MR. KOHN. Before we get illegal here, I am honored and pleased to nominate Ben Bernanke to be Chairman of the Committee…
© The Financial Times Ltd 2014 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
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
We’re starting at 2:10pm EST (7:10pm in London) at the usual place.
We were puzzled a few weeks ago as to why Charles Evans had changed his eponymous rule from 7/3 to 6.5/3.5. Turns out he might have just been aligning himself with what was coming.
Today the FOMC abandoned using a calendar date (most recently mid-2015) as its approximate guide to when it would begin raising rates. Instead: Read more
Expected changes, unexpectedly soon. Not just the widely anticipated announcement that the Fed would continue buying long-end Treasuries after the end of Twist, but also a switch from using a calendar date (previously set at mid-2015) to economic objectives for estimating approximately when the committee will raise rates in the future.
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
Nomura economist David Resler, in a valedictory research note, passed along the following chart as part of his thoughtful meditation on the Fed:
It’s Fed speech week, but rather than spending much time supporting or criticising last week’s decision by the FOMC, Minneapolis Fed president Narayana Kocherlakota has instead drawn inspiration from Charles Evans and introduced his own conditionality-based “liftoff plan”:
As long as the FOMC satisfies its price stability mandate, it should keep the fed funds rate extraordinarily low until the unemployment rate has fallen below 5.5 percent. … Read more
A cheat sheet for the hawk-dove breakdown on the FOMC (click to enlarge, via Credit Suisse):
Tune in at 2:05pm EST (7:05pm in London) today for a special edition of US Markets Live and join the rabble to watch The Bearded One be questioned by our colleagues in the media.
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
There was a seemingly minor item in the FOMC minutes released yesterday that didn’t get much attention but that, naturally, interested us quite a bit.
The participants noted that the Fed staff had presented an analysis showing “substantial capacity for additional purchases without disrupting market functioning”. But the staff part of the minutes offered no details of this analysis. Read more
A couple of charts from Barclays economists showing the relative contribution of food to headline and core CPI:
The biggest change is in the very first paragraph. In June the Fed had written that the economy “has been expanding moderately”. Now economic activity has “decelerated somewhat over the first half of this year.” Read more
You can consider this a preview of both next week’s meeting and the one in September, as various reports have indicated that he Fed may wish to wait for more economic data before deciding what to do next.
As usual we won’t play the percentages; instead we’ll just run through the possibilities and list a few of the potential complicating factors involved with each of them. Read more
I guess I would add to that, though, that, you know, each of these nonstandard programs does have various costs and risks associated with it with respect to market functioning, with respect to financial stability, with respect to the exit process, and so I don’t think they should be launched lightly. I think there should be some conviction that they’re needed, but if we do come to that conviction, then we’ll take those additional steps.
The wait is finally over (well, not entirely — the new Statement of Economic Projections will be out later and we’ll have much more during US Markets Live starting at 2:10pm), and the headline news is that Operation Twist has been extended through the end of the year.
We’ll also have rolling updates to this post, but for now: Read more
Supply and liquidity, to name two obstacles for an extension of the Fed’s policy of selling short-end Treasuries and buying long-dated ones.
Doesn’t mean they’re insurmountable, only that it will be a little more complicated this time should the US central bank take this route. Read more
Ahead of next week’s FOMC meeting, and as the G20 tries to preemptively assuage global markets with the kind of enthusiastically meaningless statements in which it specialises…
Since the last FOMC meeting we’ve had two disappointing US payroll reports, declining measures of inflation and inflation expectations, worries that growth in emerging markets has slowed more than anticipated, and Europe… well, how much time have you got? Read more
Here’s one visual way to see the disconnect between the hawkish shift in the FOMC’s new federal funds rate projections and the steadfast dovishness of the statement itself, which preserved the late-2014 language.
From Credit Suisse: Read more
Ben Bernanke, March 2010:
That will sound awfully familiar to anyone who listened in to the presser earlier on Wednesday afternoon. Bernanke essentially reiterated the same idea in response to a question asking why he wouldn’t tolerate a period of catch-up inflation higher than two per cent if it would further reduce unemployment. Read more
Holy hawkish shift! Two of the FOMC members who previously forecasted that tightening wouldn’t begin until after 2014 have shifted their votes to that year.
Projections for inflation and growth have also been revised higher. It’s odd therefore, that the statement itself continues to use the late-2014 language — though this is probably just a reflection of the fact that Bernanke/Yellen/Dudley are 1) still more dove-ish than the median member, and 2) hold the cards. Just a guess. Read more