The usual story, which I have no reason to contest, is that the shorter the term of the interest rate, the more the Fed can control it, with the overnight Federal Funds Rate in fact being its main immediate policy target. The Fed has very little control over the 30-year long bond rate, and that is what has been rising most recently, reflecting rising expectations of renewed inflation.
Fed might feel forced to raise short term rates to offset this rising expectation, which might actually cause the long term rates to drop, although not necessarily (didn't happen' the last time the Fed raised short term rates back in 1994). Barkley Rosser -----Original Message----- From: Enrique Diaz-Alvarez <enrique at anise.ee.cornell.edu> To: lbo-talk at lists.panix.com <lbo-talk at lists.panix.com> Date: Monday, May 17, 1999 5:38 PM Subject: Re: The Bubblemeister panicking?
>Doug Henwood wrote:
>>
>> Enrique Diaz-Alvarez wrote:
>> >
>> >1) Is there a whiff of panic in these Fed actions? Is there precedent
>> >for them outside major liquidity crises (which does not appear to be the
>> >case today, with the DOW at 11k).
>>
>> Probably not. The Fed does these things pretty regularly, and unless a
>> pattern develops, it's probably no big deal.
>
>How often does the Fed normally conduct coupon passes, and for what
>amount? In theory, money supply should grow roughly in line with the
>economy, and every dollar of printed money adds 14 in reserved, right?
>
>From the sound of Greenspan's
>> Chicago speech, he's preparing the market for a tightening, but it's
>> probably not going to happen tomorrow.
>>
>> >2) What are the fundamental limits to the amount of Treasuries the Fed
>> >can buy/money it can print? Have these limits ever been tested?
>>
>> The Fed would probably buy whatever it had to to stop a serious panic.
>> Under law they're free to buy anything they want to - not just government
>> paper, but even Amazon.com stock. Not that they would, of course.
>>
>
>OK, there are no legal limits. But say there was a panic. Could the Fed
>keep interest rates from rising indefinitely, simply buying more and
>more T-bills? Could it buy 10, 100, 1000, 10,000 billion dollars worth?
>What would be the immediate
>physical limits to the money printing?
>
>> Doug
>
>--
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