Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: accountclosed who wrote (63883)	2/1/2001 11:08:09 AM
From: flatsville	Read Replies (1) \| Respond to of 436258

Antman- in the volker era, the fed controlled money supply. in the greenspan era, the fed controls the fed funds rate. wouldn't one expect liquidity to be required to facilitate the 50 basis point reduction in fed funds announced yesterday? We've been down the road with this question before...shortly after the early Jan. "surprise" rate cut. If you recall I asked you then "If Uncle Al needs to print to facilitate his .50 point rate reduction, then how do you explain the printathon that occured prior to y2k during a period of rate increase?" (IIRC you didn't respond?) If you explain it with the answer y2k, then printing has no real relationship to rates. I suspect that is the case as this abstract implies: stls.frb.org The Relationship Between the Federal Funds Rate and the Fed's Federal Funds Rate Target: Is It Open Market or Open Mouth Operations? by — Daniel L. Thornton ABSTRACT --1999-022B It is widely believed that the Fed controls the funds rate by altering the degree of pressure in the reserve market through open market operations when it changes its target for the federal funds rate. Recently, however, several economists have suggested that open market operations may not be necessary for controlling the funds rate. Rather, they suggest that the Fed controls the funds rate through open mouth operations. The Fed merely indicates its desire to change the funds rate and the market does the rest. This paper investigates the extent to which the close relationship between the federal funds rate and the federal funds rate target is due to open market or open mouth operations. Finding little evidence to support either the open market or open-mouth hypothesis, the possibility that many target changes represent the endogenous actions of the Fed real shocks and inflation surprises is briefly considered. This paper is available in Acrobat PDF (359kb) format.