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from MacroScope:
The chairman’s challenge: Bernanke says ‘taper,’ markets hear ‘tighten’
For a central bank that likes to tout the importance of clear communication, the Federal Reserve sure knows how to be obtuse when it wants to. Take Bernanke’s testimony before the Joint Economic Committee of Congress last month. His prepared remarks were reliably dovish, emphasizing weakness in the labor market and offering no hint of an imminent end to the current stimulus program, which involves the monthly purchase of $85 billion in assets.
It was during the question and answer session that the real fireworks came. Asked about the prospect for curtailing such bond buys, Bernanke said:
If we see continued improvement and we have confidence that that's going to be sustained then we could in the next few meetings ... take a step down in our pace of purchases. If we do that it would not mean that we are automatically aiming towards a complete wind down. Rather we would be looking beyond that to see how the economy evolves and we could either raise or lower our pace of purchases going forward.
Those three little words, “next few meetings,” proved rather costly to global financial markets – about a trillion bucks a word in stock value losses.
from MacroScope:
What’s in a (trend payrolls) number? The Chicago Fed paper that shook the markets, ever so slightly
Ann Saphir contributed to this post
The apparent conclusion from one of the most dovish regional Federal Reserve banks was rather surprising: The economy may actually need much smaller monthly job growth, of around 80,000 or less, in coming years in order for the jobless rate to keep moving lower. The immediate policy implication, it might seem, is that the U.S. central bank may have to tighten monetary policy much sooner than previously thought.
Andrew Brenner of National Alliance remarked that, while the report should be taken with a grain of salt, “this translates to lowering the bar to QE tapering.”
from MacroScope:
Forget the ‘wealth effect’: real wages drive U.S. consumer spending
Federal Reserve officials have touted the ‘wealth effect’ from higher stock prices and rising home values as a key way in which monetary policy boosts consumer spending and economic activity. But according to the results of a recent survey from the Royal Bank of Canada, that ethereal feeling of being richer on paper is no substitute for cold, hard cash.
Here’s how Fed Chairman Ben Bernanke explained the benefits of rising asset prices to the real economy during a press conference in September.
from MacroScope:
To ‘taper’ or not to ‘taper’? Fading the Fed semantics debate
Is Federal Reserve Chairman Ben Bernanke avoiding the word “taper” in order to temper expectations that the U.S. central bank will ratchet down its massive bond buying program? This is one view that’s been widely bandied about in recent days.
But then why is it that the Fed officials who are most eager to "taper" have pretty much stopped using the word, too?
from MacroScope:
Inflation, not jobs, may hold key to Fed exit
It’s that time of the month again: Wall Street is anxiously awaiting the monthly employment figures – less because of its interest in job creation and more because of what the numbers will mean for the Federal Reserve’s unconventional stimulus policies.
As one money manager put it all too candidly: “Bad news is good news in this market lately because it keeps the Fed buying bonds and interest rates low.”
from MacroScope:
MacroScope presents: ask the economist
MacroScope is pleased to announce the launch of ‘Ask the Economist,’ which will give our readers an opportunity to directly ask questions of top experts in the field. We are honored that Michael Bryan, senior economist at the Federal Reserve Bank of Atlanta, has agreed to be our first guest. In his role, Bryan is responsible for organizing the Atlanta Fed's monetary policy process. He was previously a vice president of research at the Cleveland Fed.
The process is simple. We give you a heads up on our upcoming featured economist. You tweet us your question using the hashtag #asktheeconomist, or via direct message if you prefer. We select a handful of the most interesting queries this week, ship them over to our economist du jour. She or he will then answer each one in writing and we will post their response as a blogpost. And of course, you’ll be cited for asking the pithy question.
from MacroScope:
CME Group, home to bets on Fed policy, scrambles to keep watch
These days, it seems, everyone is trying to keep up with shifting market expectations for the Federal Reserve’s monetary policies. CME Group’s Fed Watch, which delivers a snapshot of those expectations based on futures tied to the Fed’s target for short-term rates, is no exception.
Rate futures traded at CME have dived since Fed Chairman Ben Bernanke said last week that the U.S. central bank may decide to cut back on its purchases of Treasuries and mortgage-backed securities in the next few Fed policy meetings if data shows the economy is gaining traction. CME’s website dutifully translated the drop in rate futures into rising market expectations that the Fed’s first rate hike since 2008 could come in early 2015.
from MacroScope:
The rationale for a December Fed taper
Vincent Reinhart, a former top Federal Reserve researcher who is now chief U.S. economist at Morgan Stanley, believes the U.S. central bank will begin pulling back on the pace of asset purchases in December. Here’s how he arrives at that timeline:
We believe the Fed is going to need to see four employment reports averaging net gains in nonfarm payrolls of at least 200,000 to justify reducing the pace of its asset purchases. The arithmetic of the calendar would then put the earliest date of tapering/tightening in September, which conveniently for the Fed is a meeting followed by a press conference.
from MacroScope:
Is Congress the ‘enabler’ of a loose Fed?
We heard it more than once at today’s hearing of the Joint Economic Committee featuring Fed Chairman Ben Bernanke: the central bank’s low interest rate policies are allowing Congress to delay tough decisions on long-term spending.
As U.S. senator Dan Coats asked pointedly: “Is the Fed being an enabler for an addiction Congress can’t overcome?”
from MacroScope:
SF Fed’s Williams in the driver’s seat
In the barrage of Federal Reserve speakers making the rounds on Thursday, it is notable that San Francisco Fed President John Williams was the one that managed to move markets, allowing the dollar to recover losses. Why did his voice rise above the din? For one thing, he’s seen as a dovish-leaning centrist whose views closely resemble the Bernanke-Yellen core of the central bank.
Plus, he took the oft-abused economy-car analogy in a, er, new direction:
If we were in a car, you might say we’re motoring along, but well under the speed limit. The fact that we’re cruising at a moderate speed instead of still stuck in the ditch is due in part to the Federal Reserve’s unprecedented efforts to keep interest rates low. We may not be getting there as fast as we’d like, but we’re definitely moving in the right direction.
