Last week we noted the reemergence of Greenspan’s dilemma. Soon no doubt becoming Janet Yellen’s, too.
Very loosely, this is focused on what to do when all conventional economic metrics suggest that it might be time to raise rates, but inflation remains stubbornly grounded regardless.
Kit Juckes at Societe Generale picks up on the theme this Friday:
Once upon a time, we had a whole array of rules to help think about monetary policy -the Phillips curve, NAIRU, the Taylor Rule, even MV=PY (an identity not a rule) and Goodhart’s Law (that anything a central bank targets will mis-behave like a moody teenager). But increasingly, central bankers are throwing away their playbook. In the UK and US, unemployment rate triggers chosen to frame forward policy guidance are set to be revised because they will be reached before the central banks are ready to raise rates. Even at the ECB, there is acknowledgement that the link between economic activity and inflation has ‘become more tenuous in recent years’.
Deficit continues to be a dirty word in the US (despite *those* findings about the holier-than-thou Clinton surpluses not being all that great), whilst the idea that the US is an unsustainable deficit spender increasingly propagates in mainstream circles.
But, as Ethan Harris at Bank of America Merrill Lynch shows on Monday, nothing could be further from the truth. In reality the US deficit is contracting at a relatively speedy rate: Read more
Despite the best efforts of White House insiders, the backlash against the candidacy of Larry Summers to be the next Fed chair proved too much to overcome.
From the scoop by David Wessell of the Wall Street Journal: Read more
Not that we needed more convincing, but…
With the exception of certain commentators who get paid ostensibly to act like inveterate morons, nobody has doubted Janet Yellen’s record of analytical prescience in the past decade. Read more
Most of Janet Yellen’s speech today about commodity prices and the economic outlook was about what you would expect, and we covered many of the same issues in our long discussion last week about inflation expectations.
To summarise, Yellen made the following points: Read more
For the commute home, or while rocking out to Paradise City, or while shielding yourself from the November Rain, or while chasing your Rocket Queen, or while exercising Patience; and because you Don’t Cry, you Live and Let Die,
- Welcome to the jungle: Ex-G’N’R bassist starts wealth management firm. Read more
Here’s a pop quiz for macro fans: Federal Reserve asset purchases were equivalent to an X hundred basis point reduction in the federal funds rate and contributed Y million jobs. What are X and Y?
In a recent paper on zero lower bound events and the impact of quantitative easing, economists at the San Francisco Fed try to find X and Y. Read more
The Fed’s asset-purchase scheme is paying off, with inflation a percentage point higher and 3m more jobs to be added in 2012, Fed vice chair Janet Yellen said at the weekend, citing Fed research, reports the FT. It is the first time a senior Fed official has detailed the benefits of ‘QE2′. The estimates suggest that, if the Fed had not started QE in 2008, the economy would now be close to deflation and 2012 unemployment would be 1.5 percentage points higher. Clearly, says the FT, “something is stirring” in the US economy. Meanwhile, Pragmatic Capitalism “commends” Yellen’s understanding of the banking system, but tears apart most of her comments about QE2′s efficacy.
The US Federal Reserve’s asset-purchase scheme is paying off, with inflation a percentage point higher and 3m more jobs to be added in 2012, Fed vice chair Janet Yellen said at the weekend, citing Fed research, reports the FT. It is the first time a senior Fed official has detailed the benefits of the Fed’s second round of quantitative easing, or ‘QE2′. The estimates suggest that, if the Fed had simply cut rates to zero in 2008 and not started its asset-buying scheme, the economy would now be close to deflation and unemployment in 2012 would be 1.5 percentage points higher. Yellen’s remarks followed Friday’s delivery by Fed chair Ben Bernanke of what MoneySupply called a “dovish” Congressional testimony. Clearly, says the FT, “something is stirring” in the US economy.
Here is a disturbing, though not unfathomable, possibility envisioned by Economics of Contempt:
Let’s say the European sovereign debt crisis flares up again, and one or two Euro banks fail. (Not a bank like UBS or Deutsche Bank, but a medium-sized bank like Bank of Greece or a Landesbank.) That, in turn, causes a U.S. money market fund — many of which have large exposures to Euro banks — to “break the buck,” which leads to another run on money market funds. Read more
US president Barack Obama will on Thursday appoint three new members to the Federal Reserve Board, the Wall Street Journal reports. The US government will choose Janet Yellen, San Francisco Federal Reserve Bank president, to be the board’s vice chairman, and MIT economist Peter Diamond, and Maryland state banking regulator Sarah Bloom Raskin to sit on the board, the WSJ says.
If the Senate confirms the appointments, the NYT notes, they will be launched into planning the Fed’s exit strategy from the emergency loans made over the crisis. Fed officials have begun to debate the merits of selling the bank’s mortgage-related assets.
Whispers around the White House say President Obama is poised to pick Janet Yellen to be the Federal Reserve vice chairman, Reuters has reported. After Donald Kohn’s departure, is it the Fed doves’ time to shine once again?
After all, Yellen, currently chair of the San Francisco Fed, has been outspoken on her belief that the government needs to keep interest rates at exceptionally low rates — and she leans towards growth policies that favour employment over policies to keep inflation down. Read more
Janet Yellen, president of the Federal Reserve Bank San Francisco, has been chosen by US president Barack Obama to replace Donald Kohn as vice chairman of the central bank, Bloomberg reports, citing two people with knowledge of nomination process. The selection is “pending completion of vetting by the Obama administration,” Bloomberg said.
The bottom line of Janet Yellen’s presentation in Vancouver was clear enough, and has already found its way into the market’s calculations of Fedspeak. She said: “I consider the current level of monetary accommodation to be appropriate.”
In other words, she does not think the Fed needs to cut rates again. Read more