tag:blogger.com,1999:blog-1110014885778996459.post5880426563271749031..comments2024-03-29T00:04:36.144-07:00Comments on Idiosyncratic Whisk: Fed Policy UpdatesKevin Erdmannhttp://www.blogger.com/profile/07431566729667544886noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-1110014885778996459.post-79612863116093604212017-09-23T18:44:35.793-07:002017-09-23T18:44:35.793-07:00Maybe he was just about the best guy. He and Geit...Maybe he was just about the best guy. He and Geithner both were pulling policy in a more accommodative direction, generally. So, it's this weird thing where I think they would have had much better policy if they were truly independent, but public sentiment ends up having an effect if it is strong enough. So, these weird explanations end up being a strange compromise where they have to defend positions that are between where they would have pushed policy, but they would have been pilloried, and the policies they ended up supporting, which were worse, but which were more popular (but still not particularly popular). I can imagine it's an awkward position to be in, and I suspect that there is a lot of motivated reasoning required to save face, because there really is no comfortable, defensible place they could have ended up in. I mean, if Bernanke would have successfully pushed through policies that would have avoided the entire crisis, he would probably be the most hated person in the country now - the academic that ended up bailing out evil Wall Street and feeding the supposed housing bubble that by now would look like Canada if we hadn't engineered the bust.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-73704949973595745472017-09-23T16:27:50.318-07:002017-09-23T16:27:50.318-07:00Ugh. Reading that makes me sick. Now I have to tr...Ugh. Reading that makes me sick. Now I have to track down those pages and re-read them. The weirdest part for me is that, based on his pre-2005 writings, he should have been the best guy to have there. I guess I'm a terrible judge of those things. :-( billnoreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-23204034543439675052017-09-23T13:03:16.954-07:002017-09-23T13:03:16.954-07:00Yeah. He confesses and it doesn't matter. Th...Yeah. He confesses and it doesn't matter. The rest of the country is even crazier.<br /><br />The other big head scratcher for me is on pages 204 and 205, where panic is hitting various types of securities, and the Fed lets firms fail instead of invoking 13(3). Bernanke's reasoning is that those firms weren't systemically important. Then in the very next paragraph he explains that the precedent for 13(3) in the Great Depression was specifically for small loans to non-systemically important firms.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-18057290516817241982017-09-23T09:36:00.083-07:002017-09-23T09:36:00.083-07:00That section of Courage to Act is one of about 5 t...That section of Courage to Act is one of about 5 that I marked when I read it. Whenever I re-read it, it reminds me of a crime show where the killer confesses without even realizing it. <br /><br />Here's why I do blame the Fed right now. The focus is on "normalization" but they are ignoring the most abnormal part of their actions. IOR was at 0% for 95 years. The first tightenings this cycle should have been to start letting the balance sheet shrink. And ending IOR would have let them do that faster. Instead they've increased IOR and they no longer even know what size balance sheet is the end game. billnoreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-80306729121139347072017-09-22T00:03:41.795-07:002017-09-22T00:03:41.795-07:00Well, as for Bernanke, Greenspan and Geithner, we ...Well, as for Bernanke, Greenspan and Geithner, we might be mixing apples with oranges with steaks in our argument. <br /><br />Yes, "bailing out financiers" or "bailing out poor people who bought houses with liar loans" was disliked by polemics in both parties and by some ideologues. Call that Q1. <br /><br />I happened to think Q1 was a good idea, and would have gone further with all stages of QE. <br /><br />But general monetary easing or tightening---I suspect when Fed officials say there is "pressure" for a tighter monetary policy, they are listening to internal demons. Sure, somebody somewhere is always saying monetary policy should be easier or tighter. The Fed seems to feel the pressure only from the tighter crowd. Maybe the tighter-crowd is aligned with the financial media. <br /><br />Fed staff reports, prepared by career civil servants probably free of political pressure, lean heavily towards the tighter end of the spectrum. <br /><br />Western central bank literature is redolent with anti-inflationism. The Fed Beige Books have been ringing the klaxons, as the PCE is at 1.5% which could get to 2% someday. <br /><br />The BIS is hopeless. <br /><br />Well it is a fascinating topic, why this central bank leaning to a tighter monetary policy. There is an idea the Fed is just doing what every public agency does, and that is fight the last war. <br /><br />Or that central banks were granted their independence into the teeth of double-digit inflation days. So the hallowed agency mission becomes fighting inflation, not fomenting growth. <br /><br />There are class-based analyses of central banks, roughly that bankers and rich people like tight money and workers do not. The Fed hysteria about "tight" labor markets, in every recent Beige Book, certainly fits this framework. <br /><br />Also fascinating to watch will be Don Trump. and whether he moves to have pro-growth Fed Chair. As you know, the FOMC is wide-open, with Fisher leaving too, and other empty seats. Trump is such a lulu that anything could happen. <br /><br />Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-9235421537365470072017-09-21T08:17:37.302-07:002017-09-21T08:17:37.302-07:00Sure, there seems to be a tendency for tight polic...Sure, there seems to be a tendency for tight policy. But, it seems that Greenspan, Bernanke, and Yellen all have been good choices who pulled the Fed and the public to more accommodative policy. The idea of a perpetually tight FOMC is plausible, but it isn't necessary as an explanation. In all the memoirs (Bernanke, Paulson, Geithner), the pressure is palpable. All three are desperate to be forgiven by the public for every small gesture of accommodation that might have accidentally benefited Wall Street. Each has pages and pages of it.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-13735762983861312472017-09-21T07:11:03.204-07:002017-09-21T07:11:03.204-07:00worth reading
https://www.kansascityfed.org/publi...worth reading<br /><br />https://www.kansascityfed.org/publicat/balanceofpower/fightingInflationCongressWhiteHouse.pdfBenjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-85522592012027723122017-09-21T05:37:03.271-07:002017-09-21T05:37:03.271-07:00Just for fun:
"Japan’s central bank opted to...Just for fun:<br /><br />"Japan’s central bank opted to hold interest rates steady on Thursday as a new board member dissented in favour of further monetary easing.<br /><br />The Bank of Japan said overnight interest rates will remain steady at 0.1 per cent, that 10-year bond yields will be capped at around zero percent and central bank will continue to buy assets at around ¥80tn a year. The decision was forecast by all economists polled by Bloomberg.<br /><br />New board member Goshi Kataoko voted for more stimulus as the current policy was not loose enough to meet the BoJ’s 2 per cent inflation target.<br /><br />The central bank said the consumer price index is “likely to continue on an uptrend and increase toward 2 per cent.” The CPI currently sits at around 0.5 per cent."<br /><br />--30--<br /><br />Interesting that the Bank of Japan is willing to be more aggressive than the Fed. <br /><br />Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-41908902213696987272017-09-21T05:07:36.784-07:002017-09-21T05:07:36.784-07:00Well….
