Bernanke is laying out the exit steps the Fed will take but not sure when. The first and not surprising move the Fed will make is increasing the discount rate, thus widening the spread (modest) between it and the FF rate. It’s been talked about for a while so not a surprise. He wants us to focus more on the tool of raising interest rates on reserves which would entice banks to keep money with the Fed instead of lending it out. Using this instead of first raising the FF rate is because the Fed feels they have lost some control on getting the effective fed funds rate to meet its target. With respect to their purchases of MBS, they will not be selling them anytime soon. He mentions using reverse repo’s and term deposits to take money out of the system. He remains very dovish on inflation and repeats the “exceptionally low” “for extended period” phrase for the the FF rate. Put on your seat belt when all this begins.
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