[lbo-talk] Krugman on interest rate weirdness

[Michael Pollak]

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):

http://krugman.blogs.nytimes.com/2008/03/20/fed-funds-question-seriously-wonkish-and-possibly-dumb-too/

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