There could be serious financial turmoil when the Fed eventually raises interest rates, even without a lot of leverage in the financial system, according to this year’s paper at the US Monetary Policy Forum in New York. If the analysis is correct then it is an argument against very easy monetary policy – but the paper is quite limited.
(The USMPF, organised by the Chicago Booth business school, is a once-a-year event where a group of market economists present a paper to a gathering of Fed pooh-bahs. The authors this year are Michael Feroli of JP Morgan, Anil Kashyap of Chicago Booth, Kermit Schoenholtz of NYU Stern and Hyun Song Shin of Princeton.) Read more