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this is an excellent summary, by @DavidBeckworth.
my (unusual) take is that if the Fed has stumbled, it’s by being too activist.
after a decade when there was no percentage (just a few bps) in lending rather than holding reserves, it’s not just the Fed lacking some muscle 1/
my (unusual) take is that if the Fed has stumbled, it’s by being too activist.
after a decade when there was no percentage (just a few bps) in lending rather than holding reserves, it’s not just the Fed lacking some muscle 1/
memory. We have no idea how much market segmentation contributed to apparent reserve scarcity, and by not letting price incentives encourage institutions who’ve been unworried about reserve efficiencies, we are accommodating rather than shaking out that 2/
segmentation. As @hussmanjp has pointed out, big annualized rate numbers for a few overnights is not a funding crisis for anyone, and we have no idea how long those spikes would have persisted absent forceful Fed action to put out the “fire”.
In general, the Fed should not be 3/
In general, the Fed should not be 3/
judged by the smoothness with which it keeps targets. It is not an index fund to be evaluated against “tracking error”. The macro effect of what the Fed does is in the broad levels of rates and reserves, not in the volatility around those levels.
The amazing @macroresilience 4/
The amazing @macroresilience 4/
used to talk about the tradeoff between stability and resilience. We have not listened, and because we are snakebit, still, by the financial crisis, our institutions are desperate to supply the stability that looks like resilience but encourages its opposite. If there are 5/
institutions for which a fee nights of expensive funding would be a problem, then we are already a long way down the path of financial fragility. The Fed needs to do a better job of normalizing volatility, so that institutions remain prepared for the unexpected. If the 6/
“macroprudentialism” of the last decade translates to everyone expecting central banks and regulators to counter any setback, we have sown the seeds either of yet more financial crisis or interventions that will amount to large subsidies of institutions whose usefulness is 7/
decreasingly clear, but whose contribution to social stratification and potential political backlash remains very strong. /fin
