A top Federal Reserve official said on Wednesday she wants to explore whether th...
RICHMOND, Va. - A top Federal Reserve official said on Wednesday she wants to explore whether the central bank, in a future downturn, should begin targeting explicit levels for longer-term interest rates as a way to add more stimulus to the economy.
If the short-term rates typically controlled by the Fed must again be cut to zero, as they were in the 2007 to 2009 financial crisis and recession, Brainard said the Fed under this method would use its power to purchase securities in order to hit specified levels for one-year, 2-year and other interest rates.
But in that case it specified an amount of bonds to be purchased each month. Specifying longer term rates, by contrast, would be a new venture for the Fed, giving businesses and investors an explicit sense of where borrowing costs would be set. It is similar to the “yield curve control” policy used by the Bank of Japan.
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