米ＦＲＢ次期副議長の有力候補に学ぼう
秘書です。
天気のいい日曜日。
こんな日は、英語の勉強をしましょう！
■日銀、緩和策拡大を協議…１６日から決定会合
（2010年3月14日03時08分 読売新聞）
日本銀行は１６、１７日の２日間、金融政策決定会合を開き、デフレ克服に向けた金融緩和策の拡大を協議する。
昨年１２月に導入した新型オペ（公開市場操作）の資金供給規模を現在の１０兆円から上積みする公算が大きくなっている。また、貸出期間がより長い新型オペを追加することも検討される模様だ。
新型オペは、民間金融機関に対し、貸出期間３か月の資金を年０・１％の固定金利で供給するものだ。日銀は「量的緩和」策の一環と位置付けており、導入の際、「金融機関が調達したかったらどんどん調達してもらう」（白川方明総裁）と必要に応じて拡充する構えを見せていた。
増額幅について、市場関係者の間では「５兆～１０兆円」との予測が大勢を占める。日銀が企業の資金繰り支援のために行っている緩和策のうち、３月末に終了する政策金利（現在は年０・１％）の特別オペの残高が２月末時点で約５・８兆円あり、それに相当する分を新型オペ拡充でカバーするとの見方が出ている。
日銀は、景気持ち直しの動きが続いていると判断する一方、物価下落幅の縮小が想定より遅れている点を注視している。閣僚から追加的な金融緩和を期待する声が相次ぎ、市場が追加緩和をほぼ織り込んできたこともあり、新たな対応を早期に打ち出すべきとの判断に傾きつつある。
ただ、政策委員の間には、４月１日に公表される企業短期経済観測調査（短観）の結果を見極めたいとの意見もあり、具体的な判断を先送りする可能性もある。
物価下落の縮小の「想定」はいつまでにどうなる「想定」なんでしょう。財務大臣は年内には物価下落をなくしたいといっているわけです。
■米ＦＲＢ次期副議長、イエレンＳＦ連銀総裁が有力候補＝ホワイトハウス
2010年 03月 13日 05:11 JST
［ワシントン １２日 ロイター］ ギブズ米大統領報道官は１２日、連邦準備理事会（ＦＲＢ）の次期副議長について、サンフランシスコ地区連銀のイエレン総裁が有力候補であることを明らかにした。
報道官はまた、空席となっているＦＲＢ理事のポストについて、メリーランド州の銀行規制当局でトップを務めるサラ・ラスキン氏や、マサチューセッツ工科大学（ＭＩＴ）の経済学教授ピーター・ダイアモンド氏が有力候補に挙がっている、と述べた。
さらに、上記３人以外にも候補が挙がっているとした。
イエレン氏とはどんなことをいってきた人なのでしょう？下記の講演をみると、雇用を重視していること、デフレを警戒しているようにみえますね。オークンの法則が語られているんですね。潜在成長率と雇用で金融政策を語る。わかりやすいですね。この講演をみると、FEDは物価の安定だけではなく、雇用の安定にも責任をもっていることがよくわかりますね。雇用に目配りするFEDをうらやんで日米の比較をしても、日本銀行法では目的規定に雇用のことが明示的に書かれていないからしかたないか（いえ、本当は、明示的に書かれていなくてもマクロ経済への貢献義務を読み込めるんですが、残念ながら法改正して明示的に書かないと物価の安定のみが目的という解釈みたいですね。一昔前に、こんなことをボスがいうと、日銀法改正圧力！日銀の独立性を脅かす！といわれたものです。そういう記事を書いていた記者のみなさんご自身にも、デフレの中で雇用不安がしのびよってきたのでは？）。下記の２つ目の講演は、FEDと日銀の量的緩和策の違いを語った講演です。
■President's Speech
Presentation to the Burnham-Moores Center for Real Estate
School of Business Administration, University of San Diego
San Diego, CA
By Janet L. Yellen, President and CEO, Federal Reserve Bank of
San Francisco
For Delivery on February 22, 2010, 8 AM Pacific time, 11:00 AM Eastern
http://www.frbsf.org/news/speeches/2010/janet_yellen0222.html
The Outlook for the Economy and Monetary Policy1
・・・
Given the dismal economic news we faced for so long, it’s a great relief for me to report that the tide appears to have turned. We are seeing convincing evidence that an economic recovery is well under way. Still, as I’ll explain in greater detail in a few minutes, the fact that the economy is growing again doesn’t mean we’re where we ought to be. Far from it. In particular, the unemployment rate is unacceptably high, creating real hardship for millions of Americans. But, at least we’re heading in the right direction.
