The Fed didn't use even 10% of its "ammunition" today
By Scott Sumner
This is exactly backwards. The Fed could easily do 10 times as much QE as they announced today, perhaps much more. And as far as cutting rates to zero, a move to level targeting of prices would be 10 times more powerful. The Fed has barely scratched the surface of what it can do.
In contrast, Congress and President Trump have used up much of their fiscal ammunition over the past 5 years, leaving it very unlikely that fiscal policy will play a significant role going forward.
BTW, kudos to Jay Powell and the rest of the FOMC. It’s just a first step, but a welcome move nonetheless. I’ve long advocated abolishing reserve requirements, and that step was taken today. Here are two questions:
1. Is the new interest rate on reserves set at 0.1%? I did not see that announced. I’ve also advocated abolishing IOR. Why not go to zero? [Update: IOR was set at 0.1%.]
2. Will this lead banks to hold dramatically lower quantities of vault cash (which were formerly held as a way of meeting reserve requirements?) Maybe at 0.1% it doesn’t matter, but at higher rates it might.