Loading ...In other words – as the bolded sections highlight –
The Fed is admitting that the neutral rate (to which they will theoretically raise rates before re-easing) will remain lower for longer…
…and therefore will reach ZIRP more frequently going forward…
…which means, as they state, using “additional monetary policy accomodation.”
Which means, unless The Fed wants to implement NIRP (which it appears it does not), they will have to do more QE, more frequently going forward…
…basically admitting that the rate manipulation transmission channel is defunct for all intent and purpose.
* * *
So what Goldman discovered was the ‘smoking gun’ admission that this is no normal recovery and what was once entirely extreme and experimental monetary policy will be the new normal… and that may be why stocks and bonds rallied and why the dollar dropped and gold and crude gained.
Incidentally, all of this talk about the long-run equilibrium rate reminds us quite a bit of something Narayana Kocherlakota said back in July (that is, before he was replaced by Goldman alum and bailout architect Neel Kashkari). Recall this from Bloomberg:
Increasing the supply of assets available to investors “would push downward on debt prices, and so upward on the long-run neutral real interest rate,” Kocherlakota said Thursday in Frankfurt in remarks prepared for delivery at a conference hosted by Germany’s Bundesbank.
Lifting the so-called neutral rate, which prevails when Fed policy is neither stimulating nor restraining growth, would in turn benefit Fed policy makers by creating more space between the benchmark federal funds rate and zero, he said.
“I want to be clear at the outset that I am not saying that it is appropriate for fiscal policymakers to increase the long-run level of public debt. I am simply pointing to one benefit associated with such an increase: It allows the central bank to be more effective in mitigating the impact of adverse shocks to aggregate demand.”
So when the Fed talks about considering “options” in light of a lower long-term neutral rate, will one of those “options” be to encourage the Treasury to issue more debt? If so, we know a new regional Fed President that’s in good with the folks at Treasury…
http://www.zerohedge.com/news/2015-11-18/did-goldman-sachs-just-find-smoking-gun-todays-fomc-minutes