U.S. monetary policy in disarray

• Since 2006, the Fed's credit policy relied on traditional commercial banking strategies.
• A focus on credit obscured recessionary moves in the real federal funds rate and monetary base.
• The Fed caused, deepened and lengthened the recession, and weakened the recovery.
• The Fed has subsidized banks, and took on unnecessary interest rate and credit risk.
• Open market operations could more safely and cheaply have increased money and credit.

Monetary policy became more difficult to characterize during and after the mortgage foreclose and financial crises because of a shift to a new credit policy focused on private sector credit and that relies on traditional commercial banking strategies. The new credit policy broke the tight link that had existed between Fed credit and its effective monetary base, the monetary base that affects monetary aggregates. The Fed has adopted an exit strategy, but the discretionary powers that it followed remain in place as does a mistaken policy on the payment of interest on excess reserves.