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from MacroScope:
What to expect from Bernanke testimony and Fed minutes this week
Financial markets this will be keenly focused on congressional testimony from Fed Chairman Ben Bernanke and minutes from the central bank’s April 30-May 1 meeting, particularly given a thin data calendar. The latter may be the more interesting one, since it will offer hints into how far Fed officials are leaning in a direction of curbing the pace of its bond-buying stimulus, potentially late this summer.
The economic backdrop has been just mixed enough to leave policymakers cautious about taking their foot off the gas. Still, if we get a few more months of strength in the labor market, Fed officials may just be able to say “substantial progress” has been made in the outlook for the labor market – their stated precondition for an end to asset buys.
Still, Harm Bandholz at Unicredit says markets should not confuse a debate about tapering bond buys with some immediate reversal of the Fed’s policy of ultra low rates.
Once the Fed talks about the exit (or unwinding/tapering asset purchases), the market is tempted to jump to the conclusion that this indicates an earlier exit. We disagree. The debate about an exit roadmap merely shows that the Fed is doing its necessary due diligence in time. It wants to make sure that it is prepared to do the right steps once the time has come. This debate does not, however, bring the exit a single day closer. In fact, the minutes are likely to show just the opposite, i.e. that at the previous meeting some Fed officials were talking about the possible need to increase the asset-purchase amount even further.
from Breakingviews:
How to have a good argument about economics
By Edward Hadas
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
As the Great Stagnation stretches out into the indefinite future, the level of GDP and the growth rate are widely judged to be too low. Voters are unhappy and the debate on how to respond is loud but inconclusive. What is the right mix of stimulus, austerity, structural changes and monetary policy? Something better is possible. Here are five simple rules for a more productive dialogue.
from MacroScope:
Currency peace: G20 gives BOJ a pass for deflation fight
All the talk of currency wars is mostly just that – talk. This week’s meeting of the Group of 20 nations at the International Monetary Fund was living proof. Despite speculation that emerging nations would redouble their criticism of extraordinarily low rates in advanced economies, the G20 ended up largely supporting the Bank of Japan’s new and bold stimulus efforts aimed at combating years of deflation.
Mr. currency wars himself, Brazilian Finance Minister Guido Mantega, told reporters Japan’s monetary drive was understandable given its struggle with falling prices and stagnant wages, even if he called for close monitoring of its potential spillover effects.
from The Great Debate:
Obama must surprise in State of the Union
President Barack Obama stirred with an unexpectedly powerful inaugural address – a second effort that far surpassed his first. He summoned great themes of American history to argue cogently for his second-term agenda. Now he has a chance to deliver a State of the Union address that improves on those of his first term, too.
The key to success? Presidents still have the power of surprise. Franklin D. Roosevelt once said, “I am like a cat. I make a quick stroke, and then I relax.” As in his inaugural, Obama should surprise us – this time with new policies and sharp specificity. On the budget, democracy reform and immigration, the president stands well positioned.
from MacroScope:
Fed speaks, but does market listen?
Jonathan Spicer contributed to this post
When the Fed adopted thresholds for its low interest-rate policy last December, Fed Chairman Ben Bernanke said they would make "monetary policy more transparent and predictable to the public." But now that the policy is fully in place, it doesn’t seem that the public and the Fed are predicting the same thing at all. Not even close.
In their policy statement following a two-day meeting that wrapped up Wednesday, Fed policymakers removed any reference to date-based policy guidance, saying only that exceptionally low rates would remain in place as long as unemployment remains above 6.5 percent and inflation is not seen to top 2.5 percent. But as recently as December, the Fed’s statement suggested policymakers did not believe those thresholds would be met until at least mid-2015.
from Breakingviews:
Japan’s fiscal stimulus is call for action to BOJ
By Andy Mukherjee
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Japan’s new prime minister has thrown the country’s central bank a $117 billion challenge.
from MacroScope:
Big government kept a “contained depression” from being a Great one: Levy
David Levy says he is bullish on the U.S. economy long term. But for now, the country is effectively stuck in a “contained depression,” the chairman of the Jerome Levy Forecasting Center told Reuters during a recent visit to our Washington bureau.
Still, things could have been much worse, says the third generation economist. For Levy, the interventions of a large and proactive federal government prevented a repeat of the 1930s.
from Breakingviews:
Infrastructural upgrade belongs in US fiscal talks
By Agnes T. Crane
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
It won’t be long before Democrats will want to throw some form of economic stimulus into the discussions over righting America’s finances. Tactically, it could be a useful variable to add to the the negotiations with Republicans. Trouble is, most of them equate stimulus with waste. But there’s a way for the White House to square the circle by capitalizing on bipartisan disgust over the nation’s crumbling roads, collapsing bridges and insufficient sea walls. Call it the infrastructural upgrade card.
from MacroScope:
Could the private sector stage a stimulus plan?
Since the financial crisis, the federal government has implemented a fiscal stimulus plan and the Federal Reserve took to the road of monetary stimulus, actively seeking new routes to revive the U.S. economy.
The private sector, however, has been laggard in adding its muscle to the revival efforts. Private firms have added employees, but very cautiously, and wages are stagnant. Meanwhile, a huge amount of cash sits idle on corporate balance sheets.
from MacroScope:
How big will the Fed’s QE3 end up being?
Polling data courtesy of Chris Reese
We’ll know it when we see it. That’s essentially been the Federal Reserve’s message since it launched an open-ended bond-buying stimulus plan that it says will remain in place for as long “the outlook for the labor market does not improve substantially.” Which begs the question: how much larger is the central bank’s $2.9 trillion balance sheet likely to get?
Minutes from the Federal Reserve’s October meeting point to solid support within the central bank for ongoing monetary easing via asset purchases well into 2013.
