The president of the Kansas City Fed, Thomas Hoenig, is a member of the FOMC this year. The article states some of his recent comments on the role of the Fed and the federal government increasing deficits.
The government is spending so much money recently, deficits get bigger every year. Hoenig is worried that they will look to the Fed to print money to cover the deficit. If this happens, the Fed will lose its independence and not be able to both sustain growth and stable prices.
Some conflict may arise in the future between the Federal Reserve and the government over these issues.
~Cassie
I think we have not reached the maximum point of seigniorage yet, but we cannot know exactly where it locates. Expected inflation, which decrease demand for money and consequently decreases seigniorage, cannot be exactly measured.
ReplyDeleteI understand that we are having a really high deficit but we are not in a stable situation yet to lower government spending on supporting the economy. So I think the deficit will still be high but Fed may try to control expected inflation on future. Some policy about controlling money supply and preventing inflation has been carried out like changing the discounted rate and federal fund rate.
~T.R.