From: Fed Weighs ‘Sterilized’ Bond Buying if It Act
Many Fed officials believe strongly the bank reserves it has created as part of this money creation aren’t an inflation threat. But they are acutely aware of a popular perception, also held by a few inside the Fed itself, that the money the Fed has created could cause an inflation problem down the road.
Karim writes:
Dealing with perceptions not reality.
Seems to me the force keeping yields down on the short end can be called operation tweet, as the Fed is simply announcing its forecasts for lower rates, which are subject to immediate change, data dependent.
But with operation twist, the Fed actually buys the longer term securities vs just talking about them, as it also lightens up on the shorter term securities.
So after the current knee jerk reaction to tweet I’m looking at the ramifications of twist to dominate.
Utter failure of policy.
The Fed was certain it knew what Japan had done wrong and wasn’t going to make THOSE mistakes.
So it
Cut rates much more aggressively.
Said it would do whatever it takes.
Figured out how to do its job as liquidity provider after only 6 months of alphabet soup programs.
Did heaps of Quantitative Easing.
Did the twist.
And now, realizing its done about all it can do, says monetary policy can’t do it all.
And still fails to recognize publicly the actual problem is the budget deficit is way too small.
And doesn’t directly inform Congress that
there is no such thing as a solvency problem,
the Fed controls government interest rates, and not the market,
there is no long term deficit problem with regards to finance,
the only thing we owe China is a bank statement,
Quantitative Easing and rate cuts remove interest income from the economy, which allows the deficit to be that much larger,
etc.
as we continue to go the way of Japan.
Karim writes:
Some improvement around the edges but the larger narrative is employment rising only at a rate fast enough to keep the unemployment rate stable (not higher or lower)