The Discount Rate Isn't a Monetary Policy Move, Fed Swears

That's really funny because I have this comic book in front of me called "The Story of the Federal Reserve System" that is jam-packed with bad art and a reference to the discount rate that says the exact opposite. "Still another tool of monetary policy involves the discount rate..." They wrote it, not me. (you can get your copy directly from FRBNY, I've got plenty I'll be using as shredded bedding for my hamster if the SF Chronicle shrinks any smaller)

Wait a second, Bill Dudley's own NY Fed published this crap, does he know what he's saying?

WSJ's Real Time Economics:

Federal Reserve Bank of New York President William Dudley said Friday the increase in the discount rate done by the central bank late Thursday was “technical” in nature.

“We made a very small technical change” by raising the discount rate, Dudley said. “The action yesterday was really an action about the improvement in banks,” and reflected the fact these institutions no longer need this emergency source of cheap funding the way they did during the depths of the financial crisis, the official said.

The discount rate increase “is not at all a signal of any imminent tightening” in monetary policy, and the Fed’s commitment to keep rates very low for an extended period “is still very much in place,” Dudley said.

I'm sure he does. If not, his Fed colleagues are happy to chirp in and reiterate the point to calm the crackheads hooked on easy money.

Fed Governor Elizabeth Duke took a moment from waxing poetic over her first year at the Fed to back up her homie Dudley on the point that the discount rate move is more, well, show than anything else.

So what is it? Tightening? Faking it? To hear Duke tell it, it's just to remind everyone that the Fed is no one's bitch. Ooooh, I'm shaking in my Pumas over here.

“I’d emphasize that the changes are simply a reversal of the spread reduction we made to combat stigma and like the closure of a number of extraordinary credit programs earlier this month, represent further normalization of the Federal Reserve’s lending facilities; they do not signal any change in the outlook for monetary policy and are not expected to lead to tighter financial conditions for households and businesses,” Duke said in her prepared remarks.

So that other tool for monetary policy that the Fed's own propaganda pushes? Forget about it.

They attached their balance sheet to the announcement just in case you didn't know they're already in a shit load of trouble with no way out. That was nice of them, eh?

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


Pinky Swear said...

How publicly to characterize the discount rate and reserve requirements is a contentious issue within the Fed because until recently they let open-market operations do all the work and tried to cancel out the effects of anything else. Realistically, the discount rate is a monetary policy tool, but for now anyway not much of one.

They should really be more careful about how they phrase things, you'd be surprised how clever the unwashed masses can be.

Trust me, I'm shocked myself. I never expected they'd give this much of a shit about any of it or put down the teevee remote long enough to question any of it.

I understand the particulars of the discount rate but chose instead to ignore that and focus on nit-picking. You know how *that* goes, PS. Anti-Fed purist that I am :P