・・・
Put it all together and you have a recipe for a moderate rate of economic growth, well below the spritely pace set in the fourth quarter. The current quarter appears on course to post growth of around 3 percent. I see the economy gradually picking up steam over the remainder of this year as households and businesses regain confidence, financial conditions improve, and banks increase the supply of credit. I expect growth of about 3½ percent for the year as a whole, picking up to about 4½ percent next year, with private demand coming on line to pick up the slack as government stimulus programs fade away.
In addition to some of the weak spots I already mentioned, a number of other factors are holding back recovery. First, even though the banking and financial systems are gaining strength, they still bear wounds from the financial crisis, and these will take a long time to fully heal. Second, losses on mortgages, commercial real estate credits, and other loans continue to mount, and the full weight of foreclosures and bank failures on the economy has yet to be felt. Finally, the Fed, as well as central banks in other countries, has faced limits in the amount of monetary stimulus we have been able to generate. That’s because we can’t push interest rates below the near-zero level where they’ve been for more than a year. To be sure, we’ve developed many innovative programs to make credit cheaper and more readily available. But, all in all, monetary policy can’t give the same kick to the economy that it delivered in past recoveries.
Earlier I noted that, even though the recession appears to be over, it does not mean that we are where we want to be. Even with my moderate growth forecast, the economy will be operating well below its potential for several years. Economists think in terms of what we call the “output gap,” which measures the difference between the actual level of GDP and the level where GDP would be if the economy were operating at full employment. The output gap was around negative 6 percent in the fourth quarter of 2009, based on Congressional Budget Office estimates. That’s a very big number and it means the U.S. economy was producing 6 percent less than it could have had we been at full employment. That’s equivalent to more than $900 billion of lost output per year, or roughly $3,000 per person.
I’m afraid that the economy will continue to operate well below its potential throughout this year and next. Let me do a little math for you. The San Francisco Fed estimates that the potential level of output is increasing roughly 2½ percent a year due to growth in the labor force and increases in productivity. Hence, over the next two years, potential output will increase by about 5 percent. My forecast is that real GDP will increase about 8 percent during that period, or 3 percentage points more than potential output. This implies that the output gap will shrink from its current level of negative 6 percent to around negative 3 percent by the end of 2011. In fact, I don’t expect the output gap to completely vanish until sometime in 2013.
This brings us to a subject that is of paramount concern to all of us—the job situation. This recession has been very severe, indeed. The U.S. economy has shed 8.4 million jobs since December 2007. That’s more than a 6 percent drop in payrolls, the largest percentage point decline since the demobilization following World War II. The unemployment rate, which was 5 percent at the start of the recession, rose to around 10 percent in late 2009. The rates of job openings and hiring are also stuck at very low levels. These statistics represent a tragedy for our country, our communities, and each of the families and individuals who have had to cope with a loss of livelihood.
・・・
I should warn that there is a great deal of uncertainty surrounding this forecast. In the past, a given level of economic growth produced a more-or-less predictable change in the unemployment rate. Historically, a pattern emerged in which unemployment declined by half as much as the difference in the growth rates of actual and potential GDP. This is commonly referred to as “Okun’s law” after the economist Arthur Okun, who first described this relationship back in the 1960s.
