Focus on Monetary Policy

Focus on Monetary Policy

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In a January 25 commentary, economist Axel Leijonhufvud argued that the Federal Reserve’s policy of holding short-term interest rates near zero is in effect a subsidy to banks because they then buy long-term Treasuries at higher rates and make a large risk-free return on the arbitrage.

On January 19, the Federal Reserve Bank of St. Louis launched a new web page, FOMC Speak, which is intended to be a central repository for all public statements made by members of the Federal Reserve’s policymaking arm, the Federal Open Market Committee, which consists of the 7-member Federal Reserve Board plus five of the 12 regional Federal Reserve banks on a rotating basis.

Also on January 19, economist Scott Sumner posted a commentary that is highly critical of the right-wing idea that the U.S. should return to the gold standard.

On January 17, Federal Reserve Bank of Philadelphia president Charles Plosser gave a speech in which he argued that there are severe limits to what monetary policy can accomplish.

On January 13, the Federal Reserve Bank of St. Louis posted a study that examined the relationship between monetary policy and commodity prices.

On January 10, the Federal Reserve Board announced that its earnings in 2010 increased to $80.9 billion from $53.4 billion in 2009. Consequently, it will increase its transfer to the Treasury to $78.4 billion from $47.4 billion in 2009.

On January 7, the Federal Reserve Bank of San Francisco published a working paper on the zero-bound problem – the fact that nominal interest rates can’t fall below zero, which severely constrains monetary policy under deflationary conditions. It finds that this problem is more prevalent than most economists realize.

On January 3, the Federal Reserve Bank of St. Louis published a study of changes in the language of Federal Open Market Committee statements and what they portend for changes in monetary policy.

I last posted items on this topic on January 3.

Bruce Bartlett is an American historian and columnist who focuses on the intersection between politics and economics. He blogs daily and writes a weekly column at The Fiscal Times. Bartlett has written for Forbes Magazine and Creators Syndicate, and his work is informed by many years in government, including as a senior policy analyst in the Reagan White House. He is the author of seven books including the New York Times best-seller, Imposter: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy (Doubleday, 2006).

Bruce Bartlett’s columns focus on the intersection of politics and economics. The author of seven books, he worked in government for many years and was senior policy analyst in the Reagan White House.