On Mon, 24 Mar 2008, Doug Henwood wrote:
>> then no matter how much the Fed floods the market, they can't to push
>> the treasury rate below zero. And if this spread persisted, the Fed
>> rate would then be stuck at 1.75%.
>
> But the Fed's target is 2.25%, meaning that they add and remove reserves
> in order to hit it. So there's no "problem" to solve or anomaly to
> explain.
Sure, but remember, his original question was the wonkish one of whether the Fed could cut the Fed Funds rate to 1% by the end of the year (as Citi economists expect):
And he's saying: maybe they actually can't. In which case, that's interesting and maybe later could be important. (He later quotes Brad Delong's tag line and say "Be afraid -- be somewhat afraid.")
Michael