Fed’s new tools

March 27, 2009

I told my friend last year the only good thing Bush did was to appoint Bernanke.

This isn’t a very popular opinion I know. But I am convinced that without “helicopter-Ben’s” creative ways to flood the markets with cash the crisis would have been much, much worse.

Will they avert an inflationary hangover?  Based on how they’ve performed so far, I have a good feeling the Fed will find a way.  So Janet Yellen’s recent remarks caught my attention:

The central bank is in talks with Congress about some new tools that would help the Fed’s exit strategy, Yellen said.
One idea would be to allow the Fed to issue debt to sop up excess reserves.
“Issuing such debt would reduce the volume of reserves in the financial system and push up the funds rate without shrinking the total size of our balance sheet,” Yellen said.
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