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James Alexander/Feb 7, 2016 Scott Sumner made a somewhat light-hearted comment in a recent post that “no-one can predict recessions”. It made me stop and wonder what was the point of Market Monetarism in that case. The essence of MM is that market forecasts of NGDP Growth should guide monetary policy, should be monetary policy. Fair enough. But does this imply, in the case of a negative demand shock, which increases money demand, an immediate increase in base money supply? Perhaps it does and we will all be very happy. In our imperfect current world where the monetary authorities seem… Read More

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Marcus Nunes/Feb 6, 2016 This is the imaginary scale that hangs over the center of the FOMC´s meeting table. Unemployment and inflation are the two objects on the scale. The Fed wants to keep the scale “balanced”. For that purpose, it has a policy framework best described as “gradual normalization”. As Janet Yellen said last September, telegraphing a rate increase in the near future: “But we are getting closer. The labor market has improved. And as I’ve said in the past we don’t want to wait until we’ve fully met both of our objectives to begin the process of tightening… Read More

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Marcus Nunes/Feb 5, 2016 Yellen on labor market (Sept 2015): As I said, although we’re close to many participants and the median estimate of the longer-run normal rate of unemployment, at least my own judgment – and this has been true for a long time – is that there are additional margins of slack, particularly relating to very high levels of part-time involuntary employment, and labor force participation that suggests that at least to some extent the standard unemployment rate understates the degree of slack in the labor market. “But we are getting closer. The labor market has improved. And… Read More

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James Alexander/Feb 5, 2016 Ja-net Yel-len, Ja-net Yel-len, are you Tri-chet in dis-guise? At football matches in England there is always a particularly hurtful chant that goes up around the ground when a team, a player or a referee is doing badly. They are very often compared to some team or referee or player whom everyone knows is far worse. It is sung to the tune of a famous hymn, like many football songs, “Guide me, O thou great redeemer”. Janet Yellen’s record so far as Chairman of the Fed reminds of this chant, and particularly Jean-Claude Trichet’s penultimate year… Read More

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Marcus Nunes/Feb 4, 2016 Draghi Warns on Risks of Low Inflation European Central Bank President Mario Draghi hit back at a warning from Germany’s Bundesbank that the ECB shouldn’t overreact to a sharp drop in oil prices, underlining his readiness to launch additional stimulus to shore up ultralow inflation. In a speech at the Bundesbank’s home in Frankfurt, Mr. Draghi warned that central banks “cannot be relaxed” in the face of a series of shocks to commodity prices. “The longer inflation stays too low, the greater the risk that inflation does not return automatically to target,” Mr. Draghi said. Cheaper… Read More

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Marcus Nunes/Feb 4, 2016 Janet Yellen and the Federal Reserve are on another planet: That’s the message from global investors who are sending the Fed a big distress call to come back to earth. The Fed is still predicting four interest rate hikes this year, but the market now forecasts zero hikes in 2016. The closely watched Fed Futures market now has a nearly 60% probability of no rate hikes at all this year. It’s a dramatic U-turn from only a month ago when the market was pricing in a 75% probability the Fed would increase rates at least once… Read More

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James Alexander/Feb 3, 2016 The role of the President of the NY Fed is to be the lightning conductor of market sentiment to the FOMC. The NY Fed is the operating arm of the FOMC, conducting the open market operations. Because of this importance the President of the NY Fed gets a permanent vote at the FOMC, alongside the senior Fed staffers like Yellen and Fischer. What the NY Fed President says is important, often more so than the Vice-Chairman of the Fed, currently Fischer, or sometimes even than the Fed Governor themselves. While Dudley has always physically looked uncomfortable… Read More

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James Alexander/Feb 3, 2016 Back in late October we highlighted the collapse in growth of UK NGDP as proxied by the release of the 3Q15 Nominal Gross Value Added (GVA) figure. Things have now worsened. Growth has dropped from 2% YoY to less than 1%. Where is the Bank of England? Where are their political masters, the UK Treasury? Are they all asleep at the wheel? Hello? Wakey, wakey! It is not just the risk of falling revenues leading expense reductions combining with the usual “sticky wages problem” forcing employers to cut staff, although this should be alarming enough on… Read More

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Marcus Nunes/Feb 2, 2016 In early January, he thought four rate hikes in 2016 was in the “ballpark”. In a speech yesterday he was less sanguine, but still believes monetary policy remains accommodative. The framework under which the Fed operates, which Kocherlakota, who knows what he´s talking about, clearly set out recently, permeates the Fischer´s speech: “gradual” and “normalize”. According to Fischer: “[M]y colleagues and I anticipate that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate, and that the federal funds rate is likely to remain, for some time, below… Read More

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Benjamin Cole/Jan 31, 2016 In general, the “class glass” is a poor lens for analyzing U.S. politics and macroeconomic policies. To be sure, the nation has interest-group politics in spades, and groups are often well-financed. And certainly, whenever past Dallas Fed President Richard Fisher sallied forth there was the potential for embarrassing spectacle, as when he held a press conference to condemn wages rising faster than prices. Or to warn that rising prices of antiquarian collectible books harbingered an inflation that merited a tighter monetary noose immediately. But, in general, does Fed monetary policy exhibit class bias? Perhaps So Think… Read More

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