Counterparties: What the Fed didn’t do

June 20, 2012

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The Fed announced action today! Here’s the full statement, which is mostly notable for what the Fed didn’t do: no QE3, no nominal GDP targeting and nothing like what Fed Vice-Chairman Janet Yellen recently teased us with.

In sum, the Fed is extending Operation Twist, selling short-term treasuries and buying longer-term bonds. (NPR has a nice explainer on Twist and why it mostly won’t do much.) Phil Izzo has a great tracker of how the Fed statement has evolved, inserting phrases like, “However, growth in employment has slowed.” As Bernanke said in his press conference, “the outlook has changed.”

The Fed actions, though, mostly haven’t. Which is why there’s a whole host of folks who’re clamoring for the Fed to do more. Greg Ip calls the Fed’s latest move “minimalist” and worries about moving Operation Twist 2.0’s expiration date to December, the same time America is set to fall off its “fiscal cliff“. Scott Sumner argues that Bernanke has actually overseen an excessively tight monetary policy, at least in terms of nominal GDP and inflation. And Justin Wolfers, looking at the Fed’s new forecast, tweeted that the Fed essentially admitted failure on both the inflation and full-employment front – the former being low and the latter being persistently high.

This explains why Binyamin Appelbaum called the Fed’s move a modest “placeholder” and why Felix wrote “it seems that unemployment, on its own, is incapable of persuading Bernanke to do more”. – Ryan McCarthy

And on to today’s links:

A novel solution to underwater mortgages: Eminent domain – Reuters Opinion
Investors tout controversial “condemnation” for housing fix – Reuters

New Normal
The housing market recovery is basically just as uneven as our economy – WSJ
“Homeownership is weakly negatively associated with economic output per capita” – Richard Florida

Popular Myths
There’s still no good evidence “the creative class” drives a city’s economic growth – Thirty Two Magazine

How JPMorgan’s “London Whale” is unloading his now infamous position – Lisa Pollack

The next Walter Cronkite is a “convincingly human” robot that writes 2 million Little League recaps a year – Fast Company
Nick Denton: There isn’t enough gossip on the Internet – Capital New York
How Jonah Lehrer should blog – Felix

Want to live longer? Move to New York – Wonkblog

Mark Ruffalo calls for a tax on Wall Street – DealBook

In the race to succeed Lloyd Blankfein as CEO, Goldman’s Gary Cohn unveils his unique value proposition – Kevin Roose


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