Do Low Interest Rates Really Help The Economy?

[vela]

You can target interest rates by controlling the money supply or target a money supply. The Fed currently targets interest rates but it hasn't always chosen this path.

Is this true? I know the Fed used to try keep interest rates stable back in the 70s only to have its policies produce stagflation. I was under the impression that after that, the Fed, starting with Volcker, mainly focused on keeping inflation in check, which essentially meant not letting the money supply grow too quickly.

It can also make changes to the discount rate and reserve requirement to implement monetary policy, but it rarely does, almost never changing the reserve requirement and only using the discount rate for dire emergencies like 9/11.

An econ professor likened the difference between adjusting the discount rate or reserve requirement vs. open market operations to control the money supply to the difference between using a meat cleaver vs. a scalpel to cut meat.

 

[WhoWee]

Here's an update on "QE - 2"
http://www.businessinsider.com/new-york-fed-quantitative-easing-2-2010-11

"The New York Fed plans to purchase securities worth $850 to $900 billion in the second round of quantitative easing.

It works like this: There will be an additional amount of purchases worth $600 billion (that's the headline number from the Fed today).

But there will also be a reinvestment of $250 to $300 billion from payments associated with other securities it already holds.

That makes QE2 feel a whole lot bigger, and closer to the top end $1 trillion number that was mentioned."