Thursday, July 29, 2010

Another Economist Confused about Monetary Policy

Fears over a double-dip recession for the global economy are waning, but investors should be more worried about ultra-loose policy from the Federal Reserve, according to Joachim Fels, the co-head of economics at Morgan Stanley, reports CNBC.

Fels said he believes the Fed needs to end its very loose monetary stance sooner rather than later.

Like many others, Fels doesn't get that low interest rates do not necessarily mean a loose monetary policy.  I repeat again, with the interest being paid by the Fed on excess reserves (0.25%) higher than the Fed funds rate, huge amounts of funds will simply sit on the sidelines at the Fed and not enter the system. That amount continues near an astounding trillion dollars.

Bottom line: There is no loose monetary policy, at present.

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