D.E. Shaw Economist Seeks Guidance From Fed

May 27 2014 | 11:00am ET

A senior economist at D.E. Shaw Group and former Federal Reserve official wants his former colleagues to let he and other market players know what they’re planning when it comes to interest rates.

Brian Sack, since last year co-director of economic research at D.E. Shaw, said that the Fed should decide how it will handle changes to monetary policy over the next several months. That would give the markets time to adjust to its approach.

“In my view it would be most effective to reach those decisions over the next several meetings and to let the market know what those decisions are so we can transition to this new regime during a time when interest rates aren’t very active,” Sack told The Wall Street Journal. “This is a very good time actually to be transitioning to a new regime.”

Sack said that the Fed should focus its attention on its reserves and reverse repurchase agreement rates, rather than the much-watched Fed funds rate, which has been at zero for more than five years.

“The federal funds market has become smaller,” Sack said. “There is probably less than $100 billion of transactions at this point in time. And it has become somewhat idiosyncratic in terms of what activity you see there.”

Earlier this year, Sack, who was head of the New York Fed’s markets group, said that the reserves and reverse repos rates should be the same.


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