Friday, February 10, 2017

So the Fed wants a framework for doing currency banking

Tim implies that they get the idea but need a more exact method:

I don’t see broad support at the Fed for shifting toward balance-sheet policy just yet. Bullard appears to be an outlier. For the most part, monetary policy makers seem content with in the order they have established. Rates first, then balance sheet. But the realization is growing that they need to unify interest-rate and balance-sheet tools in their policy approach as the time to utilize the latter approaches. In effect, they will be targeting both the level of rates and the slope of the yield curve. It does not yet appear, however, that they have a consistent framework to unify these tools. It is tough to communicate what you don’t know, which will leave Fed speakers at a loss to explain how the two tools will be applied in practice. Watch for the Fed to start building such a framework this year.
The first thing to do is have a ghost presence for the senators who owe the 2.4 T.  In other words pretend the ghost has inside on the investment and is responding to developments. What would the ghost do? Dunno? Sell some of the 2.4 T, and explain that you are testing a third variable, senate motivation.  The Fed needss to kick the mule, just a bit, say that, then do it, sort of simultaneously.

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