Thursday, September 22, 2011
Let's twist again, like we did in 1961!
All right, I know that doesn't rhyme, but I'm only an economist. At any rate, the Federal Reserve's latest attempt to goose is to twist its portfolio by selling off short-term assets and using the proceeds to buy long-term assets. The idea is that this will lower long-term rates and have a bigger effect on the economy than the old portfolio. This has been referred to as another round of quantitative easing, but it's really not because this is not an expansion of the Fed's portfolio, as with QE I and QE II. At any rate, I was going to write a post on the latest move by the Federal Reserve to goose the economy, but I found a post by someone else that sums it up very well. I think Dan Mitchell has it right when he concludes that the Fed is "pushing on a string." They are clearly trying everything in its power, and I don't see this as a bad idea, just an ultimately ineffective one.