Thursday, May 5, 2011

Kocherlakota Speech on Raising Rates

Thus, under my baseline forecast, it would be desirable for the FOMC to raise the fed funds target interest rate by a modest amount toward the end of 2011. Of course, the FOMC could also reduce accommodation by shrinking the Fed's holdings of long-term government securities. Such a reduction could take place in one of two ways. First, the FOMC is currently investing any principal payments from its securities holdings into long-term Treasuries. The Committee could decide to stop all or part of these reinvestments. Alternatively, the Committee could reduce accommodation by choosing to sell some long-term assets.
It is sounding like they are going to implement my plan: strangle commodity inflation and rally T bonds so that the Federal Government can refinance.

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