IMF's former chief economist couldn't be more naive


Acting through intermediaries, the Fed essentially already does what he proposes.

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Fed Should Buy Stocks If There Is Another Steep Recession, IMF's Former Chief Economist Says

By Greg Robb, New York
Monday, September 10, 2018

The Federal Reserve buying stocks? How about financing the federal deficit? Or buying goods?

These were some of the suggestions for combating the next severe recession given to the central bank by former International Monetary Fund chief economist Olivier Blanchard at the Boston Fed’s monetary policy conference over the weekend.

... Dispatch continues below ...


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There is a general sense the Fed has to rethink its approach to combating recessions given the low-interest-rate environment that is persisting.

The problem facing the central bank is easy to describe.

The Fed's benchmark short-term fed funds rate is now around 2.875 percent. That's not so much room to cut rates in a downturn, considering that in a typical post-World War II recession, the Fed slashed rates by 5-6 percentage points to turn the economy around after a recession.

Blanchard said the Fed probably has enough tools to handle a run-of-the-mill recession. But if it is another severe recession like the financial crisis, Blanchard urged the central bank to resort to previously unheard of policies. ...

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