The WSJ in the early 1980s told Volcker to...Well….<br /><br />The WSJ in the early 1980s told Volcker to ease up, that inflation below 5% was good enough….<br /><br />Then in 1992...<br /><br />“Too Tight for a Strong Recovery”<br />by Milton Friedman<br />Wall Street Journal, 23 October 1992<br />Reprinted from The Wall Street Journal © 1992 Dow Jones & Company. All rights reserved.<br /><br />"The Federal Reserve has reduced the federal funds rate repeatedly from nearly 10% in 1989 to about 3% recently. According to conventional wisdom on Wall Street, that is evidence that monetary policy has been extremely easy, that the Fed has done all it can to stimulate the economy, and that it is pushing on a string, as another ancient cliché has it.<br />This wisdom may be conventional, but it is incorrect….."<br /><br />--30--<br /><br />But my real point is, "So what?" <br /><br />Some op-eds in the WSJ is "pressure"? <br /><br />Nixon called Burns into his office for arm-twisting and Reagan did the same with Volcker. That might be "pressure." <br /><br />But some chattering heads on TV is "pressure"? <br /><br />How about another sermon from James Grant? <br /><br />I am not sure central banks are under pressure much. I would happily subscribe to some sort of "regulatory capture" explanations of the Fed, but on pure monetary policy, I do not see it. Well, maybe on IOER. They certainly are more polite to bankers than manufacturers or home builders.<br /><br />I think the Fed is a bit of cult. Sometimes, when people want to do something, they cite outside influences. "You know, authority figure Bill said it was a good idea, so I did it." <br /><br />Then there is genuflections to higher callings. <br /><br />But hey, I am open to ideas. I really do not know why the Fed pursues a too-tight monetary policy. <br /><br />How is the pressure applied? <br /><br />Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-63398096626944622662017-09-20T21:54:30.875-07:002017-09-20T21:54:30.875-07:00Seriously?
Go to the library. Look at the books o...Seriously?<br /><br />Go to the library. Look at the books on the econ shelf. It's not close.<br />In August 2007, the Wall St. Journal explicitly called for the Fed to foment a panic.<br />Come on, Ben. You're not new here.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-33975758644471764232017-09-20T20:56:44.325-07:002017-09-20T20:56:44.325-07:00Great post.
I do wonder about the proposition tha...Great post.<br /><br />I do wonder about the proposition that Fed is under pressure to raise rates (or not cut them back in 2008).<br /><br />Yes, there is the chronic tighter money crowd, and their relentless op-eds. But do right-wingers really want tighter money when the GOP runs DC? <br /><br />Moreover, we could argue that political actors---such as President Trump---routinely want "easier" money, certainly before any election. And Trump can replace Yellen and Fisher within a few months, at this point. <br /><br />So there could be pressure on the Fed to not raise rates. <br /><br />I think the problem with central banks is not about pressure, but internal make-up. <br /><br />The obsession with inflation is seen in every central banker organization in the Western world, from the BIS, to the ECB, to the Fed. Many central bankers, such as Charles Plosser, have stated the "right" inflation rate is zero (as measured), while others have contended central banks have only one obligation, to keep inflation at zero. <br /><br />Real economic growth is a problem only for those in fiscal and regulatory policy making, many central bankers contend. <br /><br />My take is the that Fed is mostly independent, and has a large staff that is devoted to tight money, and the ideal of no inflation. It has become a bias inside the Fed, as seen in their staff reports. Remember, these are career civil servants who (likely) never operated a business, or risked capital to start a business or invest in real estate, and perhaps never sought work in the private sector. I hate to say it, but the obsession of central bankers with inflation is nearly cult-like. <br /><br />The US economy prospered from 1982 to 2007 with an average CPI of 3%. So why a 2% ceiling (granted on the PCE)? Why not a 2% to 4% inflation target band? <br /><br />Weak public organizations, unlike weak private-sector organizations, have staying power. Run a weak business, you will go under. The Fed never goes under. Indeed, they can solidify, ossify, lapidify, petrify. <br /><br />I grant much of the financial media seems to accept the idea that tighter money is better, and that periodic cleansings of weak businesses through recessions is a positive. Undercutting labor with higher unemployment rates has merits too.<br /><br />But I think the Fed has been drinking the no-inflation absinthe for a long long time, and cannot change. <br /><br />A question; If the Fed is bending to politico-economic pressure, who is applying that pressure and why? <br /><br /><br />Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.com