Let me sketch out how this should work. In my forecast, GDP growth exceeds the growth rate of potential GDP by 1 percentage point this year and 2 percentage points next year. According to Okun’s law, the unemployment rate should fall by about one-half percentage point by the end of this year and a full percentage point during 2011. These figures are in line with my unemployment forecast.
・・・
Let me move on to the outlook for inflation nationwide. You can get into quite a debate on this topic. Some people worry that sustained federal budget deficits and the huge increase in the Federal Reserve’s lending and stimulus programs could eventually lead to high inflation. Others take the opposite view, arguing that economic slack and downward pressure on wages and prices are pushing inflation down. I would put myself squarely in the second camp.
I’m no fan of persistently large budget deficits. I’ve warned against them throughout my career. But the real danger I see from them is not inflation. Rather, they may be harmful once the economy recovers because they are apt to boost interest rates and absorb private savings that would otherwise finance productive investments. This is potentially a serious problem in the long term that could reduce investment and lower living standards, although, in the short run, federal deficits have cushioned the blow from the financial crisis and recession. As far as inflation is concerned, there’s no evidence that big government deficits cause high inflation in advanced economies with independent central banks, such as the Fed. Japan is a case in point. Japan has run enormous fiscal deficits for many years and its government debt has risen to very high levels. Yet is has suffered from persistent deflation, not inflation.
I believe that the more worrisome challenge for price stability over the next few years stems primarily from the sizable amount of slack in the economy. Whether measured by the output gap, the unemployment rate, the manufacturing capacity utilization rate, or whichever measure you like, the economy is running well below its potential. As a result, inflation is already very low and trending downward. Over the past 12 months, the personal consumption price index, excluding volatile food and energy prices, rose a modest 1.5 percent. This increase in core inflation was below the 2 percent rate that I and most of my fellow Fed policymakers on the Federal Open Market Committee (FOMC) consider an appropriate long-term price stability objective. And, with slack likely to persist for years and wages barely rising, it seems quite possible that core inflation will move even lower this year and next.
So where does all this leave Federal Reserve policy? Traditionally, the main tool of Fed monetary policy is the federal funds rate, which is what banks charge each other for overnight loans. The Fed controls that rate by varying the amount of reserves it supplies to the banking system and we have pushed that rate to zero for all practical purposes. This is as low as it can go. Such accommodative policy is appropriate, in my view, because the economy is operating well below its potential and inflation is undesirably low. I believe this is not the time to be removing monetary stimulus. Consistent with that view, the FOMC has repeatedly stated that it expects low interest rates to continue for an extended period.
・・・
As we carried out our emergency lending programs and eased monetary policy in response to the recession, our balance sheet swelled from roughly $800 billion to its current level of over $2.2 trillion. Despite the reduction in our lending programs, our balance sheet remains, for want of a better word, enormous, owing to our holdings of mortgage-backed securities and agency debt. Now I just said this is not the time to be tightening monetary policy. But eventually the economy will gain enough momentum and won’t need today’s extraordinarily low interest rates. When that time comes, we will begin to tighten policy and remove monetary stimulus. And when we start doing so, we will face some technical issues due to the size of the balance sheet, as Chairman Bernanke noted in recent Congressional testimony.4 Let me briefly outline our strategy.
In normal times, the Fed raises interest rates by reducing the size of its balance sheet, say by selling Treasury securities to the public. This draws in cash from the economy, or, as we say, reduces the supply of bank reserves, which in turn causes the price of those reserves, that is, the federal funds rate, to go up. Since the fed funds rate is the benchmark for banks’ cost of money, other short-term market interest rates tend to follow suit. Higher interest rates in turn help slow the economy and reduce inflationary pressures.
But these aren’t normal times. Our securities purchases have caused the quantity of reserves in the banking system to swell to something like $1 trillion—far above the pre-crisis level of around $50 billion. If we were to follow our standard approach of selling securities to raise interest rates, we would have to sell off many hundreds of billions of dollars of securities to reduce the supply of reserves enough to have any chance of pushing rates higher.
