[lbo-talk] Krugman on interest rate weirdness

Doug Henwood dhenwood at panix.com
Mon Mar 24 10:31:48 PDT 2008


On Mar 24, 2008, at 1:02 PM, Michael Pollak wrote:


> On Mon, 24 Mar 2008, Doug Henwood wrote:
>
>>> But I have a possibly naive question: can the Fed really cut the Fed
>>> funds rate that far?
>>
>> Yeah, sure. They can flood the system with reserves and take it down
>> to 0 if they want.
>
> Well his argument is that the Fed rate is now 2.25%, but the
> treasury rate
> on both 1 and 3 month notes is a little above 0.5%:
>
> http://krugman.blogs.nytimes.com/2008/03/21/weird-interest-rates

So? The plunge to below 1% on the short Treasury rates is very recent. In any case, why should the Fed be unable to push the funds rate down if it's well above market rates? Like I said, they could flood the system with reserves if they wanted. I don't get his reasoning.

Doug



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