Did our central bankers get a clue on the corridor system?

Bank Of America Says Fed Needs To Test Interest On Reserves Power

Bank of America /Merrill Lynch analysts are warning the one tool the Federal Reserve plans to rely on most when it begins raising short-term rates is the one thing that hasn’t really been put through its paces. Analysts at Bank of America are warning the Fed should test its interest on reserves power Bloomberg “We believe the Fed’s exit toolkit is not ready for primetime,” bank analysts wrote in research Wednesday. Importantly, the Fed has not truly explored the effects of adjusting the interest rate it pays banks for reserves parked on its books as it has tested other new tools designed to help it raise rates when the time comes, the firm said. The Fed gained the power to pay interest on reserves in 2008. Since then, the central bank has created trillions of dollars in new reserves through various programs aimed at stabilizing the financial system and spurring a stronger recovery. The Fed says the large amount of reserves in the system mean it will not be able to adjust its benchmark short-term rate, the federal funds rate, as it has in the past. Instead, it will use the rate paid for reserves its primary tool for lifting short-term rates from zero, likely sometime next year. The Fed currently pays deposit-taking banks 0.25% for the reserves. By raising that rate, it would induce those firms to keep their cash at the central bank and out of the broader economy. This rate then would serve as the reference point for all other borrowing costs in the U.S. Several top central bank officials expect to start raising rates around mid-2015. The Fed expects the fed funds rate, which is set by the market, to trade just under the rate on reserves. Officials expect another tool, the interest rate it pays on reverse repurchase agreements to set a floor underneath short-term rates. Collectively the three tools will set a band for short-term rates, and by changing the high and low end rates, the Fed will influence borrowing costs throughout the economy.

Sounds to me they have figured out the corridor system.  Sometime in the next few weeks they will figure out that a 100% federal tax incoming fiat  will screw the corridor system up.  Is there some way the central bank can broach the idea of limiting Congressionl theft to 15%, a more reasonable tax? Or could they just label a part of their incoming fiat as working capital and keep Congress from sealing it?

Anyway, the Keynesians are going to go hysterical, nothing can be as simple has having a lending and savings rate and adjust them independently. They will lose their power to teach upside downism to their students.