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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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James Alexander/Mar 3, 2016 My last post was on the need to change the 2% inflation target to higher one or, better still, switch to NGDP growth targeting. However, by even talking about inflation I feel it is easy to get sucked into a black hole of nonsense chatter about a concept so hard to practically measure. Nominal GDP (as measured by the value of output, total income or total expenditure) is the reality. Real GDP is a highly artificial construct. And inflation is also a highly artificial construct, the mere residual between the reality of actual Nominal GDP and… Read More

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Someone once said “humans are pattern-seeking story-telling animals”. That´s true in general and for economists in particular. At times like the present, when uncertainty is high and sentiment volatile, trying to “pin-down” where we are and get some indication of where we are going is a useful endeavor, even if the suggested outcomes are not “comforting”. Forecasts give us an indication of the road ahead, even if the uncertainty around the forecast may be wide. To gauge where we are we look to the past to check for patterns. Those may be thought of as road signs that say, for… Read More

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James Alexander/Feb 24, 2016 Mark Carney is supposedly handsome, but I don’t really feel qualified to comment. One observation I would make is that handsome friends seem to be prone to unreliability. A bit like Hugh Grant, allegedly. Carney’s lack of commitment was made clear from the day his appointment was announced when it was revealed that the new standard eight-year term for Governors of the Bank of England would, in fact only be five years for him, a special concession he negotiated. Mmm. At Christmas a puff piece on Carney in the FT was followed two days later by… Read More

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Marcus Nunes/Feb 23, 2016 That may be the role of industrial production growth presented as YoY growth of the 6-month moving average. Note that it only turns negative after a recession (as defined by the NBER) has already begun. Sometimes quite a way into the recession (as in the 1973, 1981 and 1990 recessions, for example). In January the measure turned negative (-0.2) for the first time after the “recovery” was completed almost six years ago. That´s just one more piece of evidence that goes against the grain of FOMC members, like John Williams who, in a speech yesterday (that… Read More

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James Alexander/Feb 22, 2016 The echoes of 2008 became stronger last week as both headline and core US inflation as measured by the CPI rose faster than expected. It is a very dangerous cocktail when the claque sees inflation yet nominal growth expectations are weak. It caused the Great Recession when central banks misread the situation. Hopefully they will have learned their lesson, but the current tightening bias of the Fed doesn’t give us much confidence. Go to Twitter and enter “core CPI” and you’d see a welter of inflation hawks trumpeting the now clear upward trend in CPI. These… Read More

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James Alexander/Feb 18, 2016 Call me a conspiracy theorist but when three unrelated beasts of the global financial establishment all start talking about the same, previously unfashionable, thing it’s a bit of a coincidence. Maybe Larry’s put it in the agenda of next week’s G20? If it’s not, it should be. George Osborne: The MPC have revised down their forecast for real GDP growth and CPI inflation in the short term, implying weaker nominal growth. This, combined with threats from the international environment, mean we face the risk of a weaker outlook for nominal GDP. If realised this could present… Read More

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James Alexander/Feb 17, 2016 It has been noted already by Market Monetarists and others that George Osborne and his UK Treasury team are concerned about the low level of expected Nominal GDP growth in the UK. The latest January 2016 CPI figures showing just 0.3% YoY growth will only worry them more. The correct inflation number for policy should be the GDP Deflator, not CPI, but it is also pitifully low and dragging down both RGDP and NGDP. But whose responsibility is NGDP growth? It is no good Osborne worrying about it and then doing nothing. The Treasury sets the… Read More

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