Twist and Yawn
David Beckworth (Macro and Other Market Musings) | Sep 21
The Fed decided today it would lower the average maturity of publicly-held treasuries by selling $400 billion of shorter-term treasuries and buying the same amount of longer-term treasuries. In addition, the Fed also reconfirmed its commitment to maintain the size of its mortgage holdings and anticipated its targeted interest rate would remain low through mid-2013. The burning question now is how big of an impact will the Fed’s new treasury maturity transformation or “operation twist” program have on the economy? Not much in my view. It should add some monetary stimulus, but like the original operation twist its effects will probably be modest and do little to spark a robust recovery… Without an explicit target to permanently shape expectations about future spending and inflation, it is hard to see how this new stimulus program will have any more lasting power than QE2. The Fed needs to quit throwing large dollar programs at the economy and instead commit to buying up as many assets as needed until some nominal GDP (or price) level target is hit.
The Decline & Fall Of Inflation Expectations… Again
The Federal Reserve’s two-day FOMC meeting on monetary policy concludes today. Nothing unusual about that. It’s just the latest installment of this regularly scheduled confab. What’s different, however, is the growing political pressure aimed at influencing the outcome. “In an unusual move, Republican leaders of the House and Senate are urging Federal Reserve policymakers against taking further steps to lower interest rates,” the AP reports.
Business Loans & Job Creation: Where’s The Connection?
Strategic Briefing | 9.19.2011 | Debating Central Bank Policy
End the Fed’s Dual Mandate And Focus on Prices
John Taylor (via Bloomberg) | Sep 16
Some worry that a single focus on the goal of price stability would lead to more unemployment. But history shows just the opposite. A single mandate wouldn’t stop the Fed from providing liquidity, or serving as lender of last resort, or reducing the interest rate in a financial crisis or a recession. But it would make it more difficult for the Fed to engage in the kinds of discretionary actions that frequently have resulted in higher unemployment.
Book Bits For Saturday: 9.17.2011
● Confidence Men: Wall Street, Washington, and the Education of a President
Review via The New York TImes
A new book claims that President Obama’s response to the economic crisis was hampered by a White House economic staff plagued by internal rivalries, a domineering chief adviser and a Treasury secretary who dragged his feet on enforcing decisions with which he disagreed.
The book, by Ron Suskind, a former Wall Street Journal reporter, quotes White House documents that say Mr. Obama’s decisions were routinely “re-litigated” by the chairman of the National Economic Council, Lawrence H. Summers. Some decisions, including one to overhaul the debt-ridden Citibank, were carried out sluggishly or not at all by a resistant Treasury secretary, Timothy F. Geithner, according to the book.
Industrial Production Vs. Credit Spreads
Yesterday’s update on industrial production looks surprisingly good at a time when the only news from the economic front seems to be bad news.
Research Review | 9.16.2011 | Recessions & Rebounds
The Sluggish Recovery from the Great Recession: Why There Is No ‘V’ Rebound This Time
Mark A. Wynne | Federal Reserve Bank of Dallas | Sep 2011
Unlike all other post-World War II recessions, the 2008–09 episode was precipitated by a banking crisis. A number of researchers have shown that downturns associated with banking crises tend to be more severe, and furthermore, in their aftermath, output takes a lot longer to recover.[5] In some cases, the crisis seems to persistently affect the trend rate of growth, while in other cases, the growth path of activity seems to shift down.
How Much More Of This Can The Economy Take?
Initial jobless claims are moving higher again. It’s not terribly surprising after another summer of economic discontent. In recent weeks there was some hope that new filings for unemployment benefits (a key leading indicator) was stuck in neutral, albeit at elevated levels. Now even that thin reed seems to be giving way as the numbers edge higher. Maybe it’s noise; maybe we’re in another one of those extended head fakes that have plagued these numbers several times in the recent past. Maybe, maybe, maybe.
Another Zero For August Economic Activity
Retail sales last month were essentially unchanged, offering another sign that the economy has slowed. The flat performance mirrors the stagnation in jobs creation for August. Zero and zero add up to a discouraging outlook for the economy. Nonetheless, let’s be fair and recognize that the annual trend in retail sales still looks robust.
Strategic Briefing | 9.14.2011 | The Crisis In Europe
Moody’s Downgrades 2 French Banks
The New York TImes | Sep 14
Moody’s downgraded two of France’s biggest banks Wednesday and maintained the rating for a third bank under review, highlighting the escalating worries about the European banking system and renewing jitters in the global financial markets. Mounting worries about the exposure of three leading French banks — Société Générale, Crédit Agricole and BNP Paribas — to Greece and their ability to handle a potential default by Greece on its debt had sent the stocks of all three financial institutions sharply lower in recent days.