The problem with doing that is that such massive sales of mortgage-related and Treasury securities could be disruptive to markets and cause mortgage interest rates and other long-term rates to shoot up when we are still in the early stages of the recovery and the financial system, although improving, is still not at full health.
There is an alternative. To push up short-term interest rates without selling off our securities holdings, we can instead raise the interest rate that we pay on reserves held at the Fed. Because banks would have the opportunity to collect a higher reward for keeping funds on deposit at the Fed, they would demand commensurately higher returns on the overnight loans that they make in the federal funds market. So an increase in the interest rate paid on reserves would raise the fed funds rate and tighten financial conditions more generally. The ability to pay interest on the excess reserves that banks deposit with the Fed is an important new tool that Congress gave us just over a year ago. It will play a lead role when the time ultimately comes to tighten monetary policy. And, to make sure this works smoothly, we have developed some technical tools that can help keep the federal funds rate near our preferred target.5 Eventually, after economic conditions have improved and a policy tightening has begun, we may then start a gradual process of selling securities in order to help return the Fed’s balance sheet to its pre-crisis levels.
The bottom line is that we are already unwinding the emergency programs we set up during the financial crisis. When the day comes to start raising rates again, we have tools at the ready. But, for the time being, the economy still needs the support of extraordinarily low rates. Thank you very much.
■President's Speech
Presentation to the Andrew Brimmer Policy Forum
IBEFA/ASSA Meeting
San Francisco, CA
By Janet L. Yellen, President and CEO, Federal Reserve Bank of San Francisco
For delivery on January 4, 2009, 2:30 PM Pacific, 5:30 PM Eastern
http://www.frbsf.org/news/speeches/2009/0104b.html
・・・
Quantitative Easing?
On the surface, it may seem appropriate to equate the Fed's use of its balance sheet to stimulate the economy with the quantitative easing policy pursued earlier by the Bank of Japan. But as I noted at the outset, the differences outweigh the similarities in my opinion. The main similarity is that the Fed, like the Bank of Japan, has increased the quantity of excess reserves in the banking system well above the minimum level required to push overnight interbank lending rates to the vicinity of zero. The creation of such a large volume of excess reserves, in the Fed's case, results from the enormous expansion in the Fed's discount window lending, foreign exchange swaps, and asset purchases. In the Bank of Japan's case, the expansion in excess reserves resulted from the deliberate adoption of an explicit numerical target for them. The theory underlying the Bank of Japan's intervention was that banks might be encouraged to lend by replacing their holdings of short-term government securities with excess cash. The problem with this idea is that, near the zero bound, short-term government securities and cash are almost perfect substitutes—both are essentially riskless assets that yield a zero or near-zero rate of return; thus, exchanging one for the other should have little effect on banks' desire to lend. Indeed, the Japanese experience during their quantitative easing program in the early 2000s suggests that simply expanding excess bank reserves—even by a very large amount—had little effect on bank lending or on the economy more broadly. The policy may have lowered longer-term borrowing rates, however, by symbolizing and highlighting the Bank of Japan's commitment to fighting deflation by holding its short-term interest rate at zero for an extended time—until deflationary pressures had been convincingly dissipated.
In contrast, the overall size of assets on the Fed's balance sheet will be the result of decisions concerning the appropriate scale of each particular program and the extent to which the various programs and facilities are actually used by market participants. The take-up rates on these programs and facilities are likely to fluctuate over time as market conditions change. For example, early in a new Fed lending program, its impact on economic activity might rise with the associated expansion of the Fed's balance sheet. Later on, if the program helps to improve the functioning of the private market, success could be associated with the contraction of the Fed's balance sheet as the Fed exits from the market, leaving the determination of credit flows to private participants. Furthermore, the mere availability of backup liquidity through a facility may improve market functioning, even if the volume of borrowing is low. Thus, the impact of the totality of Fed programs should not be judged by the overall size of the Fed's balance sheet. Rather, it will be necessary to evaluate the success of each individual program in improving market function and facilitating the flow of credit.
