has decided it is legal to buy both corporate debt and stocks[1]. This helps explain why the market is on such a bull run. The Fed has said they will be bailing out 401ks. The republicans (who would normally abhor this type of fiscal overreach) are delighted and the democrats don't know enough to read the writing on the wall. [0] https://www.bloomberg.com/opinion/articles/2020-06-18/fed-seems-to-skirt-the-law-to-buy-corporate-bonds https://www.bloomberg.com/opinion/articles/2020-06-18/fed-se... [1] https://www.forbes.com/sites/kevincoldiron/2020/07/18/the-fed-is-going-to-buy-stocks/#5491fcb6eb49 https://www.forbes.com/sites/kevincoldiron/2020/07/18/the-fe...

toomuchtodo 6y ago
To be fair, the Fed is going to bail out social security as well when they buy Treasuries to replenish the SS trust fund gap. The path to an attempted soft landing is inflating away the constraints the economy is encountering. We’re going to print, not repay, our way out of this.
- baconandeggs 6y ago
  > We’re going to print, not repay, our way out of this. Try to, we're going to try to print our way out of it.
  - ethbro 6y ago
    If the Fed wants to print their way out of this, the Fed can print their way out of this. https://fred.stlouisfed.org/series/M2 https://fred.stlouisfed.org/series/M2
    - baconandeggs 6y ago
      Nominally you can do whatever you want, that it solves anything is another question. And in fact, they've been printing money for over a decade and things have only gotten worse. The Enron balance sheet could handle a lot too.

aniro 6y ago

Eliminating reserve requirements (the net effect of which is to allow banks themselves to print money at will). This has already been done.

neilwilson 6y ago

They don’t have anything material, because the whole notion of controlling an economy with debt and unemployment demonstrably doesn’t work. That’s why we are where we are. This idea sprung up in the 1960s and took hold in the 1970s because some people couldn’t answer the inflation question that was a result of the failure of Bretton Woods and the oil shock. We’re about the see another paradigm shift away from Central Banks as Wizard of Oz. Hence the rise in interest in Modern Money Theory which puts the central bank Debt toy away and concentrates on what actually matters - ensuring everybody has an opportunity to contribute and gets an income from doing that.

tupputuppu 6y ago
It's safe to say Modern Monetary Theory is rejected by most if not all mainstream economists.