Yellen’s balance sheet baloney

Source: Cobden Centre
by George Selgin

“Before the crisis and LSAPs, the Fed didn’t use rate changes instead of balance sheet changes for monetary control. It relied on balance sheet changes, a.k.a. open-market operations, to achieve whatever fed funds rate target it set. In other words, it had decades, dating back to the 1930s, of experience using balance sheet asset purchases (or sales) as, not only ‘a’ policy tool, but as its principal policy tool! Rate change announcements, on the other hand, though they did indeed serve to ‘communicate the [Fed’s planned] stance’ to the public, were incapable by themselves of implementing that stance.” (04/03/17)