FOMC Watch

Low inflation in the face of low unemployment (low resource slack) and easing of financial conditions is fostering disagreement at the FOMC. FOMC Minutes: Participants commented on a number of factors that would influence their ongoing assessments of the appropriate path for the federal funds rate. Most saw the outlook for economic activity and the

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Fed Statement: “No burger between the buns”

The “burger” was taken out at the March 17 FOMC meeting. Since then, it appears the “transmission mechanism” has broken. As Tim Duy, a well-known Fed watcher puts it: That said, the Fed will balance the inflation data against the broader economic backdrop of ongoing job growth and easier financial conditions. If the latter two

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And the markets reacted accordingly. Stocks up, dollar and long-term yields down. Dudley may be unhappy that financial conditions were loosened… To Yellen, inflation should rebound (as they have been saying for the past several years), but now recognizes that if softness persists, the Fed will act accordingly… “It’s premature to reach the judgment that

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Yellen´s overriding goal: “Normalize Monetary Policy”

But she may be frustrated. The most notable thing in the FOMC Minutes was the increasing divergence on inflation among participants. several participants expressed concern that progress toward the Committee’s 2 percent longer-run inflation objective might have slowed and that the recent softness in inflation might persist.  There is still some resistance, however, from the

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A good example from today´s speech by Philly Fed president Patrick Harker: Growth for 2017 so far is more or less what we expected. The first quarter was relatively weak, which has been the case for first quarters over the past several years. That’s what we’ve come to expect at this point, so it’s not

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In a speech today, New York Fed president Dudley, following Yellen´s press conference last Wednesday suggested that current levels of unemployment and inflation were a “pretty good place to be”! He also felt that the US economy was “close to full employment” and, despite inflation being a “little lower than the Fed would like”, he

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The Fed´s overriding commitment: “Normalization”

Narayana Kocherlakota put it well yesterday: The U.S. Federal Reserve’s two main goals are to promote maximum employment and keep inflation close to 2 percent. But it also acts as if it has another, unspoken mandate: Don’t do anything too radical in pursuit of those goals. This allegiance to what’s considered “normal” harms a lot

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Minutes from FOMC Meetings are a fantasy!

From Participants’ Views on Current Conditions and the Economic Outlook: Although the incoming data showed that aggregate spending in the first quarter had been weaker than participants had expected, they viewed the slowing as likely to be transitory. They continued to expect that, with further gradual adjustments in the stance of monetary policy, economic activity

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Stanley Fischer argues for Central Bank Discretion

In a speech yesterday, Fischer says: Today I will offer some observations on monetary policy rules and their place in decision-making by the Federal Open Market Committee (FOMC). I have two messages. First, policymakers should consult the prescriptions of policy rules, but–almost needless to say–they should avoid applying them mechanically. Second, policymaking committees have strengths that

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The FOMC Statement for May showed up some contradictions in Fed policy. They have made it clear that they think the economy is growing modestly above trend. Hence, we still get rate rises, projections for more rate rises, plus the chatter about shrinking the balance sheet. The Fed really do seem to be watching RGDP on an

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