天気のいい日曜日。
こんな日は、英語の勉強をしましょう！
■日銀、緩和策拡大を協議…１６日から決定会合
（2010年3月14日03時08分 読売新聞）
日本銀行は１６、１７日の２日間、金融政策決定会合を開き、デフレ克服に向けた金融緩和策の拡大を協議する。
昨年１２月に導入した新型オペ（公開市場操作）の資金供給規模を現在の１０兆円から上積みする公算が大きくなっている。また、貸出期間がより長い新型オペを追加することも検討される模様だ。
新型オペは、民間金融機関に対し、貸出期間３か月の資金を年０・１％の固定金利で供給するものだ。日銀は「量的緩和」策の一環と位置付けており、導入の際、「金融機関が調達したかったらどんどん調達してもらう」（白川方明総裁）と必要に応じて拡充する構えを見せていた。
増額幅について、市場関係者の間では「５兆～１０兆円」との予測が大勢を占める。日銀が企業の資金繰り支援のために行っている緩和策のうち、３月末に終了する政策金利（現在は年０・１％）の特別オペの残高が２月末時点で約５・８兆円あり、それに相当する分を新型オペ拡充でカバーするとの見方が出ている。
日銀は、景気持ち直しの動きが続いていると判断する一方、物価下落幅の縮小が想定より遅れている点を注視している。閣僚から追加的な金融緩和を期待する声が相次ぎ、市場が追加緩和をほぼ織り込んできたこともあり、新たな対応を早期に打ち出すべきとの判断に傾きつつある。
ただ、政策委員の間には、４月１日に公表される企業短期経済観測調査（短観）の結果を見極めたいとの意見もあり、具体的な判断を先送りする可能性もある。
物価下落の縮小の「想定」はいつまでにどうなる「想定」なんでしょう。財務大臣は年内には物価下落をなくしたいといっているわけです。
■米ＦＲＢ次期副議長、イエレンＳＦ連銀総裁が有力候補＝ホワイトハウス
2010年 03月 13日 05:11 JST
［ワシントン １２日 ロイター］ ギブズ米大統領報道官は１２日、連邦準備理事会（ＦＲＢ）の次期副議長について、サンフランシスコ地区連銀のイエレン総裁が有力候補であることを明らかにした。
報道官はまた、空席となっているＦＲＢ理事のポストについて、メリーランド州の銀行規制当局でトップを務めるサラ・ラスキン氏や、マサチューセッツ工科大学（ＭＩＴ）の経済学教授ピーター・ダイアモンド氏が有力候補に挙がっている、と述べた。
さらに、上記３人以外にも候補が挙がっているとした。
イエレン氏とはどんなことをいってきた人なのでしょう？下記の講演をみると、雇用を重視していること、デフレを警戒しているようにみえますね。オークンの法則が語られているんですね。潜在成長率と雇用で金融政策を語る。わかりやすいですね。この講演をみると、FEDは物価の安定だけではなく、雇用の安定にも責任をもっていることがよくわかりますね。雇用に目配りするFEDをうらやんで日米の比較をしても、日本銀行法では目的規定に雇用のことが明示的に書かれていないからしかたないか（いえ、本当は、明示的に書かれていなくてもマクロ経済への貢献義務を読み込めるんですが、残念ながら法改正して明示的に書かないと物価の安定のみが目的という解釈みたいですね。一昔前に、こんなことをボスがいうと、日銀法改正圧力！日銀の独立性を脅かす！といわれたものです。そういう記事を書いていた記者のみなさんご自身にも、デフレの中で雇用不安がしのびよってきたのでは？）。下記の２つ目の講演は、FEDと日銀の量的緩和策の違いを語った講演です。
■President's Speech
Presentation to the Burnham-Moores Center for Real Estate
School of Business Administration, University of San Diego
San Diego, CA
By Janet L. Yellen, President and CEO, Federal Reserve Bank of
San Francisco
For Delivery on February 22, 2010, 8 AM Pacific time, 11:00 AM Eastern
http://www.frbsf.org/news/speeches/2010/janet_yellen0222.html
The Outlook for the Economy and Monetary Policy1
・・・
Given the dismal economic news we faced for so long, it’s a great relief for me to report that the tide appears to have turned. We are seeing convincing evidence that an economic recovery is well under way. Still, as I’ll explain in greater detail in a few minutes, the fact that the economy is growing again doesn’t mean we’re where we ought to be. Far from it. In particular, the unemployment rate is unacceptably high, creating real hardship for millions of Americans. But, at least we’re heading in the right direction.
