The US Federal Reserve considered whether it should target a long-term interest rate at a special video conference meeting in mid-October in what would have been a radical change to its monetary policy, according to the minutes of its November meeting, writes Robin Harding.
Although the Fed rejected this policy, it suggests that targeting a long-term rate such as the yield on 10-year Treasury securities may be an option if inflation continues to fall despite the central bank’s new $600bn round of quantitative easing, nicknamed QE2.
Such a policy would mean promising to buy an unlimited number of such securities at the target rate. Some members of the rate-setting open market committee noted that this “could be an effective way to reduce longer-term interest rates”.