NY Times:
Central banks influence economic growth by raising and lowering borrowing costs. Higher costs crimp risk-taking; lower costs stimulate expansion. Those costs, expressed as interest rates, combine the price of money with an additional increment to compensate for inflation. Higher inflation means rates will run higher in normal times, allowing the Fed to make larger cuts during periods of duress.
Biny:
Look at the data and see if central bank sets rates. I looked, and I found three times the Fed has set rates since 1970. One, the Nixon shock; Two,, Volker raised the reserve requirement, and three, Selgin and Beckworth proved their case, at least in 2003, that the Fed acted to reduce rates.
That's it, I have found no other place where Greenspan or Bernanke did anything other than follow the bond market. The Fed mostly smoothes out the daily variance in overnight lending, and helps banks meet their monthly reserve requirement. Otherwise, rates are almost always vary with the one year bond rate.
The assumption that the fed sets rates was made by the MIT Basket Weavers, so they could use Newton's grammar, and they never checked that assumption. We are now at three generations of economists who have failed to check that assumption. It is not true in fact.
Right now the effective funds rate is below the IOER, and the IOER is the first direct rate setting power the Fed has ever had, and it is been around since 2008 , and the Fed is frightened to death to touch it. Right now the market rate for overnight lending is about .15; .1 below the IOER rate.
Biny, trying looking at the data, then speak. Isn't that what they teach in econ?
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