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What is Yield Curve Control?
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What is Yield Curve Control?


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Editorial Rating

8

Qualities

  • Analytical
  • Overview
  • Hot Topic

Recommendation

Markets closely monitored the yield curve inversion of the two-year and 10-year US Treasury notes in August 2019, an event that often warns of an upcoming recession. In case of a downturn, Federal Reserve officials would deploy their usual policy toolkit – lowering interest rates, issuing forward-looking guidance and unleashing a fresh round of quantitative easing. But Brookings Institution professionals Sage Belz and David Wessel explore an alternative option: yield curve control. Executives, regulators and investors will find this a valuable assessment of a potentially new Fed approach.

Take-Aways

  • The Federal Reserve may institute a new policy option, yield curve control (YCC), to mitigate a future recession.
  • Central bankers use yield curve control and quantitative easing as purchase mechanisms for US Treasuries.
  • YCC means setting a goal for a long-term rate and then buying government securities to achieve it.

About the Authors

David Wessel is a senior fellow at the Brookings Institution and director of the Hutchins Center on Fiscal and Monetary Policy, where Sage Belz is a research analyst.