A friend of the Global Macro Monitor corrects us on our post, Fed’s “Rent Control” Policies Starting to Distort,
The fact that the fed is fiddling with the yield curve disguises the equilibrium price of LT debt. The way the fed is fiddling with the yield curve is fundamentally different from price control. The difference is that the fed is manipulating supply to achieve a price target.
Correct. Rather than suppressing rates through a legal mandate, such as rent control, the Fed pegs long-term rates through intervention similar to monetary policy under a fixed-exchange rate regime. Fortunately, the Fed has not targeted a specific long-term interest rate and thus has no “line in the sand” to defend x/ its reputation.
Nonetheless, the conclusion stands that the yield curve is distorted, does not reflect true information about economic fundamentals, and suppresses the supply of long-term loanable funds.
Keep those comments, corrections, and criticisms coming. This is “open source macro,” folks.