A Quote by Janet Yellen
A higher IOER rate encourages banks to raise the interest rates they charge, putting upward pressure on market interest rates regardless of the level of reserves in the banking sector. While adjusting the IOER rate is an effective way to move market interest rates when reserves are plentiful, federal funds have generally traded below this rate.
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Paying interest on reserve balances enables the Fed to break the strong link between the quantity of reserves and the level of the federal funds rate and, in turn, allows the Federal Reserve to control short-term interest rates when reserves are plentiful.
The central banks cannot control interest rates. That's a mistake. They can control a particular rate, such as the Federal Funds rate, if they want to, but they can't control interest rates.
The real challenge was to model all the interest rates simultaneously, so you could value something that depended not only on the three-month interest rate, but on other interest rates as well.
Since 2008 you've had the largest bond market rally in history, as the Federal Reserve flooded the economy with quantitative easing to drive down interest rates. Driving down the interest rates creates a boom in the stock market, and also the real estate market. The resulting capital gains not treated as income.
Stock price multiples are negatively correlated with real interest rates. As interest rates rise, the market multiple will fall.
Let's have honest interest rates. Let's let the free market set interest rates in that zone where supply of savings is matched up with demand for real borrowing for capital projects.
The underlying strategy of the Fed is to tell people, "Do you want your money to lose value in the bank, or do you want to put it in the stock market?" They're trying to push money into the stock market, into hedge funds, to temporarily bid up prices. Then, all of a sudden, the Fed can raise interest rates, let the stock market prices collapse and the people will lose even more in the stock market than they would have by the negative interest rates in the bank. So it's a pro-Wall Street financial engineering gimmick.
What central banks can control is a base and one way they can control the base is via manipulating a particular interest rate, such as a Federal Funds rate, the overnight rate at which banks lend to one another. But they use that control to control what happens to the quantity of money. There is no disagreement.
Our tree is actually a tree of the short-term interest rate. The average direction in which the short-term interest rate moves depends on the level of the rate. When the rate is very high, that direction is downward; when the rate is very low, it is upward.
What we have to be careful is that if we drop interest rates where the rate of interest is lower than inflation, then savers will not put money in financial savings and move it to gold and real estate, which is bad for India.
The insurance companies do not refer to the key policy rate when they send their statements. We can only control that rate. Long-term interest rates are determined largely by global financial markets.
When interest rates are high you want the average direction in which interest rates are moving to be downward; when interest rates are low you want the average direction to be upward.
When they so-called 'target the interest rate', what they're doing is controlling the money supply via the interest rate. The interest rate is only an intermediary instrument.
It does not stand to give banks millions of dollars at an interest rate of one percent, when banks charge students an interest rate of 6 percent. Why should the banks be scalping students?
The degree of monetary policy ease should be associated with the level of real interest rates, not nominal interest rates.
Today the strategies of many companies in the real estate industry are premised on low interest rates, an assumption that has resulted in the rapid expansion of the real estate securitization business. This trend could be regarded as a risk factor, as it exposes the real estate sector to at least three potential problems: first, interest rate hikes; second, revisions to securitization business accounting standards; and third, overheating in the real estate market.
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