"Has the Federal Reserve Lost Its Mojo?" Article Published In The Wall Street Journal

Jun 18, 2019
Summary: In November of 2017, the Federal Reserve began a program to wind down its unprecedented increase in assets that began during the Great Recession. Unnoticed by many, the banking system increased its holdings of reserves as the Fed began paying interest reserve holdings. The effect on the economy of these Fed asset reductions has been more than offset by bank reductions in reserve holdings as market interest rates exceeded their earnings on reserves. But the market interest rate declines have led to the interest rate of bank reserves exceeding market alternatives. Now banks are taking money out of the economy to build up their holdings of superior earning reserves. The June 18 meeting of the Fed Board must and will act to reverse this trend by drastically reducing the rate of interest it pays on bank reserves.

Dr. Thomas R. Saving is the Director Emeritus at the Private Enterprise Research Center at Texas A&M University. Dr. Saving was previously appointed Public Trustee of the Social Security and Medicare Trust Funds under President Clinton and as a member of President Bush’s bipartisan Commission to Strengthen Social Security. His latest book, ‘A Century of Federal Reserve Monetary Policy: Issues and Implications for the Future,’ is now available from World Scientific Publishing.
This article was originally published by the Wall Street Journal on Tuesday, June 18, 2019. Read the full article here [paywall].