Daily Archives: October 12, 2011

Robin Harding

The main short-term policy message from the “Operation Twist” Fed minutes is that all options remain on the table and two FOMC members would have supported still further easing.

Beyond that, the minutes offer some intriguing insights into the Fed’s debate about communication policy. They show how that debate is running up against the biggest division on the committee: between those who think the structural rate of unemployment has risen sharply and the majority who believe that it has not.

Going through the communications policy paragraphs:

Most participants indicated that they favoured taking steps to increase further the transparency of monetary policy, including providing more information about the Committee’s longer-run policy objectives and about the factors that influence the Committee’s policy decisions. Participants generally agreed that a clear statement of the Committee’s longer-run policy objectives could be helpful; some noted that it would also be useful to clarify the linkage between these longer-run objectives and the Committee’s approach to setting the stance of monetary policy in the short and medium run.

It’s not actually clear whether we have moved closer to an explicit inflation objective. We know that a large majority of the FOMC support this — but ‘most’ still suggests an opposing minority. Read more

At less charitable moments, I have described the Bank of England’s attitude towards “credit easing” as akin to belligerent buck-passing. By burying a 2009 agreement with government to buy private sector assets and investigate ways to increase the availability of credit to the corporate sector, the Bank was putting purity before pragmatism, I argued.

Having listened to subsequent Bank explanations of its attitude towards credit easing, it appears that the Bank is actually taking a leaf out of the book of the Bundesbank and the European Central Bank, showing it to be a true believer in Ordnungspolitik – the German concept of order and playing by the rules, which has no direct English translation, but was brilliantly explained by Ralph Atkins last yearRead more