I love that Steely Dan song, ‘Are you reelin’ in the years?’
That’s the song I hear in my head as I read about Federal Reserve chair Ben Bernanke talk about his plans to reel in the stimulus once the economy is on firmer footing.
Because interest rates have been kept artificially low to restart the economy, the U.S. dollar has weakened in value and commodity prices, including gold and oil, have soared.
We have the threat of inflation. Eventually, the Federal Reserve will have to tighten the money supply and raise interest rates. But it will try to do this without returning the weak economy into recession.
A liberal friend of mine repeatedly says about Ben Bernanke, “He’s not an ideologue. He has a superior mind.”
Didn’t Time magazine name Ben Bernanke as the man of the year for 2009?
The Los Angeles Times says:
The rate paid on banks’ excess reserves is 0.25 percent. Boosting that rate would give banks an incentive to keep money parked at the Fed, rather than lend it.
It also would cause the funds rate to rise, economists say. Adjusting the interest paid on banks’ excess reserves helps stabilize the funds rate when the financial system is awash in cash, as it is now.
Paying interest on the reserves is a relatively new tool for the Fed, having been authorized by a 2008 law. Many foreign central banks rely on it. The Fed started paying interest on the reserves at the height of the financial crisis in October 2008.
In his prepared remarks to the House Financial Services Committee, Bernanke lays out his most extensive details to date on the Fed’s exit strategy from record-low rates and economic stimulus.