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Deflation: Economists sink into dementia

Guest post by Benjamin Cole via Historinhas | What to make of the recent dust-up around Rogoff World, in which the U.S. would pursue a cashless, deflationary federal police state characterized by negative interest rates? Harvard don Ken Rogoff has suggested this is the best macroeconomic option going forward. My take-away? The economics profession is deep into dementia.



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The Fed will almost certainly fail the next QE

SAO PAULO | By Benjamin Cole via Marcus Nunes’s Historinhas | The results are in, and it appears the Fed’s use of QE—faltering, dithering, at times mindlessly circumscribed in advance—was moderately successful in helping the U.S. climb out of recession. Europe is still mired in econo-gloom, courtesy of the ECB’s monetary noose around its neck. Japan may only now be fighting its way out of perma-gloom by way of aggressive QE. The U.S., in contrast, has posted slow growth since the end of the 2008-09 “great recession”.


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What if QE operates on the supply side and keeps prices low?

WASHINGTON | By Pablo PardoDo you want a Who’s Who of the Republican talking heads? If so, go to this list. Those are the luminaries that asked the Federal Reserve not to go ahead with the Quantitative Easing in 2010, for fear of inflation and currency debasement. Four year later, inflation is nowhere to be seen, and, according to the IMF, the US dollar has strengthened its role in the monetary system. 


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Fed’s baby steps towards tightening

MADRID | The Corner | Janet Yellen spoke about patience in judging when to raise rates on Wednesday, which means no hikes for at least two meetings. The change in guidance was played down by the FOMC statement. BNP Paribas analysts thinks the US central bank wants to prepare markets for hikes but at the same time reassure them. They call for the first hike in September. 


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The Fed’s motto: Mistakes should be repeated!

SAO PAULO | By Marcus Nunes via Historinhas | Fed officials have great difficulty in thinking outside the box, ceaselessly repeating themselves. If they stopped to think for a moment they would see what´s very different now from what presented itself ten years ago. And the significant difference is not in the rate of inflation or the rate of unemployment, but in the level trend and growth rate of nominal spending



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Fed, beware of the inflation!

SAO PAULO | By Marcus Nunes via Historinhas | In The Risks to the Inflation Outlook SF Fed researcher Vasco Cúrdia writes: the median inflation forecast is not expected to return to the FOMC target of 2% until after the end of 2016. The uptick in inflation in the first half of 2014 could lead one to believe inflation is finally on the path back toward its target. However, inflation has shown similar patterns several times before and each time the uptick has never lasted very long. According to this model, we should not see inflation begin to recover more firmly until around the end of 2015.


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Testing the rate-hike scenario

By Sreekala Kochugovindan, Anando Maitra (Barclays) | History highlights the importance of the business cycle in determining the effect of rising rates on asset returns, a topic we discussed in depth in Scenarios for a shifting bond landscape. We examined US data since 1925 and selected episodes where US Treasuries sold off by more than 5% in one year. The results were pretty mixed, with equity returns ranging between plus and minus 50% and providing no consistent pattern.