Marshall Auerback — Rate Hikes Will Come

Global recovery seems to be in the works in spite of setbacks. Rate hikes in the US coming but probably not using the previous method.

Even if macro-prudential policy is deployed to allow a delay in rate hikes, the hikes will still require new methods. Rates used to be set through reserve availability compared to bank demand, so the old rate setting methods would require a big sale of the Fed’s massive portfolio before banks start to bid for reserves at any positive rate.

Alternatively, the Fed can pay banks on reverse repurchases or term deposits, replacing bank excess reserves with these interest bearing instruments, the yield on which can become a floor for market rates. Rate hikes are coming, it is only a question of ways and means.

Macrobits by Marshall Auerback
Rate Hikes Will Come
Marshall Auerback