But banks are not likely to inject liquidity into the economy unless the Fed provides a more generous volume of high-powered reserves to the banking system. It also helps explain why the gold price remains flat at the low end of its four-year range. If monetary policy were truly stimulative, then reserves supplied by the Fed would be greater than reserves demanded by the economy. This analytical model of monetary base growth, the shape of the Treasury curve and the gold price will tell the real Fed story. Merely tracking the funds rate can be very misleading.
True stimulus has yet to emerge.
But we're all waiting. Send your comments about his column by clicking here.