Home » Monetary policy

Category Archives: Monetary policy

Search within blog:

Subscribe RSS feed

September 2020
S M T W T F S
 12345
6789101112
13141516171819
20212223242526
27282930  

Bernanke Press Conference (Nov. 2, 2011)

Part 1
 

Part 2 

Operation Twist

The Fed intends by the end of June 2012 to purchase $400 billion of Treasury securities with remaining maturities between six years and 30 years and to sell bonds maturing in three years or less.

Watch this analysis from CNBC.

Long term interest rate moved sharply after the news: 30-year Treasurys now is below 3%, lower than the market panic period after Lehman’s collapse.

The Fed’s latest thinking

Interview of Chicago Fed’s president Charles Evans, one of the vocal doves on the Fed’s Open Market Committee (or FOMC).  Evans advocates the Fed should target on employment growth, and consider raising inflation target to 3%, instead of 2%.

 

He favors the Fed clearly states its future course of actions and offers clear forward guidance contingent on economic outlook. He cited a piece by Mike Woodford on FT, who made the following forceful argument:

…Mr Bernanke can and should use his speech today to explain how his policy intentions are conditional upon future developments.

A clarification could help the economy in two ways. First, he could signal that a temporary increase in inflation will be allowed, before policy tightening is warranted. This would stimulate spending by lowering real interest rates. Second, specifying the size of any permanent price-level increase would avoid an increase in uncertainty about the long-run price level. This in turn would ward off an increase in inflation risk premiums that might otherwise counteract the desirable effect of the increase in near-term inflation expectations.

Uncertainty about the economic outlook is likely now the most important obstacle to a more robust recovery. The problem is not just uncertainty about Fed policy, but the fact that the Fed has become harder to “read” does not help. Better Fed communication, long on the agenda, would be particularly helpful at this juncture. Jackson Hole provides Mr Bernanke with the ideal opportunity.

 

My problem with Woodford’s recommendation is, how can the Fed convince people that the raise of inflation target is going to be temporary?  What if employment situation won’t get any better after raising inflation target to 3%?  Will 4% then be tolerable?  Will this generate a positive spiral of inflation (expectations)??

A conversation with Alan Greenspan

Charlie Rose interviews former Fed Chairman Greenspan. He talks about the almost certainty of a Greek default, why US economic recovery has been so weak, prospect for inflation, among other things.   Despite that his reputation was severely tarnished in the past few years,  Greenspan offered some really good insights of the current state of the economy.

(click on the graph for the interview)

Bernanke’s first ever press conference

First ever press conference by a Fed Chairman. From CNBC:

Part 1

Part 2

Comments on Bernanke from some big market players – take note of Bill Gross’ view on inflation expectations.

Stephen Roach: the US economy is on steroids

Roach questions the Fed’s monetary policy channel through wealth effect, which is prone to generate asset bubbles one after another.  He also thinks the Fed should change its narrow policy objective of price stability, but to ensure broader financial stability.

Meltzer – US inflation is coming

Interview of Allan Meltzer, the outspoken historian on the Fed:

Catherine Mann: Fed should give up its job rate target

Interview of Cathy Mann at Brandeis University.  She noted there was inconsistency in the Fed’s monetary policy —given the current unemployment rate, the Fed can’t be fighting inflation and unemployment at the same time — Either the Fed will have to give up their target on unemployment rate (6%), or they’ll have to give up their inflation target.   And since neither QE1 or QE2 did much to job creation, it’s better to give up the target on unemployment rate, rather than letting the market form expectations that inflation is going to get out of control.