The Federal Reserve is starting to create a floor for money-market rates with a tool that may be pivotal to the central bank’s eventual siphoning of the unprecedented liquidity added to the U.S. banking system.
When James Tobin joined President John F. Kennedy’s administration in 1961, the U.S. economy was struggling to recover from its third recession in seven years. As a member of Kennedy’s Council of Economic Advisers, the Yale University professor put his theoretical research on asset markets to work in fashioning a novel strategy -- nicknamed Operation Twist -- to reduce long-term interest rates.
As speculation grew that Federal Reserve Vice Chairman Janet Yellen would be nominated to lead the central bank, her appointment book beginning in April became peppered with meetings with the titans of finance.
Financial-market bubbles are proving a more pressing threat than inflation to Federal Reserve officials who’ve bought trillions of dollars in bonds and kept the target for short-term interest rates near zero since 2008.
Gum Tong owns a diner in Washington, D.C., and Matt Bellinger charters fishing boats in the Florida Everglades. They have this in common: The shutdown of the U.S. government cost them money they will never get back.
A shutdown of the U.S. government would reduce fourth-quarter economic growth by as much as 1.4 percentage points depending on its length, economists say, as government workers from park rangers to telephone receptionists are furloughed.