Monthly Archives: October 2010

The US GDP data for the third quarter are a mixed bag. In some areas, they look truly encouraging; in other areas, much less so. What do they tell the Fed, which is preparing for its crucial meeting on QE, next Tuesday and Wednesday Read more >>

For most of my life in macroeconomics, I have tended to be very dismissive of anecdotes from the world of business. They run the risk of exaggerating the importance of specific experiences in a small number of companies, and behavioural finance warns us that human beings tend to over-estimate the significance of events which happen directly to them, rather than to others. Read more >>

In this blog in the Wall Street Journal, Sudeep Reddy reminds us of a Bernanke speech in 2004, in which the now-chairman of the Fed used a golf analogy to justify making a series of gradual changes in monetary policy when the authorities are unsure about the effectiveness of the policy weapon in use at the time. Read more >>

From now on, GDP figures in the UK will be watched with more than usual interest, because Britain is embarking upon the most significant fiscal tightening among the G7 nations. Can the economy withstand it?

Today’s GDP statistics for the third quarter, which show that the economy is growing at an annualised rate of 3.2 per cent, were much stronger than expected, and suggest that the economy is in better shape than many economists had predicted as the government is launching its fiscal retrenchment. However, the composition of the data is somewhat less encouraging than the picture painted by the headline figures. Read more >>

US Treasury Secretary Tim Geithner has written to his G20 colleagues suggesting that they should adopt a new approach to managing external trade imbalances. Specifically, he wants the G20 to agree to a limit on their current account surpluses and deficits over a period of years, and also to correct these imbalances if they seem likely to drift away from the agreed targets. This is a good idea, because multilateral action on global imbalances would be vastly preferable to a disorderly bilateral dispute between the US and China. But the Geithner plan, as currently drafted, is fraught with difficulties. Read more >>

The public spending plans published by the UK government yesterday promise the most austere path for departmental spending on public services since the 1975-1980 period. And allowing for the cuts planned in welfare benefits, the overall settlement for total public spending is the most draconian since 1945. Read more >>

Ben Bernanke’s speech in Boston on Friday seems to have disappointed those who were expecting him to announce concrete measures to restart quantitative easing, but we already knew from the last set of FOMC minutes that the groundwork for such an announcement had not been undertaken. That announcement will come after the committee’s next meeting on November 2nd and 3rd. Nevertheless, Mr Bernanke has nailed his colours to the mast, even more clearly than he has done in recent speeches. This is a Fed Chairman who is very dissatisfied with the depressed state of the US economy, and who is not afraid to say so. Read more >>

The minutes of the September meeting of the FOMC, published yesterday, suggest that the Fed is considering how to communicate its policy message more clearly to the markets.  Read more >>

Reading through the latest IMF economic forecasts, I was reminded of one very obvious fact: the expansionary fiscal response to the credit crunch is now well and truly over. The global economy is about to pass through an important inflexion point, in which the fiscal stance of the major developed nations is changing from broadly expansionary to broadly contractionary. Of course, everyone who has been paying the slightest bit of attention to economic events since 2007 knows that already. But the era of fiscal consolidation could be with us for a very long time, and the financial markets are only now begining to pay close attention to what this could imply. Read more >>

William Dudley, the President of the New York Fed, is an intellectual heavyweight with whom I was fortunate enough to work for a couple of decades. Long experience has taught me not to ignore his views on the economy. He made an important speech last Friday,  spelling out the dovish view on monetary policy which is currently held by the most senior members of the FOMC, probably including Ben Bernanke.

Although the speech was careful to go no further than the statement which followed the last FOMC meeting in September, it explained in considerable detail why the Fed now believes that inflation is too low, and why he at least also believes that a further round of QE is the right response to the situation. Read more >>