At the WSJ David Wessel reports on Montreal based Bank Credit Analyst´s alternative “recipes”:
The Fed is not out of ammo, the economists at the Bank Credit Analyst insist, but….“There are three potential ‘nuclear options’ at the Fed’s disposal that could have a major impact on economy activity,” writes Peter Berezin, managing editor of the Montreal-based monthly report. “Unfortunately, all three options would be hard to implement and carry significant risks.”
–Target a higher inflation rate or pre-specified level for the consumer price index or nominal gross domestic product. Problem: “could undermine the Fed’s long-standing commitment to price stability.”
Not so. Yes for a higher inflation target. Maybe for a pre-specified PLT and absolutely no for a NGDP level target, a case where inflation is not even mentioned!
–Stimulate bank lending by putting a tax on excess reserves, hoping that banks will the lend out the money if the have to pay borrowers to take the loans. Problem: “could lead to the collapse of money market funds and the disintermediation of the financial system.”
Not likely if it is combined with a level target for NGDP
–Buy corporate debt, equities, real estate or foreign currency. Problem: Could require an act of Congress. “Given that the U.S. economy remains stuck in a liquidity trap,” Berezin concludes, “fiscal policy would be the most straightforward way to stimulate….However, the likelihood that the U.S. will receive major fiscal stimulus anytime soon is close to zero.”
Yes, it could require an act of Congress. Liquidity Trap? Fiscal stimulus the most straightforward way…but negligible chance of happening? Nothing of the sort if NGDPT level target gets a “hearing”.