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The Fed Is Irrelevant

September 1st, 2019 · Comments Off on The Fed Is Irrelevant

With the US 10-year yield well below the Fed Funds rate, there are good arguments for lower interest rates. On the other hand, with rates and unemployment already very low, and the economy still growing at 2%, the need isn’t urgent. Most importantly, rate cuts will do very little for the economy. Source: The Fed […]

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Tags: Monetary policy

A Looming Disconnect Between The Economy And Financial Markets

July 1st, 2019 · Comments Off on A Looming Disconnect Between The Economy And Financial Markets

The Fed is mostly focused on conditions in the real economy, loosening policy when growth slows and tightening when the economy grows too hot. It only takes on board financial market conditions when these become more extreme. However, because changes in Fed policy have a much more immediate and dramatic influence on financial markets, the […]

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Tags: Monetary policy

The Fed Hasn’t Blown Another Asset Bubble

April 27th, 2019 · Comments Off on The Fed Hasn’t Blown Another Asset Bubble

Investors feel whiplashed by the Fed, but while this is understandable, this isn’t necessarily justified as financial markets are a bit of a side show for the Fed. The Fed is also accused of having blown another asset bubble, but it is even debatable whether there is an asset bubble, let alone the Fed being […]

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Tags: Monetary policy · The Markets

The Fed’s America First Policy

January 2nd, 2019 · Comments Off on The Fed’s America First Policy

It is difficult to argue that monetary policy is too tight for the US economy, and financial data back that judgement up. However, the Fed often has a pronounced influence on credit conditions overseas, we doubt these are taken on board by Powell, seemingly pursuing an America First policy. Given the fact that the US […]

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Tags: Monetary policy

Fed Hysteria Out In Full Force Once Again

December 26th, 2018 · Comments Off on Fed Hysteria Out In Full Force Once Again

From the President downwards, much of the financial community is up in arms over the latest Fed policy change. While the Fed in general, or the particular policy changes and outlook are clearly not beyond criticism, we think that much of the criticism is misdirected and internally inconsistent. Bottom line is, bar crisis situations, the […]

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Tags: Monetary policy · The Markets

Should The Fed Regulate Asset Prices?

December 13th, 2018 · Comments Off on Should The Fed Regulate Asset Prices?

The idea might seem crazy at first, but it follows logically from a model in which beliefs about future asset prices (‘animal spirits’) have real effects on output and employment. The case is reinforced when these animal spirits can feed on themselves and become self-fulfilling prophesies. We think a case can be made for this […]

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Tags: Monetary policy · The Markets

Fed Critics Are Wrong

October 31st, 2017 · Comments Off on Fed Critics Are Wrong

People have blamed the Fed for the rise in US inequality, but this is hard to square with the facts. Fed criticism mostly comes from people subscribing to hard money views; these haven’t exactly fared very well in the post-financial crisis years either. Yet, there is a chance one of them might become the new […]

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Tags: Monetary policy

Japan Defies Hard Money Economics

August 23rd, 2017 · Comments Off on Japan Defies Hard Money Economics

Japan proposes an interesting challenge to hard money economics, having embarked on seemingly massively irresponsible fiscal and monetary policies. One has to keep in mind that these lessons, as extraordinary as they are, only apply under a very specific economic situation. That is, they should certainly not be generalized, but they are interesting and very […]

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Tags: Japan

Is The Fed Is Behind The Wrong Curve?

June 29th, 2017 · Comments Off on Is The Fed Is Behind The Wrong Curve?

Debt to GDP ratios have kept on rising since the financial crisis in most of the world, in some parts at alarming rates. While we wholeheartedly agree with the BIS that this is a dangerous development, we’re less sure about their diagnostic. In essence, the BIS argues that the Fed is behind the wrong curve, […]

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Tags: Monetary policy

The Great Unwinding

April 23rd, 2017 · Comments Off on The Great Unwinding

The Fed (and other central banks) has amassed a great amount of assets, bloating its balance sheet. The Fed has started signaling to the markets that it is considering starting to unwind some of this. How did the Fed get here and what are the risks of this unwinding of its bloated balance sheet? We’ll […]

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Tags: Monetary policy