Bernanke Suggests Fed Abandon Fed Funds Rate, Keep Balance Sheet Large

16-Apr (Wall Street Journal) — The Federal Reserve may want to change the way it controls short-term interest rates and maintain a larger asset portfolio than it did before the financial crisis, former Fed chairman Ben Bernanke said Wednesday.

Control of monetary policy “might be more, rather than less, effective” if the Fed moved away from targeting a benchmark interest rate called the federal funds rate, Mr. Bernanke said in remarks during a panel discussion hosted by the International Monetary Fund in Washington D.C.

…There would be a number of advantages, he said, and even with a large balance sheet, the Fed should be able to effectively adjust policy.

“Most other major central banks have permanently large balance sheets and are able to implement monetary policy without problems,” Mr. Bernanke said.

[source]

PG View: This is an interesting call in light of today’s announcement that Bernanke has joined hedge fund Citadel as an adviser. Keep the balance sheet big, keep the liquidity flowing.

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