・・・
Put it all together and you have a recipe for a moderate rate of economic growth, well below the spritely pace set in the fourth quarter. The current quarter appears on course to post growth of around 3 percent. I see the economy gradually picking up steam over the remainder of this year as households and businesses regain confidence, financial conditions improve, and banks increase the supply of credit. I expect growth of about 3½ percent for the year as a whole, picking up to about 4½ percent next year, with private demand coming on line to pick up the slack as government stimulus programs fade away.
In addition to some of the weak spots I already mentioned, a number of other factors are holding back recovery. First, even though the banking and financial systems are gaining strength, they still bear wounds from the financial crisis, and these will take a long time to fully heal. Second, losses on mortgages, commercial real estate credits, and other loans continue to mount, and the full weight of foreclosures and bank failures on the economy has yet to be felt. Finally, the Fed, as well as central banks in other countries, has faced limits in the amount of monetary stimulus we have been able to generate. That’s because we can’t push interest rates below the near-zero level where they’ve been for more than a year. To be sure, we’ve developed many innovative programs to make credit cheaper and more readily available. But, all in all, monetary policy can’t give the same kick to the economy that it delivered in past recoveries.
Earlier I noted that, even though the recession appears to be over, it does not mean that we are where we want to be. Even with my moderate growth forecast, the economy will be operating well below its potential for several years. Economists think in terms of what we call the “output gap,” which measures the difference between the actual level of GDP and the level where GDP would be if the economy were operating at full employment. The output gap was around negative 6 percent in the fourth quarter of 2009, based on Congressional Budget Office estimates. That’s a very big number and it means the U.S. economy was producing 6 percent less than it could have had we been at full employment. That’s equivalent to more than $900 billion of lost output per year, or roughly $3,000 per person.
I’m afraid that the economy will continue to operate well below its potential throughout this year and next. Let me do a little math for you. The San Francisco Fed estimates that the potential level of output is increasing roughly 2½ percent a year due to growth in the labor force and increases in productivity. Hence, over the next two years, potential output will increase by about 5 percent. My forecast is that real GDP will increase about 8 percent during that period, or 3 percentage points more than potential output. This implies that the output gap will shrink from its current level of negative 6 percent to around negative 3 percent by the end of 2011. In fact, I don’t expect the output gap to completely vanish until sometime in 2013.
This brings us to a subject that is of paramount concern to all of us—the job situation. This recession has been very severe, indeed. The U.S. economy has shed 8.4 million jobs since December 2007. That’s more than a 6 percent drop in payrolls, the largest percentage point decline since the demobilization following World War II. The unemployment rate, which was 5 percent at the start of the recession, rose to around 10 percent in late 2009. The rates of job openings and hiring are also stuck at very low levels. These statistics represent a tragedy for our country, our communities, and each of the families and individuals who have had to cope with a loss of livelihood.
・・・
I should warn that there is a great deal of uncertainty surrounding this forecast. In the past, a given level of economic growth produced a more-or-less predictable change in the unemployment rate. Historically, a pattern emerged in which unemployment declined by half as much as the difference in the growth rates of actual and potential GDP. This is commonly referred to as “Okun’s law” after the economist Arthur Okun, who first described this relationship back in the 1960s.
