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James Alexander, April 27, 2016 As expected the FOMC made no change to its target rate. But we still think that the discussions at the FOMC are much more lively than they have been. Somehow, the “normalization” program pressed by the Fedborg and championed by the anti-prosperity inflation hawks has been delayed. Hooray! We reckon that some of the newbies on the FOMC, particularly Neel Kashkari are shaking things up a bit. In an internal interview released the other day he made the refreshingly honest statement: “Clearly what happens in global financial markets, as an example, will affect the U.S. economy. We can’t… Read More

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James Alexander/Apr 05, 2016 What is more important the short, medium or long term? The recent gyrations of the EUR/USD exchange rate have grabbed a lot of attention since the start of the year. In theory the strong easing bias of the ECB versus the confusing position of the Fed should mean the EUR weakens versus the USD. Or should it? That currency story based on the stance of the respective central banks is surely “in the price” already. The new information that could shift the EUR/USD is more debate about what more the ECB thinks it can do within… Read More

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Marcus Nunes/Apr 02, 2016 In “Blackouts and the Burden of Uncertainty”, he writes: From the mid-1980s through 2008, central banks had the tools, the will, and the knowledge to protect the economy from sharp swings in the demand for goods and services. They raised interest rates to head off surges, and lowered rates to prevent severe slumps. As a result, households and businesses could count on an economy in which aggregate demand grew relatively steadily. Nobody had to think about, or plan around, the possibility of persistent shortfalls in prices and employment. That has changed. Since 2008, central banks haven’t… Read More

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James Alexander/Mar 30, 2016 Hamlet without the Prince would not be a very good play. Janet Yellen’s March 29th speech features a world economy without the Fed. It’s not a very good description of the world economy. The FOMC left the target range for the federal funds rate unchanged in January and March, in large part reflecting the changes in baseline conditions that I noted earlier. In particular, developments abroad imply that meeting our objectives for employment and inflation will likely require a somewhat lower path for the federal funds rate than was anticipated in December. “Developments abroad” since December… Read More

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Marcus Nunes/Mar 28, 2016 And a serious one when perpetrated by the IMF´s Chief-Economist with colleagues who write: Oil Prices and the Global Economy: It’s Complicated: Even though oil is a less important production input than it was three decades ago, that reasoning should work in reverse when oil prices fall, leading to lower production costs, more hiring, and reduced inflation. But this channel causes a problem when central banks cannot lower interest rates. Because the policy interest rate cannot fall further, the decline in inflation (actual and expected) owing to lower production costs raises the real rate of interest,… Read More

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Marcus Nunes/Mar 27, 2016 Not being able to think ‘outside the box’, economists are recycling ‘theories’. In recent days, two have ‘shot up (again) in the charts’: Secular Stagnation and Stagflation. Maybe they´re not unrelated. David Andolfatto links them at the start of his recent post “Secular stagnation then and now”: Secular stagnation refers to a prolonged and indefinite period of slow growth and high unemployment (or subnormal factor utilization). When was the last time this happened in the United States? Most people are likely to say the 1930s. In fact, it was the 1970s. Also, when many, like Time,… Read More

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Mark Sadowski/Mar 20, 2016 Evan Soltas writes on a theme that is much in vogue lately: “Fiscal Policy and the ZLB”: I have been doing some reading for my undergraduate thesis, which looks at the role of credit-supply shocks in the Spain during its housing boom and bust, and I came across some interesting thoughts from Bob Hall. Commenting on research by Alan Auerbach and Yuriy Gorodnichenko, Hall makes some useful points that contradict a lot of the received wisdom about the efficacy of fiscal policy: I conclude that the chapter uncovers a proposition of great importance in macroeconomics—that the… Read More

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Marcus Nunes/Mar 18, 2016 The “Teal Book”: Rest in peace, Green Book and Blue Book. The Federal Reserve‘s confidential briefing books that policymakers have used for decades received an overhaul for the Federal Open Market Committee meeting that begins today. The new document merges the two prior books, named for the color of their covers, into one: the Teal Book. The “Teal book” is released with a five year-lag, just like the transcripts. We have now access to the December 2010 Teal Book or “Report to the FOMC on Economic Conditions and Monetary Policy”. As you would expect, it´s a… Read More

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James Alexander/Mar 16, 2016 It had already been argued here last month that the FOMC looked like it was splitting judged by the Janu ary 2016 Minutes. We said that this was a good idea given the hopeless leadership from the Yellen/Fischer axis. It has also been looking like William Dudley, newly reappointed as governor of the NY Fed, has been expressing the market views even more clearly. Letting markets set monetary policy is a good thing, the sum of all views and not just those of a few people sitting on a committee. Well, it looks like the split… Read More

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James Alexander/Mar 10, 2016 Mr Draghi is like a car driver who has his foot pressed down hard on the accelerator (the instruments, QE, -ve rates, TLRTO, etc, etc) but hasn’t taken the car out of first gear, or maybe second (the inflation ceiling). The measures announced today were all in line or better than expected in terms of instruments. and the markets liked it. He had managed to surpass already high expectations. But, dear oh dear, he messed up when talking about the future. ‘No more rate cuts until the facts change’. The trouble is the facts NOW are… Read More

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