The Fed appears determined not be outdone by either the market or its balance sheet. (see comment from early today).
The new authority to pay interest on reserves provides one additional method by which they can can control the money supply, by managing 'excess reserves', beyond the usual methods, to date.
It doesn't appear to me as robust as the other methods, like a matched sale or a coupon pass operation, but it could still keep them with a strong hand, whatever else yet happens with their balance sheet.
Friday, October 17, 2008
More on the Fed's Balance Sheet
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