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Rogoff's Predictions

Now: After years of hibernation, will the US economy rouse itself for a big comeback over the next couple of years? With an incoming Republican administration, hell-bent on reflating an economy already near full employment, and with promised trade restrictions driving up the price of import-competing goods, and with central-bank independence likely to come under attack, higher inflation – likely exceeding 3% at times – is a near-certainty. And output growth could surprise as well, possibly reaching 4%, at least temporarily. July 2008: Of course, today’s mess was many years in the making and there is no easy, painless exit… Read More

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The power of the unstoppable force (QE) was re-armed, mostly as expected. Slightly less per month but spread out over a slightly longer period with a couple of tweaks that will mean more purchases at the short end and less at the long end – artificially steepening the yield curve. The reiteration that the QE is still state-contingent is helpful, as always. But the state of the “state-contingent” of “close to but below 2% inflation” is pathetically unambitious and will always act as a huge immovable object in the way of the unstoppable force. Such confrontations usually end in a… Read More

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ECB needs to and will do more QE but should change targets

Several quarters ago I was more optimistic about Euro Area growth than US growth. This optimism proved correct . The Euro Area did better for a while and the US did slow. The ECB was loosening with aggressive QE .The US is tightening with rate rises and projected rate rises. As we reach the end of 2016 Euro Area growth is slowing. It is only on the 6th December that we finally get the first official estimates for Euro Area NGDP growth. They have come in a little below my earlier estimates based on the figures from the biggest and earliest-reporting Euro Area countries (there… Read More

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The Fed Has Been Getting (Mostly) Tighter For 40 Years

Well, that’s the conclusion of three U.S. Federal Reserve-Richmond economists in one of the most interesting papers of the year, or maybe any year, on monetary policy. Investors take note—this explains why bonds have had an epic bull run. In a paper provocatively entitled The Burns Disinflation of 1974, the authors, Thomas A. Lubik, Christian Matthes and Tim Sablik examine Fed policy, particularly the Fed funds rate, viewed through the lens of a measure similar to a “Taylor Rule.” This is what they found: The Fed has been generally tightening the screws—that is, running a higher Fed funds rate in… Read More

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For example: Indeed, Alex Tabarrok, an economist at George Mason University, argues that it’s “crazy” to believe that a lack of demand explains the slow (in fact, absence of) recovery. “The time period in which monetary policy would have been effective is long over,” he says. Once an economy reaches full employment, he argues, there’s no way for increased spending to boost economic output — you’d just get more inflation instead. And the US unemployment rate is currently 4.9 percent, near historic lows, a sign that a shortage of demand might not be a problem right now. Or Mark Zandi, chief… Read More

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Central bankers love giving advice to politicians but can't take it

William Dudley followed Janet Yellen in urging politicians to do much more to encourage growth. Mark Carney did the same. They all want a fairer society and a more productive one and, and, and … They are like the worst sort of kids. Always wanting more but never contributing much themselves. Dudley: “…there is considerable work to do over the longer term to improve our nation’s productive capacity and foster an environment in which the gains are spread more evenly.  But he also echoed Yellen’s warning to Trump and his government to not grow the deficit as the Fed believes… Read More

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From the “Long Boom” to the “Long Depression”

Narayana Kocherlakota asks: “Why do so many Americans feel dissatisfied about the economic state of their nation? One simple chart offers a lot of insight.” The chart is a version of the one below. Before someone says Ha! but relative to the “Roaring 60s”, the “Great Moderation”/” Long Boom” was also a depression, let us note that the “Roaring 60s” was not sustainable, as it shaped the “Great Inflation”. And note that contrary to what the head of Mexico´s Central Bank and future head of the BIS, Augustin Carstens, argues: “Monetary policy has been bearing a significant part of the… Read More

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The month of Trump

The market moves since election day are big, but not new. They are mostly the acceleration of a trend that was under way since mid-year. But the acceleration is telling us something about the President-elect. According to Mark Lilla, a Columbia University political scientist and historian and author of “The Shipwrecked Mind: On Political Reaction” (2016), Trump differs from other present-day reactionaries like Erdogan, Modi and Le Pen. They´re all geared by nostalgia, for example, “Make America Great Again”. While Erdogan, Modi and Le Pen offer a precise image of where they want to return to. Trump doesn´t. He reminds… Read More

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The Fed must get ahead of the market

As a great monetary theorist once put it, ‘Policy is about getting ahead of expectations’. If you want to get short term rates back to normal, you’re going to have to get ahead of the markets, get the economy really moving. This is the only way to do it.  As things stand today, there’s little scope for further rate hikes. It’s essential that we know what the correct path to sustainably higher short term interest rates looks like, because there are many false paths, and the Fed will be under intense pressure to raise rates soon. Many have been pushing… Read More

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UK NGDP responds to easier monetary policy, pulling up RGDP

We will never know what would have happened if Mark Carney instead of having his one moment of clear-sightedness had decided to defend the pound and prevent its dramatic fall post the Brexit vote. Carney did well in the putative crisis demonstrating the immense power of central banks for good, rather than the evil we sometimes see. Ad in the fact that they can achieve these goals mostly with guidance rather than action is also very satisfying. The fact that the soon to be Chancellor of the Exchequer Phillip Hammond also sang from the same song sheet, “the initial response to… Read More

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