Home -> Law Blog Directory -> Legal Commentary Blogs -> Economics of Contempt

Legal Commentary

: Economics of Contempt

Fed: Ideal Taylor-rule interest rate is -5%

By Anonymous

From the FT:

The ideal interest rate for the US economy in current conditions would be minus 5 per cent, according to internal analysis prepared for the Federal Reserve?s last policy meeting.

The analysis was based on a so-called Taylor-rule approach that estimates an appropriate interest rate based on unemployment and inflation.

A central bank cannot cut interest rates below zero. However, the staff research suggests the Fed should maintain unconventional policies that provide stimulus roughly equivalent to an interest rate of minus 5 per cent.

Fed staff separately estimated what size and type of unconventional operations, including asset purchases, might provide this level of stimulus. They suggested that the Fed should expand its asset purchases by even more than the $1,150bn (?885bn, £788bn) increase policymakers authorised at the last meeting, which included $300bn of Treasury purchases.

Could it be that most of the Fed's new facilities were implemented based on a desire to achieve effective monetary policy? No, because that doesn't conform to the media's narrative of the financial crisis, in which the Fed has been secretly bailing out its Wall Street fat cat friends.

Full post as published by Economics of Contempt on April 27, 2009 (boomark / email).