Let me sketch out how this should work. In my forecast, GDP growth exceeds the growth rate of potential GDP by 1 percentage point this year and 2 percentage points next year. According to Okun’s law, the unemployment rate should fall by about one-half percentage point by the end of this year and a full percentage point during 2011. These figures are in line with my unemployment forecast.
・・・
Let me move on to the outlook for inflation nationwide. You can get into quite a debate on this topic. Some people worry that sustained federal budget deficits and the huge increase in the Federal Reserve’s lending and stimulus programs could eventually lead to high inflation. Others take the opposite view, arguing that economic slack and downward pressure on wages and prices are pushing inflation down. I would put myself squarely in the second camp.
I’m no fan of persistently large budget deficits. I’ve warned against them throughout my career. But the real danger I see from them is not inflation. Rather, they may be harmful once the economy recovers because they are apt to boost interest rates and absorb private savings that would otherwise finance productive investments. This is potentially a serious problem in the long term that could reduce investment and lower living standards, although, in the short run, federal deficits have cushioned the blow from the financial crisis and recession. As far as inflation is concerned, there’s no evidence that big government deficits cause high inflation in advanced economies with independent central banks, such as the Fed. Japan is a case in point. Japan has run enormous fiscal deficits for many years and its government debt has risen to very high levels. Yet is has suffered from persistent deflation, not inflation.
I believe that the more worrisome challenge for price stability over the next few years stems primarily from the sizable amount of slack in the economy. Whether measured by the output gap, the unemployment rate, the manufacturing capacity utilization rate, or whichever measure you like, the economy is running well below its potential. As a result, inflation is already very low and trending downward. Over the past 12 months, the personal consumption price index, excluding volatile food and energy prices, rose a modest 1.5 percent. This increase in core inflation was below the 2 percent rate that I and most of my fellow Fed policymakers on the Federal Open Market Committee (FOMC) consider an appropriate long-term price stability objective. And, with slack likely to persist for years and wages barely rising, it seems quite possible that core inflation will move even lower this year and next.
So where does all this leave Federal Reserve policy? Traditionally, the main tool of Fed monetary policy is the federal funds rate, which is what banks charge each other for overnight loans. The Fed controls that rate by varying the amount of reserves it supplies to the banking system and we have pushed that rate to zero for all practical purposes. This is as low as it can go. Such accommodative policy is appropriate, in my view, because the economy is operating well below its potential and inflation is undesirably low. I believe this is not the time to be removing monetary stimulus. Consistent with that view, the FOMC has repeatedly stated that it expects low interest rates to continue for an extended period.
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As we carried out our emergency lending programs and eased monetary policy in response to the recession, our balance sheet swelled from roughly $800 billion to its current level of over $2.2 trillion. Despite the reduction in our lending programs, our balance sheet remains, for want of a better word, enormous, owing to our holdings of mortgage-backed securities and agency debt. Now I just said this is not the time to be tightening monetary policy. But eventually the economy will gain enough momentum and won’t need today’s extraordinarily low interest rates. When that time comes, we will begin to tighten policy and remove monetary stimulus. And when we start doing so, we will face some technical issues due to the size of the balance sheet, as Chairman Bernanke noted in recent Congressional testimony.4 Let me briefly outline our strategy.
In normal times, the Fed raises interest rates by reducing the size of its balance sheet, say by selling Treasury securities to the public. This draws in cash from the economy, or, as we say, reduces the supply of bank reserves, which in turn causes the price of those reserves, that is, the federal funds rate, to go up. Since the fed funds rate is the benchmark for banks’ cost of money, other short-term market interest rates tend to follow suit. Higher interest rates in turn help slow the economy and reduce inflationary pressures.
But these aren’t normal times. Our securities purchases have caused the quantity of reserves in the banking system to swell to something like $1 trillion—far above the pre-crisis level of around $50 billion. If we were to follow our standard approach of selling securities to raise interest rates, we would have to sell off many hundreds of billions of dollars of securities to reduce the supply of reserves enough to have any chance of pushing rates higher.
