Must-Read: Ben Bernanke: The FOMC, the Board of Governors, and Fed Interest Rate Policy
Must-Read: Ben Bernanke tries to clean up misinformation from Benn Steil.
No, I don’t know why Benn Steil writes what he writes. I never have.
The FOMC, the Board of Governors, and Fed Interest Rate Policy: “Benn Steil argues that, for the purpose of predicting changes in the stance of monetary policy…:
…Fed-watchers… instead of paying attention to the… FOMC… should focus on the Fed’s Board of Governors…. Steil’s argument… [is that] to raise the federal funds rate… the Fed will have to rely on novel tools, including changes in the rate of interest it chooses to pay on reserves…. Steil is correct that the interest rate paid on reserves will be one important tool…. Other important tools… such as the so-called reverse repo facility, are under the control of the FOMC. More fundamentally… he misunderstands… the Fed…. Fed policymakers know that the expectation of the Congress and the public is that monetary policy will be made by the FOMC… explicit both internally and externally about the primacy of the FOMC…. There is historical precedent for the Board having technical authorities that in practice were subordinated to FOMC decisions. The Board has long had the authority to set the discount rate… [used to] anchor the federal funds rate… at a level just below the target…. When the FOMC changed its fund rate target, the Board routinely and automatically adjusted the discount rate in tandem with the FOMC’s action…. The views of Board members are relevant… because Board members are also voters on the FOMC, not because… the Board will try to block implementation of an FOMC decision.