Keeping the Federal Funds Rate "Close to" Its Target Level
Out of the many things about the current economic situation that cross my desk each day, perhaps the most informative--to me at least--are those that come from ex-Fed Governor Larry Meyers, Joel Prakken, and Macroeconomic Advisers http://www.macroadvisers.com/. It's well worthy paying for if you are in a business where learning two extra nuances about the Fed a week earlier is worth the $$$$. (If not, then just read John Berry at Bloomberg http://www.bloomberg.com/news/commentary/berry.html.)
Just one taste from this morning:
The Federal Reserve Board this morning released a statement aimed at reassuring markets that it is "providing liquidity to facilitate the orderly functioning of financial markets."... The press release does not introduce any policy changes. It simply says that the Fed is going to use its existing tools to get the job done.
We can also infer a few more subtle messages.... [O]pen market operations will be directed to bring the actual funds rate "close to" its target level. That... says that the Fed sees leaving the actual funds rate well above its target, even for a short period, as unacceptable. It also tells us that the Fed is not intending to inject "super abundant" reserves that would let the actual funds rate fall well below target.... The Fed appears to be taking steps to address the liquidity situation. That still leaves open the question of whether the liquidity situation will evolve into a macroeconomic situation....
