Floored! How a misguided Federal Reserve experiment deepened and prolonged the Great Recession – AEI – American Enterprise Institute: Freedom, Opportunity, Enterprise

6th December 2018 Off By binary
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Before 2008, banks earned no interest on their Federal Reserve balances. In the precrisis operating system, the Fed used open market operations to control the supply of bank reserves and the federal funds rate, which indirectly determined the cost and supply of bank credit available to the public. The Fed’s emergency actions during the financial crisis included paying interest on bank reserve balances. This seemingly innocuous change in operating policy drastically altered the way monetary policy affects the availability of bank credit. In his new book, George Selgin argues that because the Fed elected to pay above market rates on bank reserves, the Fed reduced the veracity of monetary policy and prolonged the Great Recession.

Join AEI as Dr. Selgin discusses the issues that arise when the Fed pays banks above market rates on their reserve balances, followed by commentary from an expert panel including David Beckworth, Paul Kupiec, and Bill Nelson.

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