Today, the Federal Reserve announced that it will keep its foot on the easy-money pedal until the unemployment rate drops below 6.5% or inflation looks to go above 2.5%. The proposal has been getting some press as of late (you can see my recent post after Fed Vice Chair Yellen brought up the idea in November). This is almost exactly what Chicago Fed president Charles Evans proposed back in 2011. Well, Evans has evidently convinced everyone else at the Fed. Read more
Posts tagged ‘Fed’
In his high-profile speech to the New York Economic Club yesterday, Fed chairman Ben Bernanke didn’t give any new thoughts on monetary policy. He did reaffirm his view from September – that the Fed will be accommodative not just until the economy recovers, but until it’s clear that the recovery is sustainable.
…we expect – as we indicated in our September statement – that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In other words, we will want to be sure that the recovery is established before we begin to normalize policy.
However, there were some interesting thoughts about the fiscal cliff (a term that Bernanke himself coined) and on where we are headed post-cliff. First, and not surprisingly, Bernanke was really concerned about the fiscal cliff and the elevated risk of a recession if a deal is not reached. Second, though, dear Ben was downright sunny about the U.S. economy in the event that Washington can make a deal on fiscal policy. Read more
Janet Yellen, the vice chairman of the Federal Reserve, is the latest in a string of Fed bigwigs to get behind an idea of using explicit inflation and unemployment targets to inform the market about the Fed’s future plans – forward guidance, in Fed-speak. During a speech to the Haas School of Business at the University of California, Berkley, Yellen endorsed the idea of moving beyond calendar-date approximations as the means of conveying information on the Fed’s future moves. Now, she stopped short of actually naming any sort of numbers, but this seems like a good direction for the Fed to move. Ms. Yellen knows what she’s talking about too; in 2010, Fed chairman Ben Bernanke appointed her the chair of a new FOMC communications subcommittee. Not to mention that if Bernanke decides not to accept a third term at the head of the Fed, Ms. Yellen is widely seen as first in line as his replacement.
Last week’s Fed meeting was fairly innocuous. They kept rates where they were. They kept their QE in place. The language in the press release didn’t change much. Yet the one thing that struck me was the almost unanimous decision. At this meeting, as with the last several meetings, Jeffrey M. Lacker – president of the Richmond Fed, was the lone dissenter on the Fed’s Open Market Committee (FOMC). Now in my opinion, neither unanimous nor hotly partisan decisions are as interesting as an “almost unanimous” decision. I keep wondering, what does that one guy know that the others don’t…or vice versa.
When danger threatened Metropolis, mild-mannered reporter Clark Kent dashed into the nearest phone booth to change into Superman. When the U.S. economy begins to stall, inflation-hating hawk and president of the Minneapolis Fed, Narayana Kocherlakota, runs up to Ironwood, Michigan to transform into a monetary-policy dove.
Imagine you’ve just finished dinner. You sit down to watch one of the various season premieres that will be populating the airwaves. During one of the program breaks, you see a strange commercial showing young people running, old people laughing, and children hugging their parents. It’s got to be one of those commercials for some new prescription medication you think…but no. This is an ad for the Federal Reserve’s new monetary policy tool, QE3. Wondering if you’re dreaming, you think, what channel is this?
If you don’t skip over commercials, this is what you might hear.
ANNOUNCER (in a calm, relaxing tone): If a sluggish economy is keeping you awake at night, and lowering the federal funds rate just hasn’t worked, QE3 is here to help. And if you suffer from the discomfort of chronic, persistent unemployment, QE3 is here to help.