federal reserve

Robin Harding

There is some kremlinology going on about the Fed’s new easing bias language:

“The Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”

In the Greenspan era “closely monitor” was sometimes code for an intermeeting action by the Fed, notes Eric Green at TD Securities, via Business InsiderRead more

Claire Jones

Our week ahead email helps you to track the most important events in central banking. To see all of our emails and alerts visit www.ft.com/nbe

Joint action?

Hopes for joint central bank action mounted on Friday ahead of Sunday’s Greek election. Will the central banks deliver?  Read more

Claire Jones

Our week ahead email helps you to track the most important events in central banking. To see all of our emails and alerts visit www.ft.com/nbe

More QE from the Bank?

The Bank of England‘s Monetary Policy Committee meets on Wednesday and Thursday, when the decision is due out at noon UK time (11am GMT).

Will the MPC vote for more QE? Read more

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. Read more

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.  Read more

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: Read more

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.”

 Read more

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): Read more

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 regulationRead more

Claire Jones

As most suspected, the Bank of Japan did little today to step up its fight against deflation.

Bar some tinkering with its special lending facilities, the BoJ kept policy on hold with the size of its asset purchase programme remaining at Y65tn.

However, there are signs that the central bank could do some proper easing in the coming months.

 Read more

Claire Jones

Our week ahead email helps you track the most important events in central banking. To see all of our emails and alerts visit www.ft.com/nbe

FOMC/ BoJ votes

The Federal Open Market Committee and the Bank of Japan’s policy board both vote on Tuesday. Will either panel back a change in course?  Read more

Robin Harding

Kevin Brady, Texas Republican and vice-chair of the Joint Economic Committee of Congress, will introduce a bill to reform the Fed later this week. The bill, called the “Sound Dollar Act”, would among other things:

  • Give the Fed a single mandate for inflation and require it to monitor gold and other asset prices in defining price stability.
  • Give a permanent FOMC vote to all twelve regional Fed presidents (versus four in rotation — plus the New York Fed president — at present).
  • Require publication of Fed meeting transcripts after three years (versus the current five).
  • Require the Fed to report on the impact of its policies on the dollar.
  • Limit the Fed’s ability to hold assets other than Treasuries and repos outside of a board-declared emergency.

 Read more

Claire Jones

Sir Mervyn King has in the past been of the sort of central banker that has, at every opportunity, extolled the virtues of inflation targeting.

So comments at yesterday’s Inflation Report press conference, where the governor conceded that the Bank of England’s monetary policy framework has its deficiencies, were something of a surprise. Here’s what he said:

“I do think the experience of the last four to five years has raised some question marks about what inflation targeting can hope to achieve and whether it’s sufficient. I think our feeling now is, on its own, it’s not sufficient, it did not prevent the build up of a large degree of financial instability. And there is I think a debate to be had about whether other instruments are the right way to deal with that, through our Financial Policy Committee, or whether monetary policy should take other considerations into account.”

Could this be the beginning of the end for the Bank of England’s inflation target, at least in its current guise?

It’s far too early to say. Besides, with the governor due to depart mid-way through next year, whether or not the Bank alters its monetary policy framework will largely depend on the views of Sir Mervyn’s successor.

However, his calls for a debate could prove significant. Read more

Robin Harding

The new FOMC interest rate forecasts will be released today with the Fed’s Summary of Economic Projections at 2pm. A lot of the commentary suggests that the forecasts of the first rate rise will be heavily clustered in 2014. These are illustrative examples from Credit Suisse: Read more

Robin Harding

I got this one wrong last week by over-interpreting some comments by St Louis Fed president James Bullard. Mea culpa.

Today, the FRB has released two templates to show what its interest rate forecasts will look like when they are actually released next Wednesday. It will take the form of two charts, one showing the actual rate forecasts and one expectations for the year of the first rise, although it should be fairly easy to extract the numerical forecasts quickly from both of them. Read more

Robin Harding

Today’s announcement that the FOMC will publish interest rate forecasts from its January meeting is a small surprise. It seemed unlikely there would be time to settle anything at the December meeting; on the other hand, the minutes before a two-day meeting were always a likely time to announce such a move, because it give markets time to prepare for what they’re getting in a few weeks time.

The December minutes are full of clues on the trade-offs that the Fed made in its decision.

(1) The FOMC decided on publishing the existing forecasts of “appropriate” monetary policy made by each committee member. This is not as simple as it seems and was clearly the subject of some debate. Read more

Robin Harding

Today I received a letter from the Federal Reserve Board refusing a request that I made under the Freedom of Information Act. I asked for:

“all (a) operations reviews; (b) financial examinations; (c) budget reviews and approvals; and (d) year-end evaluations; of the twelve regional banks conducted by the Federal Reserve Board.”

In essence, I asked for information that the FRB has compiled to control and monitor the performance of the twelve regional Fed banks since 2000. The grounds for refusal were this: Read more

Robin Harding

Nathan Sheets, head of the Fed’s international division until August, clearly plans to enjoy his freedom as head of international economics at Citi. In a new note he proposes a fairly dramatic communications option for the Fed – setting a target for the level of nominal consumption – which is definitely not the kind of thing you’re allowed to say in public when you work at the Federal Reserve Board.

As Mr Sheets notes, the Fed has ruled out any dramatic changes to its framework for the time being, but “our view is that in the event of a sizable financial shock from Europe—or evidence that the economy was slipping into recession—the Fed would be looking for a ‘bazooka,’ and such a regime would again be considered”. Read more

Robin Harding

For me, the most interesting passage in the November Fed minutes was:

“The Chairman asked the subcommittee on communications to give consideration to a possible statement of the Committee’s longer-run goals and policy strategy, and he also encouraged the subcommittee to explore potential approaches for incorporating information about participants’ assessments of appropriate monetary policy into the Summary of Economic Projections.”

A host of communication options were discussed in the minutes but these are the only two that the Chairman referred back to the subcommittee on communications (vice chair Janet Yellen, governor Sarah Bloom Raskin, Charles Evans of Chicago and Charles Plosser of Philadelphia). That’s a strong signal of the direction that debate is going. Read more

Robin Harding

An important part of the Fed’s outlook when it made its forecast of low interest rates through to mid-2013 in August, and launched Operation Twist in September, was that it expected inflation to fall back as the temporary effects of an oil shock and the tsunami disaster in Japan faded away.

But the FOMC’s November projections show a wide dispersion of views on whether that will actually happen. The central tendency for headline inflation in 2012 is from 1.4-2 per cent and the central tendency for core is from 1.5-2 per cent. Three FOMC members must be higher and three members must be lower than even that range. Read more