The problem with doing that is that such massive sales of mortgage-related and Treasury securities could be disruptive to markets and cause mortgage interest rates and other long-term rates to shoot up when we are still in the early stages of the recovery and the financial system, although improving, is still not at full health.
There is an alternative. To push up short-term interest rates without selling off our securities holdings, we can instead raise the interest rate that we pay on reserves held at the Fed. Because banks would have the opportunity to collect a higher reward for keeping funds on deposit at the Fed, they would demand commensurately higher returns on the overnight loans that they make in the federal funds market. So an increase in the interest rate paid on reserves would raise the fed funds rate and tighten financial conditions more generally. The ability to pay interest on the excess reserves that banks deposit with the Fed is an important new tool that Congress gave us just over a year ago. It will play a lead role when the time ultimately comes to tighten monetary policy. And, to make sure this works smoothly, we have developed some technical tools that can help keep the federal funds rate near our preferred target.5 Eventually, after economic conditions have improved and a policy tightening has begun, we may then start a gradual process of selling securities in order to help return the Fed’s balance sheet to its pre-crisis levels.
The bottom line is that we are already unwinding the emergency programs we set up during the financial crisis. When the day comes to start raising rates again, we have tools at the ready. But, for the time being, the economy still needs the support of extraordinarily low rates. Thank you very much.
■President's Speech
Presentation to the Andrew Brimmer Policy Forum
IBEFA/ASSA Meeting
San Francisco, CA
By Janet L. Yellen, President and CEO, Federal Reserve Bank of San Francisco
For delivery on January 4, 2009, 2:30 PM Pacific, 5:30 PM Eastern
http://www.frbsf.org/news/speeches/2009/0104b.html
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Quantitative Easing?
On the surface, it may seem appropriate to equate the Fed's use of its balance sheet to stimulate the economy with the quantitative easing policy pursued earlier by the Bank of Japan. But as I noted at the outset, the differences outweigh the similarities in my opinion. The main similarity is that the Fed, like the Bank of Japan, has increased the quantity of excess reserves in the banking system well above the minimum level required to push overnight interbank lending rates to the vicinity of zero. The creation of such a large volume of excess reserves, in the Fed's case, results from the enormous expansion in the Fed's discount window lending, foreign exchange swaps, and asset purchases. In the Bank of Japan's case, the expansion in excess reserves resulted from the deliberate adoption of an explicit numerical target for them. The theory underlying the Bank of Japan's intervention was that banks might be encouraged to lend by replacing their holdings of short-term government securities with excess cash. The problem with this idea is that, near the zero bound, short-term government securities and cash are almost perfect substitutes—both are essentially riskless assets that yield a zero or near-zero rate of return; thus, exchanging one for the other should have little effect on banks' desire to lend. Indeed, the Japanese experience during their quantitative easing program in the early 2000s suggests that simply expanding excess bank reserves—even by a very large amount—had little effect on bank lending or on the economy more broadly. The policy may have lowered longer-term borrowing rates, however, by symbolizing and highlighting the Bank of Japan's commitment to fighting deflation by holding its short-term interest rate at zero for an extended time—until deflationary pressures had been convincingly dissipated.
In contrast, the overall size of assets on the Fed's balance sheet will be the result of decisions concerning the appropriate scale of each particular program and the extent to which the various programs and facilities are actually used by market participants. The take-up rates on these programs and facilities are likely to fluctuate over time as market conditions change. For example, early in a new Fed lending program, its impact on economic activity might rise with the associated expansion of the Fed's balance sheet. Later on, if the program helps to improve the functioning of the private market, success could be associated with the contraction of the Fed's balance sheet as the Fed exits from the market, leaving the determination of credit flows to private participants. Furthermore, the mere availability of backup liquidity through a facility may improve market functioning, even if the volume of borrowing is low. Thus, the impact of the totality of Fed programs should not be judged by the overall size of the Fed's balance sheet. Rather, it will be necessary to evaluate the success of each individual program in improving market function and facilitating the flow of credit.