We’ve heard this before but we need to hear it again. Today the message comes from Charles Evans, president of the Chicago Federal Reserve Bank. “A number of labor market issues… lead me to think this accommodation will likely be appropriate for some time,” he said in prepared remarks delivered at a speech in Washington. In other words, the central bank will keep interest rates low for the foreseeable future. The lack of job growth is the main catalyst. How long will the easy money last? “I think six months is a good time period to say I think we’ll have accommodative policy like we have today.”
Daily Archives: March 9, 2010
COMBINATION FORECASTS
There is a long history in financial economics of documenting some degree of predictability in asset returns. So why aren’t investors doing a better job of earning a risk premium? Is it because the prediction variables aren’t so useful after all? Or maybe the evidence showing support of earning higher risk premiums requires looking at longer periods than is the norm. Another possibility is that investors overall are incapable of mustering the emotional discipline required for exploiting forecasting opportunities.