Gist: There is dissension within the Federal Reserve. The chairman Ben Bernanke has 12 regional Federal Reserve presidents all voicing different opinions on what he should do about the economy. They need to come to a group consensus. Ellen Zentner is a senior economist at the bank of Tokyo Mitsubishi.
Zentner:
1) Confusion reigns the day. As a result, markets are confused as well. If the Fed moves with confidence, the markets are more confident.
(Red Flag: Is this always true?)
2)The Fed has had to do some unprecedented things to try to get the economy moving again. Naturally, there will be some dissension within the Fed on how monetary policy should be conducted. They are essentially just shooting the dark.
3)Bernanke has come out and said he wants to lower the rate the Fed pays banks in order to hold excess reserves at the Federal Reserve. By lowering the rate, his idea is that the banks would then start to lend money. This would actually be a disincentive for banks to lend when the banks can borrow from the Fed at .25% interest and dump it into treasuries at 2.5-3%. This essentially ties up 1 trillion dollars in available credit.
(Red Flag: How was the 1 trillion dollars calculated? Even if it was not tied up, would banks be willing to lend it out?)
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