正文
WSJ By Sudeep Reddy
Economists react to the Federal Reserve’s announcement that it will raise the discount rate:
* To normalize capital markets, the Fed has to eliminate the distortions quantitative ease create and, to this end, raising the discount rate is the first of many necessary steps. The last step will be directly raising short-term markets rates, be it the Fed funds rate or the IOER [interest rate on excess reserves]. We still don’t know what will guide the Fed to do how much and when, and that is a problem. Today’s move was designed to take free arbitrage off the table rather than be any statement about the state of the economy other than that the financial system is stable enough to begin standing on its own. A stable financial system is necessary for the economy to grow but not sufficient. The minutes of the January FOMC meeting were a sober assessment of the economy giving little sense that prospects are for anything more than stable growth around 2% to 3% despite record monetary and fiscal stimulus. Given this outlook, a pace of unwind as accelerated as some FOMC members seem to want is very much unlikely. – Steve Blitz, Majestic Research
* While the increase in the discount rate came a bit earlier than we thought, it was clearly heralded by Chairman Bernanke in his testimony on February 10. … This step, in combination with the closure of most short-term liquidity programs earlier this month “is intended as a further normalization of the Fed’s lending facilities” in light of continued improvement in financial market conditions. We too would like to emphasize that the discount rate is a tool for addressing financial system stress, while the fed funds rate is a tool for addressing macroeconomic stability. … Just like easing the terms for discount window lending programs was the first response of the Fed to the crisis (in August 2007), its removal is now the first part of the exit strategy. – Harm Bandholz, UniCredit Research
* The Federal Reserve Board’s hike in the discount rate Thursday signifies a separation between credit easing and traditional monetary policy. However, it does not alter our forecast for the central bank to leave both the interest paid on reserves and the fed funds rate target unchanged until the fourth quarter of 2010. A higher discount rate makes sense, particularly since the Fed has closed many of its emergency lending facilities and demand for funding has slowed substantially. … The central bank is attempting to wean banks off government sources of liquidity. The Fed wants depository institutions to rely more on private funding markets and banks to shore up their capital the old fashioned way—by borrowing short and lending long. The recent widening of the yield curve, which reached a record earlier Thursday, should help in that regard. – Ryan Sweet, Moody’s Economy.com
* Along with the recent closure of most of the emergency liquidity facilities set up during the financial crisis, the widening of the spread between the discount rate and the upper bound of the fed funds target rate is another step in the normalisation of the Fed’s lending role. Before the crisis began, borrowers at the discount window were charged a [one percentage point] premium over the fed funds rate and could only borrow overnight. The day after Bear Stearns collapsed, that premium was slashed to [0.25 percentage point] and the maximum duration of loans was extended to 90 days. This rate hike takes the premium back up to [0.5 percentage point] and the Fed also announced that only overnight loans will be available from mid-March onwards. – Paul Ashworth, Capital Economics
* This move is part of the removal of unconventional measures and should not be seen as a signal of a change in the Fed’s monetary policy stance. The timing of the announcement — away from an FOMC meeting and alongside the H.4.1 release of factors affecting reserve balances — was designed to reinforce this separation of the discount rate spread normalization and monetary policy. This move does not alter our view that the Fed’s first policy rate hike will come in [the first half of 2011]. – Bruce Kasman, J.P. Morgan Chase
Economists react to the Federal Reserve’s announcement that it will raise the discount rate:
* To normalize capital markets, the Fed has to eliminate the distortions quantitative ease create and, to this end, raising the discount rate is the first of many necessary steps. The last step will be directly raising short-term markets rates, be it the Fed funds rate or the IOER [interest rate on excess reserves]. We still don’t know what will guide the Fed to do how much and when, and that is a problem. Today’s move was designed to take free arbitrage off the table rather than be any statement about the state of the economy other than that the financial system is stable enough to begin standing on its own. A stable financial system is necessary for the economy to grow but not sufficient. The minutes of the January FOMC meeting were a sober assessment of the economy giving little sense that prospects are for anything more than stable growth around 2% to 3% despite record monetary and fiscal stimulus. Given this outlook, a pace of unwind as accelerated as some FOMC members seem to want is very much unlikely. – Steve Blitz, Majestic Research
* While the increase in the discount rate came a bit earlier than we thought, it was clearly heralded by Chairman Bernanke in his testimony on February 10. … This step, in combination with the closure of most short-term liquidity programs earlier this month “is intended as a further normalization of the Fed’s lending facilities” in light of continued improvement in financial market conditions. We too would like to emphasize that the discount rate is a tool for addressing financial system stress, while the fed funds rate is a tool for addressing macroeconomic stability. … Just like easing the terms for discount window lending programs was the first response of the Fed to the crisis (in August 2007), its removal is now the first part of the exit strategy. – Harm Bandholz, UniCredit Research
* The Federal Reserve Board’s hike in the discount rate Thursday signifies a separation between credit easing and traditional monetary policy. However, it does not alter our forecast for the central bank to leave both the interest paid on reserves and the fed funds rate target unchanged until the fourth quarter of 2010. A higher discount rate makes sense, particularly since the Fed has closed many of its emergency lending facilities and demand for funding has slowed substantially. … The central bank is attempting to wean banks off government sources of liquidity. The Fed wants depository institutions to rely more on private funding markets and banks to shore up their capital the old fashioned way—by borrowing short and lending long. The recent widening of the yield curve, which reached a record earlier Thursday, should help in that regard. – Ryan Sweet, Moody’s Economy.com
* Along with the recent closure of most of the emergency liquidity facilities set up during the financial crisis, the widening of the spread between the discount rate and the upper bound of the fed funds target rate is another step in the normalisation of the Fed’s lending role. Before the crisis began, borrowers at the discount window were charged a [one percentage point] premium over the fed funds rate and could only borrow overnight. The day after Bear Stearns collapsed, that premium was slashed to [0.25 percentage point] and the maximum duration of loans was extended to 90 days. This rate hike takes the premium back up to [0.5 percentage point] and the Fed also announced that only overnight loans will be available from mid-March onwards. – Paul Ashworth, Capital Economics
* This move is part of the removal of unconventional measures and should not be seen as a signal of a change in the Fed’s monetary policy stance. The timing of the announcement — away from an FOMC meeting and alongside the H.4.1 release of factors affecting reserve balances — was designed to reinforce this separation of the discount rate spread normalization and monetary policy. This move does not alter our view that the Fed’s first policy rate hike will come in [the first half of 2011]. – Bruce Kasman, J.P. Morgan Chase
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