I know you think you understand what you thought I said, but I’m not sure you realize that what you heard is not what I meant.
Alan Greenspan said it, but it certainly captures what current Fed chairman, Ben Bernanke, has to be thinking. In his efforts to be open and transparent, Bernanke has struggled over recent weeks to make himself understood. Markets reacted to talk of tapering the bond-buying QE program as if the Fed had announced that it would be hiking the fed funds rate to 5% by Labor Day. So since the last Fed meeting, Bernanke and several Fed governors have been in the public eye trying to clarify that “tapering” is not “tightening.”
With the release of the latest FOMC meeting’s minutes (available here), and echoed in his speech on July 10 (text here), we saw a bit more clarity that’s meant to ease markets back towards Bernanke’s intended message. Two key points that you can pull from the recent Fed communications: Read more
Oh yeah, I’ll tell you something
I think you’ll understand
When I say that something
I want to hold your hand
- “I Want to Hold Your Hand,” The Beatles
Hand-holding is getting to be very popular with the world’s major central banks. Effectively constrained by zero or near-zero interest rates, central banks have been putting greater emphasis on the effectiveness of their communications. Central bank “speak” – if used wisely – holds the power to ease monetary conditions as much as, if not more than, policy rate changes. Read more
Several Fed presidents, and “Big Ben” Bernanke himself, have been spending the last week or so trying to convince markets that their program of quantitative easing isn’t on the immediate chopping block and that any eventual tapering would be contingent on continued economic improvement. They’ve tried speeches, press conferences…maybe it’s time for a novelty song, sung to soothe markets back toward normality?
“Tiptoe through the Taper”
by ‘Big Ben’ Bernanke
- Sung to the tune of “Tiptoe through the Tulips” by Tiny Tim, accompanied by ukulele
Panic, after the meeting,
After the meeting of the F-O-M-C
Come tiptoe through the taper with me. Read more
Did you know that Missouri is the only state that’s home to two Federal Reserve banks? There’s one in St. Louis and there’s one in Kansas City, Missouri over on the western edge. And while KC and St. Louis are only about four hours apart by car, on the surface, their respective Fed presidents seem to be poles apart on the issue of “the Taper.” (Caps because I think “Taper” is the new buzzword – this year’s “Fiscal Cliff.”) Read more
In this week’s Economic Commentary, we discussed the importance of the concept of “three arrows” in the economic policies of Japan’s Prime Minister Shinzo Abe. Definitely check out the full piece, but here’s a quick summary. In the 1500s, as the legend has it, a Japanese nobleman named Mori Motonari wanted to demonstrate to his three sons the strength that they had together, but lacked individually. He gave each son an arrow and told them to break it. Very easily, each son snapped the arrow. Then he gave each son three arrows and told them to break the bundle at once. They couldn’t because three arrows were too strong.
Mori-san hailed from the same prefecture that Prime Minister Abe comes from, so it’s fitting that Abe picked up the idea of three arrows when spelling out his economic policies meant to lift Japan from decades of deflation and economic stagnation. Abe’s three arrows are 1)easy monetary policy, 2)increased government spending, and 3)increased efficiency through economic reform. Read more
Monetary accommodation was on the rise in May. Of the twelve major bank meetings during the month, nine resulted in cuts, two central banks held policy steady, and only one actually increased rates to control inflation.
While the Federal Reserve didn’t change direction, it sent mixed messages regarding its quantitative easing (QE) program. The minutes from the April-May FOMC indicated willingness to “increase or reduce” the pace of QE, a change from previous meetings that were primarily focused on QE reduction aspects. Read more