Reuters blog archive
When the U.S. Federal Reserve launched its third round of quantitative easing, or QE3, it was hailed as an "open-ended" policy that would last as long as needed. Most important for investors, the pace of the bond buying - which started at a somewhat arbitrary $85 billion per month - would be "data dependent." Especially throughout the spring, officials stressed they were serious about adjusting the dial on QE3 depending on changes in the labor market and broader economy. But as the unemployment rate dropped to 7.3 percent last month from 8.1 percent when the program was launched in September, 2012, the bond-buying has effectively been on auto-pilot for 14 straight months.
Now, some are wondering whether the decision not to at least tinker with the program has made the first so-called taper a bigger deal than it needed to be. "When you don't react to small changes in the data with small changes in the policy then the markets tend to read more into it when you do change policy," St. Louis Fed President James Bullard said last week after a speech in Arkansas. "It makes policy a little more rigid than it maybe should be."
Bullard, who in June cited falling inflation when he dissented against a Fed policy decision to stand pat, continued:
"I've actually talked with my staff about this because we haven't actually changed the policy. If it had been me I would have been more willing to change it meeting-to-meeting and be more responsive to incoming data. But there is a certain reluctance on the part of the committee to go there."
President Barack Obama nominating Janet Yellen to head up the U.S. Federal Reserve came as little surprise to market watchers who read Reuters polls.
The current vice chair of the central bank was the clear frontrunner in two polls of economists, conducted by Reuters in June and August, to succeed Ben Bernanke when his term expires early next year.
With all the back-and-forth in the Yellen versus Summers Fed chair showdown, it’s easy to forget that the two once played for the same team – the Clinton administration.
This incredible photo from the Reuters archive features many of the key players in U.S. economic policy over the last two decades, tracing the arch of the 1990s tech boom, the early 2000s housing surge and the financial crisis of 2008-2009. They include Fed Vice Chair Janet Yellen, then advisor to Clinton, and Larry Summers, then Deputy Treasury Secretary. Both are now seen as leading candidates to replace Ben Bernanke as Fed chair next year.
Lost in the bizarre Yellen vs. Summers tug-of-war into which the debate over the next Federal Reserve Chairman has devolved, is the notion that President Barack Obama is getting a second shot at revamping the U.S. central bank.
The perk of a two-term president, Obama will get to appoint another three, potentially four officials to the Fed’s influential seven-member board of governors in Washington. This may buy the president some political wiggle room when it comes to his pick for Fed chair, since he might be able to placate Republicans with one or two “concession” appointments. Every Fed governor gets a permanent voting seat on the policy-setting Federal Open Market Committee.
For all the talk about clear communications at the Federal Reserve, central bank Vice Chair Janet Yellen's speech to the Society of American Business and Economics Writers ran a rather long-winded 16 pages.
However, while Fed board members generally do not take questions from reporters, there was a scheduled audience Q&A which, at this particular event, meant it was effectively a press briefing.
Janet Yellen, the Federal Reserve's influential Vice Chair and possible future replacement for Chairman Ben Bernanke, delivered an important speech this week. Entitled "Revolution and Evolution in Central Bank Communications," Yellen traces the deep shift in sentiment towards the importance of policy transparency.
In 1977, when I started my first job at the Federal Reserve Board as a staff economist in the Division of International Finance, it was an article of faith in central banking that secrecy about monetary policy decisions was the best policy: Central banks, as a rule, did not discuss these decisions, let alone their future policy intentions. While the Federal Reserve is required by the Congress to promote stable prices and maximum employment, Federal Reserve officials at that time avoided discussing how policy would be used to pursue both sides of this mandate. Indeed, mere mention of the employment side of the mandate, even by the mid-1990s, was described in a New York Times article as the equivalent of "sticking needles in the eyes of central bankers."