With speculation about QE3 rife, below is a timely explanation of a method the Fed might end up using to target interest rates further out on the yield curve.
The Fed clearly has a dilemma. It needs to finesse expectations management for BOTH Treasury bond and equity investors. Bond investors need to know they are not going to get screwed by inflation, so they want the fed funds rate renormalized. Equity investors want the “extended period” of ZIRP to last for, well, an extended period. Free money is good for specs.
So what’s a central banker like Bernanke to do?
