FOMC Watch

As held with almost absolute certainty, the Fed raised the Federal Funds rate to 0.5% – 0.75%. Even that was a replay of the meeting held in December 2015, when the Fed raised the FF rate by 25 basis points to 0.25% – 0.5%. At that time, the expectation for 2016 was that the Fed would hike rates four times, ending 2016 with rates in the 1.25% – 1.50% range. Now, the Dot Plot indicates that the Fed has simply shifted it forward one year, with the expectation being that rates will end 2017 at the 1.25% – 1.50% interval.… Read More

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Newbie Robert Kaplan talks about everything but money

We had some hopes that Goldman Sachs alumni Robert Kaplan two years into his new role as President of the Dallas Fed might teach himself a bit of monetary economics. Any smidgen of knowledge here would be an improvement on his predecessor Richard “Inspector Clouseau” Fisher. He’s a voter in 2017 for the first time so it is worth paying a bit of attention, especially if Trump were to pick two hawks for the vacant permanent seats on the FOMC. But we are becoming more and more disappointed. His speech yesterday was typical of so many on the FOMC. It was… Read More

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Long Depression to deepen as the Fed has to preserve its credibility

The minutes of the November meeting surprised no-one judging by the market reaction, almost certainly because no-one is around coming out on the night before Thanksgiving. The exhaustive list of economic and financial conditions made no mention of the continuing shrinkage of Base Money, the only thing the Fed directly controls. But then it is hard to see the end of one’s nose unless one looks in a mirror. The message from the September FOMC that began the rise in bond yields and market-implied inflation expectations turns out to have been a bit of a mistake. “Federal Reserve communications immediately following the… Read More

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Well, that really is it for December. The uber-dove Bullard has caved and says he will likely support a December rate rise. No wonder the chances of a December hike are now 90%. To be fair, at least Bullard thinks this will be a neutral stance for monetary policy. To be brutal, he just doesn’t get it like all other members of the FOMC and most of the experts: the level of interest rates isn’t monetary policy.  NGDP Growth Expectations tell us the stance of monetary policy. Robert Kaplan, the Texas Fed President, also appears to have come strongly off the fence and said… Read More

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Stanley Fischer dampens the excitment, as usual

The stock markets seemed to be celebrating the Trump victory bringing the prospect of higher nominal growth. Even as the bond markets appeared to be telling us that most of it might be inflation. other markets like the USD (largely unchanged) and gold (down) seem to imply it won’t be inflationary. Divining a message from all this noise is very difficult. At least we can rely on Stanley Fischer to bring us back on message by reminding us that: “the case for removing accommodation gradually is quite strong”. It’s hard to see why, even considering the low unemployment rate. The Fed’s projections… Read More

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With almost imperceptible changes from the previous statement, today´s statement reads: Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will strengthen somewhat further. Inflation is expected to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely… Read More

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“If you keep on this track I will push you off”. What is the rational response to this statement? Keep on the track or get off the track. Time and time again members of the FOMC say just this. Today we read this report of a dinner last night “If the economy stays on its current trajectory I think … we’ll see an interest rate hike later this year,” New York Fed President William Dudley told a modest dinner gathering at the Lotos Club, downplaying any market-related risks of tightening monetary policy in December. The response of the USD Index to a… Read More

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Yellen vs Fischer or Yellen & Fischer?

Stanley Fischer: There are at least three reasons why we should be concerned about such low interest rates. First, and most worrying, is the possibility that low long-term interest rates are a signal that the economy’s long-run growth prospects are dim. Later, I will go into more detail on the link between economic growth and interest rates. One theme that will emerge is that depressed long-term growth prospects put sustained downward pressure on interest rates. To the extent that low long-term interest rates tell us that the outlook for economic growth is poor, all of us should be very concerned,… Read More

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In her opening remarks at the Boston Fed Conference on “The Elusive ‘Great’ Recovery: Causes and Implications for Future Business Cycle Dynamics“, Janet Yellen poses a few questions. Two of those stand out. The first question I would like to pose concerns the distinction between aggregate supply and aggregate demand: Are there circumstances in which changes in aggregate demand can have an appreciable, persistent effect on aggregate supply? Prior to the Great Recession, most economists would probably have answered this question with a qualified “no.” They would have broadly agreed with Robert Solow that economic output over the longer term is primarily… Read More

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Fischer's Bromdes

Fischer goes on about the usual FOMC memes that the labor market is strengthening, that real growth has recently been low because of inventory corrections, that inflation is below target because of the strong dollar and weak oil prices, but that given the strengthening labor market and as the rise in the dollar and fall in oil prices dissipate, inflation will climb back to 2%. That sets the stage for him to talk about monetary policy: Given that generally positive view of the economic outlook, one might ask, why did we not raise the federal funds rate at our September meeting?… Read More

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