Our Unhinged Fed

If you haven ’t seen much of me on these pages lately, that’s because I’ve spent most of the last few weeks feeding and grooming my favorite hobby horse: that’s right, the Fed’s policy of encouraging banks to hoard reserves by paying above-market rates on their Fed reserve balances.Well, last Thursday morning I rode the old gal to Capitol Hill, where I put her through the paces before the House Financial Services Subcommittee on Monetary Policy and Trade, at its hearing on“Monetary Policy v. Fiscal Policy: Risks to Price Stability and the Economy.” Mickey Levy of Berenberg Capital Markets, Eric Leeper of Indiana University at Bloomington, and Jared Bernstein of the Center on Budget and Policy Priorities, also took part.Below I reproduce my five-minute spoken testimony, in which I attempt to summarize thetwenty-two thousand word written testimony I submitted beforehand.   All four written testimonies, including my screed, can beread here.   Those who wish to see the entire show, including my and the other participants’ replies to members’ questions, will find a video embedded further below.***Chairman Barr; Ranking member Moore; distinguished committee members: In October, 2008, the Federal Reserve began paying interest on banks ’ reserve balances with it. My testimony today concerns the economic consequences of that step.The Fed was originally supposed tostart paying interest on reserves in 2011, to reduce the implicit tax burden reserve requirements pla...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs