I wrote one of the more aggressive reports on Ben Bernanke’s speech in Jackson Hole, saying he “hinted” that the Fed will do more to support the US economy, but qualifying that by noting that he avoided the emphatic language of his 2010 speech and offered no discussion of the Fed’s easing options.
Quite a number of analysts found no such hint in the text and it would have been better – although not very practical for a Saturday newspaper – to say that he showed an easing bias.
What is interesting now is to go back and read the speech in light of subsequent FOMC-speak and the minutes of the August meeting.
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A busy week is in store for Jean-Claude Trichet.
On Saturday, the ECB president will speak at Jackson Hole at 17:00 GMT. On Monday, Mr Trichet travels to Brussels, where he will field questions from the European parliament on how to restore market confidence (some suggestions from Ralph Atkins and Chris Giles).
The president will be joined by Jean-Claude Juncker, Eurogroup president, Jacek Rostowski, Poland’s finance minister and Olli Rehn, the European commissioner for economic and monetary affairs. The hearing takes place at 13.00 GMT.
On Thursday, ECB executive board member Jürgen Stark is a participant in a panel on Europe and global competition.
Atlanta Fed president Dennis Lockhart, speaking at the NABE policy conference today, provided some useful thinking about Fed exit strategy from its current easy monetary policy.
Judgments regarding when to change the direction of policy are difficult, and much of our thought and energy are devoted to getting it right. But by employing a forward-looking Taylor-rule framework, when to exit is not a particularly bewildering problem conceptually.
As I wrote in today’s paper it is the outlook for inflation, not growth, that is going to be most difficult for the Fed to judge as it ponders policy post-QE2. In that regard it’s fascinating to watch the dormant debate on core versus headline flare up again.
Jeffrey Lacker – Richmond
Mr Lacker cited both current and forecast headline inflation in his speech with no mention of core.
This generally positive assessment is complemented by the benign outlook for inflation. Over the 12 months ending in December, the price index for personal consumption expenditure has risen 1.2 percent. This low inflation rate seems more consistent with our price stability mandate than the figures over 2 percent that were common in the years leading up to this recession. Many forecasters are expecting inflation this year to come in between 1-½ and 2 percent. That is my expectation as well, and would represent a good outcome.
Thomas Hoenig, president of the Kansas Fed, fully spread his hawkish wings today. In a speech titled “the high cost of exceptionally low rates,” he called for the Federal Reserve to raise rates to 1 per cent from near zero by the end of the summer.
I have no illusions about the challenges of moving away from zero. But in my judgment, the process should begin sooner to avoid the danger of having to over compensate later, as so often happens in policy.
Dennis Lockhart, president of the Atlanta Fed, didn’t go as far as Mr Hoenig, but took a step toward signaling he would be willing to consider removing the Fed’s “extended period” pledge. “The time is approaching when it will be appropriate to consider recalibrating interest rate policy,” he said, but he did not think that “that time has yet arrived.”
So is the committee becoming more hawkish or are the hawks flying away from the committee?
Dennis Lockhart, president of the Atlanta Fed, threw a wrench into the conventional interpretation of the Fed speak phrase “extended period.”
The common interpretation of “extended period” (as in, the Fed is expected to maintain exceptionally low rates for an “extended period”) is at least six months.