It’s starting now, and you can watch it live at C-SPAN.
We have a feeling that the nuances of this passage will be lost on some members of the Committee: Read more
Many factors affect the development of the economy, notably among them a nation’s economic and political institutions, but over long periods probably the most important factor is the pace of scientific and technological progress.
That’s Ben Bernanke addressing a graduating class at Bard College at Simon’s Rock, Massachusetts, on Saturday. He goes on to say that not everyone believes this advancement is going to continue at such a great pace.
Yes, he is talking about Robert Gordon and Tyler Cowen, and their arguments that much of the low-hanging fruit has been plucked and we face a lower-growth future, as evidenced by the incremental advancements of recent years. Read more
The “danger zone” referenced in the chart above by Lewis Alexander of Nomura is a kind of arbitrary area between the Fed’s owning 50 per cent of the outstanding stock of Treasuries in a certain category (and thus potentially starting to affect market liquidity) and the 70 per cent threshold at which the SOMA desk will stop buying outright.
As you can see, it will be a little while yet before the Fed approaches that threshold, even if it increases purchases to $65bn a month. Read more
Gavyn Davies has a great post looking at the recent work by Fed researchers and the Goldman Sachs economics team on trends in US labour force participation and their implications for US monetary policy. See also Robin Harding last month.
To recapitulate, the US unemployment rate has continued to decline steadily, and at its current pace would hit the Fed’s 6.5 per cent threshold to begin raising rates by roughly the middle of next year. Read more
At some point, Ben Bernanke made appointments on his personal calendar stretching from Thursday 29 August to Saturday 31 August.
And he didn’t think: “Hey, I’m the world’s most important central banker. Is there anything that could possibly be going on at that time that involves people like me? You know, like a symposium at some rando place in Wyoming that journalists refer to as ‘idyllic’ and that takes place at the exact same time every year? If so, I should probably leave the slot open.” Read more
It’s streaming from the LSE and is ostensibly about what economists and policymakers should take from the financial crisis. However, if we were cynical folk we’d suggest this makes a nice opportunity for Bernanke and King to get together, have some wine and go all Norman-Strong. Our eye’s on the ground tell us such luminaries as Carney and Yellen are also in attendance.
Anyway, enjoy, we know all the LSE alums here who made us post this will… Read more
I would say that we will be looking for sustained improvement in a range of key labor market indicators, including obviously, payrolls, unemployment rate, but also others like the hiring rate, claims for unemployment insurance, quit rates, wage rates and so on, looking for sustained improvement across a range of indicators, and in a way that is taking place throughout the economy.
During the presser following last June’s FOMC meeting, Ben Bernanke cautioned that another round of QE shouldn’t be undertaken lightly because it may have “various costs and risks associated with it with respect to market functioning, with respect to financial stability, with respect to the exit process”.
The next round was launched in September, of course — after (though certainly not just because of) Fed staff economists presented an analysis to the FOMC concluding that there was “substantial capacity for additional purchases without disrupting market functioning”. Read more
Given the boost that Goldman’s economists gave to the nominal GDP level targeting movement when they endorsed the idea near the end of 2011, it’s probably a good idea to listen to them when they write about the subject (whether you agree with them or not).
NGDPLT itself has many more high-profile evangelists now than it did then: the Fed adopting an Evans Rule was the latest shift in its direction, and of course the idea is being openly debated in the UK after Mark Carney suggested it would be more potent than flexible inflation targeting. Read more
We still think the minutes of the December FOMC meeting — specifically their revelation that “several” committee members believe asset purchases should be slowed or stopped by the end of this year — were wrongly interpreted by some as a hawkish shift.
Bernanke explained at the September presser that asset purchases, purpose of which he said was “to increase the near-term momentum of the economy”, would continue until the outlook for labour markets had improved “substantially”. Read more
These minutes are for the meeting at which the Fed announced its switch to a version of the Evans’ Rule. While that change was expected, it wasn’t expected to be made as soon as it ultimately was.
The most interesting bit from the minutes below in bold, followed by some quick commentary. Read more
It was about this time last year that we noted how the voting membership of the FOMC would become more dove-ish in 2012. Of course, at the time we had no idea that Jeremy Stein and Jerome Powell would be appointed and confirmed this year, making the committee even more receptive to Ben Bernanke’s decisions.
Surely this made it easier, at least on the margins, for Bernanke to move in the direction of Evans/Woodford/Sumner, which he finally did at the big September meeting (also helping was what appeared at the time to be another post-winter slowdown in the US economy). Read more
“Mad. Mad. Mad. Bernanke’s gone totally MAD, I tell you!”
“What’s he thinking with QEternity? It’s so inflationary. AGHH!” Read more
Central bankers in the US and Europe may think they’re engaging in policies accommodative to economic growth, but two can play in this game of acronyms! The team at Morgan Stanley fights letters with letters, in a note released on Friday (emphasis ours):
Global central banks have done all in their power to rescue the financial markets from the doldrums. Markets have clearly noticed their unwavering intent to “do whatever it takes” and the open-ended nature of the response. Notwithstanding this central bank resolve and despite QE, OMT, et al., we remain strategically cautious. Our stubbornness is quite simple – fundamentals. On the other side of QE and OMT are IP, PMI, and GDP, which continue to look worse, not better. As such, the key to our call is very simple: we think poor fundamentals will trump central bank action. Time will tell. Read more
In a great post over at Money Supply, Robin Harding explains the main source of suspense for today’s FOMC statement and presser (our emphasis):
For me, the question of what the Fed will do is far less interesting – and far less in doubt – than how the Fed will do it. This will not be a pro forma repeat of previous actions. As Mr Bernanke’s speech shows, the Fed is trying to address grave concerns about the labour market. The crucial issue is whether and how they tie any action to the state of the economy. Read more
A couple of charts from Barclays economists showing the relative contribution of food to headline and core CPI:
The Bearded One is giving a speech to educators at 2:30pm, followed by a Q&A. We doubt he’ll slip and give any hints about upcoming monetary policy decisions, but it might be interesting. Click below to watch:
We’ll be back later with a proper preview of next week’s FOMC meeting, but for now here is something to argue about:
1. QE1 was more effective than QE2. Read more
The ECB’s recent decision to lower its deposit rate to zero raised speculation in the market that the FOMC might be considering the reduction or elimination of the 0.25 per cent interest the Fed pays on excess reserves.
Bernanke himself hadn’t mentioned the idea lately prior to his testimony before Congress this week, and it hasn’t come up in FOMC minutes since last September’s meeting. Yet the market continues to price in the possibility of a cut, as Barclays analysts noted this morning: Read more
UPDATE: Libor question right off the bat, and it’s clear that Bernanke was prepped for it. He said that the issue is “troubling” and that Libor is structurally flawed, but it was then complicated because there was no interbank lending going on at the time. He also said that members of the NY Fed informed all the relevant agencies in the US and UK of what was going on. The NY Fed also developed recommendations for suggested changes and communicated them with the Bank of England and the BBA. He also said that the Board of Governors was providing analytic support, and added that there was “rapid followup” by the other agencies such as the CFTC.
Provocative from Moody’s Analytics:
In a seldom before seen manner, the US high-yield bond spread has been moving with the weighted average government bond yield of Italy and Spain. Though prohibited by current guidelines, Fed purchases of Italian and Spanish government bonds probably would do more to boost the US economy than additional purchases of US Treasury bonds. Read more