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Price Fix is In

A Wall Street Journal editorial note the Jerome Powell Price-Fix Is In.

The latest idea whose time has come and gone and come again is yield-curve control, which is shaping up to be one of the Federal Reserve’s next party tricks. This tool would involve the Fed setting interest rates by diktat for the first time in 70 years, and Governors are warming to the idea.

Backers say the policy allows central banks to manipulate rates without expanding their balance sheets ad infinitum. This argument appealed in Japan, the Frankenstein’s lab of monetary policy, where two decades of quantitative easing left the central bank with relatively few outstanding government bonds to buy.

The Fed last experimented with this policy in the 1940s as Washington struggled to finance World War II.

If Mr. Powell thinks President Trump’s Twitter feed is bad for Fed independence, wait until the chairman starts manipulating rates outright. The danger will grow more acute the more indebted the federal government becomes from pandemic response and Baby Boomer entitlements.

The world needs a market price for the 10-year Treasury yield, and Mr. Powell is threatening to take that away.

News Flash 

I have news for the Wall Street Journal: 

There is no market price for treasuries right now


Forcing down interest rates by QE where the Fed wants is not a market price. 

Credibility Boost

Straight from the Twilight Zone: "Governor Lael Brainard argues that forcing medium-term rates downward would bolster the Fed’s credibility."

Yes, about as much as mandating the price of orange juice or steel.

The Wall Journal gets back on track with its conclusion.

We don’t know what price the global economy would pay for such a policy in economic distortions or financial instability. The Fed doesn’t know either. No one should be eager to find out.