Well, yes. When the Fed "raises rates" (meaning, increases the Fed Funds target), actual interest rates (i.e., what actual people pay to borrow) can go up or down, based on many factors, including at least market expectations of future interest rates, inflation, and income (NGDP). Even worse, lower rates may not be stimulative at all, but can be a sign of weakness, a sign that borrowers and lenders are anticipating lousy income and low inflation and even lower interest rates in the future. Add to that the fact that lower market rates means lower opportunity cost of holding base money, which reduces its velocity, which reduces M*V = NGDP, meaning lower rates can be contractionary... and ... one should really question one's priors about "transmission mechanisms", especially the idea that a lower Fed Funds target stimulates AD by shifting future consumption into the present. Sure, that's one thing that could happen. But another possibility is that people become more pessimistic, so even as you increase M to lower I, V falls even faster than M increases, so M*V drops. Where have we seen that before?
I think the reality is that the transmission mechanism of monetary policy is never a simple/concrete thing. Monetary policy's transmission mechanism is always expectations and only expectations. What does any monetary policy action say about future monetary policy, and what does that imply about future paths of inflation, income, interest rates, exchange rates, asset values, etc. Those expectations drive agents' spending decisions today. That's the transmission mechanism.
Does anyone have another explanation for how raising the fed funds target could cause mortgage rates to fall? Or would you place on any bets what would happen to mortgage rates if the Fed hiked IOR another point? Another five points? I would bet that if IOR were 5%, mortgage rates would drop further. Banks would lend to consumers at a lower rate than the Fed would pay them, because they would anticipate the Fed reversing policy in a hurry, and would rather lock in 3% for 30 years than take 5% overnight for a week or quarter, and then get nothing after that. I could be wrong, but I might be right. And that's really my point. You can't say. It depends on market participants' expectations.
As a side point, what the heck is the Fed doing? It creates a ton of base money, and then, to hit a higher fed funds target, instead of destroying it, it pays banks to not lend it to each other? All they're going to do is get the volume of inter-bank loans to zero; the system is awash in reserves, why would any bank borrow them from another?
And what the heck is the media doing? They call this "policy normalization"? Today's monetary policy is completely unprecedented. IOR is 2x higher than ever. The media endlessly reinforces the public's incorrect view, that the Fed Funds target represents the stance of monetary policy ("easy money" and all that).
That's right... with google project Fi, voice calls and texts work so well over wi-fi that I've started keeping my phone in airplane mode almost 24x7. (You have to re-enable wi-fi after going into airplane mode). This has at least three benefits:
1) call quality is better. Equivalent to land line.
2) battery life is significantly better. I got home from work yesterday with 85% battery left, as opposed to the usual 55%.
3) no surprises where you think you're watching that video over wi-fi but wi-fi dropped and you didn't notice and now you're using silly amounts of cellular data by accident.
- Stanford UniversityPh.D., Computer Science, 1993 - 2001
- Massachusetts Institute of TechnologyBS, MS, Computer ScienceComputer Science, 1988 - 1993
- Arista Networks, Inc.CTO, SVP Software, 2004 - present
- There, Inc.CTO, 1999 - 2004
- Cisco Systems, Inc.Software Engineer, 1995 - 1999
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