A bit confused.. (monetary policy and interest rates)
Okay so the fed said they didn't want to cut the overnight rate to prevent inflationary effects. I'm just wondering won't the few hundered billions used in the bailouts also have the same effect as cutting the interest rates? Where are they getting this money from? Are they doing an open market operation? But won't this reduce the money supply and then increase it again once the money is spent on the bailouts, having no net effect?
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here's an article that might
here's an article that might clear up some of your question:
http://www.slate.com/id/2200299/
so no, the treasury won't just be printing money (ie expanding the money supply) to fund this.
more generally, the way i understand it, the Fed targets interest rates, and they expand and contract the money supply as necessary via open market ops to make sure the fed funds rate is at its target. this is why you'll read about multi billion dollar cash injections in times of low liquidity by the fed even though interest rate policy has remained the same.