Welcome to Econ Talk, part of the Library of Economics and Liberty.

I'm your host Russ Roberts of George Mason University and Stanford University's Hoover

Institution.

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My guest today is Alan Meltzer, the Alan H. Meltzer University Professor of Political

Economy at Carnegie Mellon University, an authority on monetary policy and history of

the Federal Reserve.

Alan, welcome to Econ Talk.

Nice to be with you.

Alan, when I was an undergrad and a grad student, which was in the 70s, I was taught

that the Fed, Federal Reserve and the United States, controls the money supply via open market

operations, the buying and selling of treasury bonds.

But for many years, recently, all we hear about is the Fed controlling interest rates.

First, explain what the Fed is doing or claiming to do when they talk about interest rate

cuts, which they've been doing recently, and what does that mean exactly?

The Fed controls a single interest rate, not all interest rates, but one interest rate,

a particular rate, the rate at which banks sell reserves to each other and to some of

their customers.

They control that rate, and that rate sets or helps to influence other rates in the market,

...