Every time I read about the sweet deal the Fed gives banks, I get mad. Corporate welfare is rarely the right answer, but the Fed and its relationship to banks continues unabated.
Another option is a change in the Fed’s public communication about its plans. Since January the Fed has been saying it doesn’t expect to raise short-term interest rates until late 2014. The Fed could change its policy statement in September to move that date into 2015. Such pronouncements about the expected path of short-term rates tend to reduce long- and medium-term interest rates. The Fed thinks this supports near-term spending and investment.
Officials also are looking at changing the interest rate paid on money banks deposit at the Fed. This interest on reserves is now 0.25%. Some critics say the Fed shouldn’t be paying banks even this small amount for money that they choose not to lend.
Fed officials haven’t been very enthusiastic about this idea. Some officials think the benefits of reducing the rate would be small, and some worry cutting the rate could disrupt short-term money markets. Still, officials might choose to reduce the rate in combination with other moves in an effort to give the economy a little extra lift. The European Central Bank cut its bank deposit rate to zero earlier this month.
The Fed could also try to push its benchmark interest rate, the federal funds rate, a little lower. Since late 2008, it has targeted a range for the rate between zero and 0.25%. It could narrow that range closer to zero.
(click here to continue reading Fed Sees Action if Growth Doesn’t Pick Up Soon – WSJ.com.)
Here’s why I get mad: the Fed lends corporate banks money at basically zero percent interest, no strings attached. Apparently, this happens in Europe as well. The banks in turn loan a percentage of that money out, at varying interest rates, 4.5% on a mortgage if you are a good credit risk, or 18% if you have a credit card that you’ve missed the payment deadline a few times. The rest they keep. Why is this acceptable? Since when did you vote on who your bank’s CEO will be?
Federal Reserve Transparency Act of 2011 – Directs the Comptroller General to complete, before the end of 2012, an audit of the Board of Governors of the Federal Reserve System and of the federal reserve banks, followed by a detailed report to Congress.
Repeals specified limitations on such an audit.
(click here to continue reading Bill Summary & Status – 112th Congress (2011 – 2012) – H.R.459 – All Information – THOMAS (Library of Congress).)
Why should the Fed policy be more hidden than that of every other branch, department and division of the government?