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Abstract:
The leading central bank, the Federal Reserve of the U.S. has introduced after 2008 new instruments and unusual facilities to implement its new innovative monetary policy. The financial world and mostly the social scientists watch as the Federal Open Market Committee (FOMC) decides on a target interest rate in the federal funds market for the next period, especially, the last twelve years. How efficient was so far this ZIR monetary policy after the latest global financial crisis? Why they put all these burdens to the poor taxpayers (bail out) and to the risk-averse depositors (bail in)? The framework that the FOMC uses to implement monetary policy has changed over the last twelve years and continues to evolve today. Many people have started evaluating the new instruments and their "effectiveness". Before the 2008 financial crisis, policymakers used one set of traditional instruments (tools) to achieve the target rate. However, several policy interventions introduced soon after the crisis drastically altered the landscape of the federal funds market and the traditional economic theory. This new and uncertain environment, with enormous reserves and even interest on reserves, necessitated a new set of instruments by the Fed for its monetary policy implementation. Lately, after seven year of zero interest rate, the FOMC began in December 2015 to unwind the effects of these policy interventions; but many questions arise: Why the Fed follows the same rules? How they evaluated the effectiveness of these new instruments? Is the current federal funds rate the appropriate one for our economic wellbeing? The federal funds rate is very low and affects negatively the financial markets (bubbles are growing), the real rates of interest (it is negative for twelve years), the deposit rates (they are closed to zero for twelve years), and the redistribution of wealth of depositors and taxpayers, which means the true economic welfare is falling and a new global recession is in preparation, if the current unfair easy money policy will continue.
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