J.L.M. Campuzano (AEB) | Little by little the markets are stabilising. Liquidity is improving and trading volumes are normalising (although they are still low…what is normal?)
Larry Summers has written a perceptive analysis about the Fed’s confusion (and that of all the central banks, by the way) over what they are doing. Last Wednesday he made a brief reference to the FOMC’s decision not to raise rates, with the Fed once again being forced to withdraw from its previous plan of action. The total failure of ‘forward guidance,’ which has only served to make the Fed’s prose even more tedious to hide their misgivings.
James Alexander via Historinhas | The Federal Reserve and other central banks like to see themselves as “data-dependent”. They sit in objective judgement of the facts of the economy as revealed by “data” and then portentously decide whether to attempt to alter the future facts with monetary tightening or loosening.
James Alexander via Historinhas | A new book has just been released on problems with central banks. The best chapter looks like the one on group-think. John Taylor, one of the book’s editors describes it thus: “Kevin Warsh’s (ex-FOMC member) report on the lack of effective deliberations at the FOMC is one of the most surprising parts of the book.
In the select club of central bankers it’s fashionable to play around with the idea of negative interest rates. Sweden’s central bank became the standard bearer for this new trend.
Both main central banks face a challenging outlook. The ECB may have saved the day recently by showing it still commands enough firepower to support the economy, even if its room for manoeuvre seems hopelessly narrow. The Federal Reserve seems caught in a nasty trap.
James Alexander via Historinhas | I was pleased to report some traction in the Market Monetarist campaign to see inflation targets substituted by, or added to, an NGDP growth target. One common pushback I’ve received recently is if the central bank can’t hit a 2% target how can it hit a tougher target? It’s a reasonable question.
The main global central bankers have conveyed reassuring market-friendly messages following their last meetings. The Fed pictured a rosy outlook of home growth and employment paving the way for a moderate rate rise in December. The ECB on its side signalled its firm commitment to conduct a more flexible and accommodative policy by strengthening its QE stance. Yet good news is failing to stiffen market sentiment.
Fernando Barciela | The Federal Reserve’s minutes which were released last Wednesday show that a rate hike is firmly on the cards for this December. But almost everybody seems to think that – if it happens – the rate increase probably will be small, a quarter of a percentage point at most. And, also very importantly, the pace of rate increases after that hike will be gradual. Before any further decision about future hikes the Fed will want to study the consequences.
James Alexander via Historinhas | There is only monetary policy, defined as the value of money relative to real goods and services. All else is just tools: official short term policy rates, IOER, targeting or guidance, QE, fiscal policy. In the “monetary offset”, the tool of expansionary fiscal policy is offset if the overarching policy tool is inflation targeting.