Fed lukewarm on IOER cut

According to the WSJ’s Hilsenrath, there is little appetite for cutting the Interest on Excess Reserves Rate.

There’s no groundswell at the Fed to follow suit, however. This became apparent when Fed Chairman Ben Bernanke did not even mention it as an option in his lengthy discussion Friday of steps the Fed can take to stimulate the weak economy.

Given this cool reception, officials seem unlikely to move aggressively down this path, if at all. If there is a middle ground for the Fed chairman, it might be a very small cut in this interest rate to some level still above zero, packaged together with other measures to boost growth.

Further down the article, Jon says that QE3 is currently being discussed:

There is another roadblock at the Fed to advancing this idea. Officials are in the midst of intense discussions about other policy changes, including launching a new bond-buying program, and they are deeply divisive. A debate over the interest paid on reserves might be a distraction, and a source of unneeded disagreement, as they try to reach agreement on what many see as bigger issues.

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4 Responses to Fed lukewarm on IOER cut

  1. Rajat says:

    Apparently, Bill Gross thinks the Fed is interested in open-ended QE, although he doesn’t think it will do any good for the economy because interest rates are already at zero. An oddly limited view of the transmission mechanism.

    • Ricardo says:

      Bill is always taking his own book.

      • Rajat says:

        What do you think that means in this context? That he’s got a lot of bonds and doesn’t want more QE because it is supposedly pointless even though he knows it would destroy his position, or that he’s sold his bonds and wants people to think the Fed will do open-ended QE even though he genuinely thinks it won’t do anything for the economy?

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