Financial Regulation
Econ 115: Fall 2009: Lecture Audio Files: Before World War I

Something to Watch: The Federal Reserve's New Toys

Krishna Guha: | Money Supply | More stress on the Fed’s exit tools: The Treasury’s decision to run down its supplemental funding programme for the Fed puts yet more pressure on untested tools the Fed is relying on to sterilise excess reserves when the time comes to raise interest rates. I happen to think these tools will work. Still, the Fed can hardly be thrilled about this.

It reminds me that the Fed faces an interesting choice as to whether it should trial some of these techniques - such as the use of reverse repos against its MBS portfolio - long before it actually has to rely on them. I think trial runs make sense, but the Fed would have to manage the signalling side of that very carefully.