SAN FRANCISCO The U.S. Federal Reserve has been able conduct effective monetary policy even though its main policy lever, a target for short-term rates, has been jammed at zero since late 2008, research published by the San Francisco Fed on Monday showed.
With short-term interest rates pinned down, some economists have worried that the Fed has less ability than usual to influence long-term borrowing costs, a key channel for adding juice to the economic engine.
Eric Swanson, a senior research advisor at the regional Fed bank, analyzed yields on U.S. Treasuries to test that assumption.
He found that the Fed's forward guidance - giving markets information about where the Fed expects short-term rates to be in the future - and the Fed's bond-buying programs on several occasions helped push down long-term borrowing costs by as much as 0.2 percentage point.
That's about what the Fed could have achieved by cutting its short-term interest-rate target by 0.75 percentage point to 1 percentage point, he wrote - a large cut by historical standards.
"To the extent that the Fed can affect these longer-term interest rates through forward guidance and large-scale purchases of longer-term bonds, the zero lower bound appears not to have constrained monetary policy as much as is sometimes believed," Swanson wrote in the regional Fed bank's latest Economic Letter.
(Reporting by Ann Saphir; Editing by Chizu Nomiyama)