Today was FOMC Day. The message was that the committee plans to start to taper QE this fall, and end it next summer, assuming its forecasts for unemployment and inflation don’t change. The Fed plans to continue its Zero Interest Policy for a good while after the end of QE. This shocking news sent the market down by 200 points, and caused bond prices to fall as well. I don’t understand what new information was provided today, but I guess some people were expecting QE to go on forever.
There was one bit of disappointing news, at least to me, and that is that the Fed doesn’t see inflation at 50% below target as a problem; they say it’s temporary. I guess they’re serving Japanese Kool-Aid at the Eccles Building these days. Since the purpose of QE is to lower the real funds rate by raising inflation expectations, you’d think that 1% wouldn’t too helpful.
Bernanke said that “These large and growing holdings will continue to put downward pressure on longer-term interest rates.” How does he know? Bond rates are now rising, for some reason. Maybe the Chinese are selling?
This is what I see in terms of interpreting the Fed’s policy stance: 1. Moderate (5-7%) money growth. 2. The lowest inflation since the Crash (.7%). 3. Very low inflation expectations. 4. Very low LT interest rates. 5. Very low and falling (3.4%) nominal growth. 6. Low real growth (1.8%). 7. High (and rising) unemployment (7.6%).
That is not the picture of “extraordinary accommodation” or “massive monetary stimulus”. Bernanke says that he has his foot on the accelerator but he must be driving a lawnmower. The Fed is doing nothing for the economy as all of the telemetry shows.
Perhaps Bernanke has given up trying to convert the committee to Bernankeism? Maybe he’s just exhausted and coasting to retirement? Maybe he wants to give Janet Yellen a chance to be a hero next year? I don’t know, but it’s quite disappointing. The world’s biggest economy is a terrible thing to waste.
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There are four reasons to worry that the latest banking crisis could be systemic. For many years, periodic bouts of quantitative easing have expanded bank balance sheets and stuffed them with more uninsured deposits, making the banks increasingly vulnerable to changes in monetary policy and financial conditions.
show how the US central bank's liquidity policies created the conditions for runs on uninsured deposits.
When a bank fails, the first response by policymakers and the public is to blame risk-loving speculators, greedy investors, or regulators asleep at the wheel. But quenching our thirst for moral adjudication is a poor basis for policy, because the truth is both simpler and more troubling.
argues that recent market turmoil has revealed that the sector’s main vulnerability is unavoidable.
Today was FOMC Day. The message was that the committee plans to start to taper QE this fall, and end it next summer, assuming its forecasts for unemployment and inflation don’t change. The Fed plans to continue its Zero Interest Policy for a good while after the end of QE. This shocking news sent the market down by 200 points, and caused bond prices to fall as well. I don’t understand what new information was provided today, but I guess some people were expecting QE to go on forever.
There was one bit of disappointing news, at least to me, and that is that the Fed doesn’t see inflation at 50% below target as a problem; they say it’s temporary. I guess they’re serving Japanese Kool-Aid at the Eccles Building these days. Since the purpose of QE is to lower the real funds rate by raising inflation expectations, you’d think that 1% wouldn’t too helpful.
Bernanke said that “These large and growing holdings will continue to put downward pressure on longer-term interest rates.” How does he know? Bond rates are now rising, for some reason. Maybe the Chinese are selling?
This is what I see in terms of interpreting the Fed’s policy stance:
1. Moderate (5-7%) money growth.
2. The lowest inflation since the Crash (.7%).
3. Very low inflation expectations.
4. Very low LT interest rates.
5. Very low and falling (3.4%) nominal growth.
6. Low real growth (1.8%).
7. High (and rising) unemployment (7.6%).
That is not the picture of “extraordinary accommodation” or “massive monetary stimulus”. Bernanke says that he has his foot on the accelerator but he must be driving a lawnmower. The Fed is doing nothing for the economy as all of the telemetry shows.
Perhaps Bernanke has given up trying to convert the committee to Bernankeism? Maybe he’s just exhausted and coasting to retirement? Maybe he wants to give Janet Yellen a chance to be a hero next year? I don’t know, but it’s quite disappointing. The world’s biggest economy is a terrible thing to waste.
PS Events: What Economics is Missing
Our latest event, What Economics is Missing, is now live.
Click the link below for opening remarks from Dani Rodrik, followed by a discussion among Ashwini Deshpande, Raquel Fernández, Minouche Shafik, and Vera Songwe on how to achieve inclusivity in economics.
Watch Now