Vince Reinhart – does QE work?

May 2, 2012 10:15 pm by Robin Harding

Vincent Reinhart of Morgan Stanley has a fascinating note out today which reverse engineers US forecasts from the IMF’s World Economic Outlook to answer questions about headwinds to demand, the effectiveness of unconventional Fed policy and the potential growth rate.

His chart on the effectiveness of Fed policy is particularly neat. Essentially, he plots annual long-term real interest rates against short-term real interest rates for the years from 1980 to 2007, draws a regression line, and then adds on dots for 2008 to 2011.

Continue reading: “Vince Reinhart – does QE work?”

Tags: federal reserve, QE, quantitative easing, vincent reinhart
Posted in Federal Reserve | Permalink

How to improve the Fed’s rate forecasts

April 26, 2012 10:43 pm by Robin Harding

The most obvious problem with the Fed’s interest rate forecasts, discussed here yesterday, is their dissonance with the FOMC statement’s forecast of exceptionally low interest rates “at least through late 2014″.

The median participant (9th of 17) thinks rates should be 1 per cent at the end of 2014 and the median voter (5th or 6th of 10) must think they should be a minimum of 0.5 per cent. The statement is a committee decision and it can reasonably be different from the median individual view. It is still confusing, though, and weakens the credibility of the statement when they look so different.

The Fed is looking at a wide range of options to tweak communications further. Some would resolve the issues with this chart – for example Mr Bernanke acknowledged the idea of identifying who made each individual forecast – while others address the broader and more important question of giving information on the Fed’s reaction function.

Here, though, are a few ways to address the simple confusion caused by the voter/non-voter divide in the rate forecast chart.

Continue reading: “How to improve the Fed’s rate forecasts”

Tags: communications, federal reserve, FOMC, interest rate forecasts
Posted in Federal Reserve | Permalink

The Fed’s rate forecast mess

April 26, 2012 2:27 am by Robin Harding

There’s probably nothing that would annoy Ben Bernanke more than being caught in a logical inconsistency over some aspect of monetary policy. At the Fed’s press conference today, he vigorously defended himself against Paul Krugman’s charge that the Fed’s recent actions are inconsistent with his academic views on Japan fifteen years ago.

The Fed’s interest rate forecasts, however, are getting the bank into a real bind:

Continue reading: “The Fed’s rate forecast mess”

Tags: ben bernanke, federal reserve, FOMC, interest rate forecasts
Posted in Federal Reserve | Permalink

FOMC preview April 2012

April 23, 2012 11:48 pm by Robin Harding

The FOMC meets for a two-day meeting on the 24th & 25th of April, with a decision expected as usual at 12.30pm, followed by a press conference at 2.15pm.

What to expect

Not a lot. If there are any substantive moves, I would expect them to be changes in the communications framework, rather than to existing parameters of monetary policy.

Continue reading: “FOMC preview April 2012″

Tags: communications, FOMC, interest rate forecast
Posted in Federal Reserve, Uncategorized | Permalink

Fed’s Kocherlakota – the case for an early rate hike

April 10, 2012 11:25 pm by Robin Harding

Narayana Kocherlakota of the Minneapolis Fed gave an interesting speech on Tuesday that sets out a case for thinking that the Fed might need to raise interest rates sooner rather than later, perhaps even before the end of the year.

It reflects an evolution from the labour market “mismatch” that he was talking about a couple of years ago (a lot of research has failed to turn up much geographic or skills mismatch) to a view, espoused by various people in various different ways, that there may have been a one-off downward shift in potential output. That means a smaller output gap and hence an earlier rise in interest rates.

But is Mr Kocherlakota’s argument convincing?

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Posted in Federal Reserve | Permalink

March FOMC minutes: A few > A couple

April 3, 2012 9:30 pm by Robin Harding

The March FOMC minutes mark a step back from further Fed easing along multiple dimensions. The signal is pretty clear and becomes even more so once you think behind the words. In January:

“A few members observed that, in their judgment, current and prospective economic conditions – including elevated unemployment and inflation at or below the Committee’s objective – could warrant the initiation of additional securities purchases before long. Other members indicated that such policy action could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate-consistent rate of 2 percent over the medium run.”
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Tags: federal reserve, QE3
Posted in Federal Reserve | Permalink

Bernanke & GDI

March 30, 2012 10:11 am by Robin Harding

The strength of the gross domestic income in the fourth quarter of 2011 – it was up by an annualised 4.4 per cent – has been widely remarked upon. The contrast with the weaker 3 per cent growth in gross domestic product is striking.

The rise in GDI invalidates part of what Ben Bernanke said in his labour markets speech only three days ago. Mr Bernanke said (my emphasis):

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Tags: ben bernanke, federal reserve, gross domestic income
Posted in Federal Reserve | Permalink

Shirakawa: Four problems with aggressive monetary policy

March 25, 2012 12:56 am by Robin Harding

Masaaki Shirakawa, the governor of the Bank of Japan, gave a subtle and interesting speech this weekend that may not have been totally comfortable for his hosts at the Federal Reserve.

Mr Shirakawa set out four problems with aggressive monetary easing in the wake of a financial crisis. These are closely mirrored in the US debate about Fed policy but on several points he took the argument further:

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Posted in Bank of Japan, Federal Reserve | Permalink

Troy Davig to the Kansas City Fed

March 16, 2012 6:54 pm by Robin Harding

The Federal Reserve Bank of Kansas City has today announced the appointment of Troy Davig as its new director of research.

“Troy Davig has been named senior vice president and director of research. Davig had served at the Bank from 2005 to 2010 in the Economic Research Department. He is rejoining the Bank after serving as senior U.S. economist for Barclays Capital since 2010. As director of research, Davig will act as the Bank’s chief economic policy advisor, provide executive oversight for the Bank’s Economic Research Division and serve as a member of the Bank’s Management Committee, which has responsibility for the Bank’s strategic planning and policy.”

Although low profile, the twelve research directors of the regional Fed banks are very important to monetary policy, especially when the president of the bank is not a macroeconomist. Esther George, who was appointed president in Kansas City last October, is mainly known for her work on bank regulation.

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Tags: esther george, federal reserve, kansas city fed, Thomas Hoenig, troy davig
Posted in Federal Reserve | Permalink

Sterilisation not the focus at the FOMC

March 12, 2012 5:14 pm by Robin Harding

I have a piece in today’s paper previewing what promises to be a quiet Federal Open Market Committee meeting this month.

In particular, talk that the FOMC is now studying a programme of “sterilised” quantitative easing is, in my view, incorrect. I think the current FOMC discussion looks more like this:

Continue reading: “Sterilisation not the focus at the FOMC”

Tags: Federal Open Market Committee, FOMC, mortgage-backed securities, QE3, quantitative easing, sterilisation
Posted in Federal Reserve | Permalink

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