Interest on Fed reserves is the wrong market policy to criticize

When there are excess bank reserves, the Natural Equilibrium of Interest Rates (NEIR) points out the cost of capital is an integral part of inflation because fed funds are naturally near 0%, so when the Federal Reserve Bank increases the cost of capital by paying Interest On Excess Reserves (IOER), this policy is in fact inflationary and risks stagflation. When there are excess bank reserves, restricting leverage rather.

Monetary policy in the united states comprises the Federal Reserve’s actions and communications to promote maximum employment, stable prices, and moderate long-term interest rates–the three economic goals the Congress has instructed the Federal Reserve to pursue.

 · While the Fed influences interest rates, it does not directly control most of them. First of all, when the Federal Reserve Board periodically announces that it is raising or lowering interest rates, it is referring to the rate at which banks borrow for day-to-day liquidity needs.

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BankThink Interest on Fed reserves is the wrong market policy to criticize Christopher Whalen Chairman Whalen global advisors llc. The expansion of the Federal Reserve’s portfolio of Treasury debt and mortgage-backed securities has a bigger impact on the credit markets than paying banks interest on excess reserves.

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