Confessions of A Federal Reserve Official

As mentioned in an earlier post, Dr. Harvey Rosenblum was the keynote speaker at the Texas Investment Symposium Event (Tips). Dr. Rosenblum, a very candid speaker with a knack for making complex subjects understandable, (economics can be very confusing) said something during his speech, very matter-of-factly that I have not heard before from a Fed official.

Dr. Rosenblum confessed that the FOMC’s current interest rate policy no longer has the teeth prior policy makers had available them.  Long suspicious of this fact by many, including myself, it was interesting to hear Dr. Rosenblum so casually mention this fact.

Why is current interest rate policy less effective?

The following chart is of the FOMC target interest rate policy. Notice how this last cycle we have moved to zero and are holding.

Where can you go from here ?

Fed Target Rate: New York

There are no more bullets in the gun! Notice in prior years there was room to move down (turn the heat up on the economy) and have an effect on the economy. Since we currently have a close to zero interest rate policy, it makes sense that the latest changes have had a much slower result in changing the direction of our current economic situation.

Other Operations Necessary

Dr. Rosenblum mentioned over a half of dozen NEW economic stimulus plans that were established during the 07-09 crisis, many of which are now closed, as the new open market operations (economic stimulus) levers of the future.  While there may be many new future tools for the FED to embrace our bet is an eventual return to normalcy.

What is old is New Again

Similar to that old phrase of what is old is new again, we are wishful of an eventual rising of short-term rates that will allow Fed policy makers to “re-load” the gun for the eventual next economic downturn.

Have a Great Day!



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