Yellen: Fed Has Legal Authority on IOR vs. Fed Funds Rate

The transcript discusses the Federal Reserve's use of financial tools and the legal framework governing interest rates on reserves. It highlights the debate over the legality of paying premiums on excess reserves, with a focus on the interpretation of Section 201 of the Financial Services Regular Relief Act. The conversation explores the authority of the Fed to set interest rates and the implications of paying premiums to large banks, questioning the legal limits and statutory interpretations involved.

What metaphor is used to describe the potential misuse of the Federal Reserve's tools?

• A child using a baseball bat for unintended purposes

• A driver using a car to plow a field

• A teacher using a book as a doorstop

• A chef using a knife to cut paper

According to Section 201 of the Financial Services Regular Relief Act, what is the limitation on payments on reserves?

• They must be equal to the long-term interest rates

• They cannot exceed the general level of short-term interest rates

• They must be below the inflation rate

• They should be higher than the stock market average

What is the difference in basis points between the interest on excess reserves and the Fed funds rate mentioned in the transcript?

• 38 basis points

• 12 basis points

• 100 basis points

• 50 basis points

What is the main legal question raised about the Federal Reserve's interest payments on reserves?

• Whether it is legal to pay in foreign currency

• Whether it is legal to pay below the Fed funds rate

• Whether it is legal to pay a 100% premium

• Whether it is legal to pay a 50% premium

What does the transcript suggest about the interpretation of 'exceeding the general level of short-term interest rates'?

• It is a fixed percentage above the Fed funds rate

• It is irrelevant to the Federal Reserve's actions

• It depends on the specific short-term interest rate considered

• It is clearly defined in the statute