A collection of
articles I've linked to previously, from latest to older. This post will be
updated as the events unfold. Previous Fed
Watch here.
Last update 06:30 2-May
2-MAY
FOMC meeting - surprisingly few changes but
bias softer – Danske
Bank (pdf)
The Fed statement was
a bit surprising as the tone on growth and employment was kept fairly unchanged
despite the recent weakness in data. However, they turned slightly more dovish
on the policy description as they said that they are prepared to both increase
or reduce asset purchases. Hence, it opens a slight door that a rise in asset
purchases is also possible should growth deteriorate more than expected. We
expect the Fed to keep the current pace of asset purchases till the end of the year.
FOMC Leaves Policy Unchanged – Tim
Duy’s Fed Watch
The urge to taper off
quantitative easing has lessened since the last meeting. That pushes the
beginning of the end back to the later back of the year. The door is open to additional stimulus as
well, but I suspect that it would have to be driven by the employment side of
the mandate. Clear evidence of a
deflationary threat is likely necessary to drive action on the other side of
the mandate; such a threat seems unlikely in an expanding economy.
Fearful symmetry – Free
exchange / The Economist
Fed officials thus
entered this week's meeting with cross-cutting pressures: an underlying view
that QE should start to taper off soon; and economic data that undermined the
case for such a tapering. The sentence the Fed added to this week's statement
was a reminder to the market that the fate of QE is tied to the fate of the
economy, and tapering is not a done deal if the economy doesn't hold up its end
of the bargain.
1-MAY
AFTER EVENT
BEFORE EVENT
What About Inflation? – Tim Duy’s Fed Watch
No Surprises from the Fed--QE on Course – Marc
to Market
Fed prepared to alter pace of QE
– slightly more dovish – Nordea
Redacted Version of the May 2013 FOMC Statement – The
Aleph Blog
Side-by-side
comparison
Fed Statement Tracker – WSJ
Compare changes
between any two statements – beginning from 2007.
A possible step towards numerical guidance for
QE? – alphaville
/ FT
During the presser
following the March FOMC meeting, Ben Bernanke made two comments suggesting
that its communications policy regarding asset purchases would shift in the
direction of its policy for interest rates.
Parsing the Fed: How the Statement Changed – WSJ
Fed Maintains QE Pace, Prepared to Alter as
Economy Evolves – BB
Fed stresses could boost or curb pace of
stimulus – Reuters
Fed will keep buying
$85 billion in bonds each month to keep interest rates low and spur growth, but
added it could lift or taper this pace of purchases depending on the economy's
path.
The Fed’s Holding a Punch Bowl in a Painted
Corner – WSJ
Commodities Jump But Stocks And Bonds
Unimpressed By Fed Statement –
ZH
FOMC Statement Post-Mortem – ZH
BEFORE EVENT
What About Inflation? – Tim Duy’s Fed Watch
The Fed is supposed to
have a dual mandate. Dual, as in
two. Maximum employment and price
stability. One would think that failing
at the latter would be at least as important as failing at the former. Perhaps we are learning that the Evan's rule
is flawed - it should not be about only conditions before which the Fed
considers removing stimulus, but also conditions by which the Fed deliberately
considers adding additional stimulus. A two-side Evan's
rule is needed.
30-APR
he FOMC statement
should shift to indicate the softer economy and falling inflation numbers; I am
watching for how much emphasis they place on the latter as a signal as to the
likelihood of easing further in future meetings. Like most, I don't anticipate an expansion of
the program at this juncture.
Despite the recent
round of weak data we do not expect an overly dovish tone to the post-meeting statement
tomorrow. Still, a potential surprise would be if the FOMC is worried about
disinflation.
This FOMC meeting is
unlikely to generate much action beyond tweaks to the language on the economy. The
next move is still likely to be a taper of QE3, but unless there is a rapid
turn in the data, September now seems the earliest plausible date.
1) Fed leaders have
been sensitive to the risk that through the quantitative easing they could
completely take over the market for U.S. Treasury debt 2) Maybe quantitative
easing doesn’t affect the economy so much on its own terms, by pushing money
into the financial system. Maybe it is more important as a
communications tool.
29-APR
Nouriel Roubini: The
exit from the Fed’s QE and zero-interest-rate policies will be treacherous:
Exiting too fast will crash the real economy, while exiting too slowly will
first create a huge bubble and then crash the financial system. If the exit
cannot be navigated successfully, a dovish Fed is more likely to blow bubbles.
So Mike Konczal’s
assessment of this experiment is that monetary policy has not been able to
offset fiscal austerity. Paul Krugman
agrees as do other observers who question the effectiveness of monetary
policy in a liquidity trap. I agree that there is an interesting experiment
going on, but Konczal and Krugman (K&K) oversell what it means and ignore
other recent developments that shed light on the efficacy of monetary policy.
While it might not be
an example for all advanced economies it is useful to point out that some
central banks, such as Japan and Sweden have seen large declines in the size of their
balance sheet in recent episodes (Japan in the mid-2000a, Sweden in the Fall of 2010) without any disturbance
to the financial sector or interest rates.
Expectations are the
FOMC will take no action at this meeting…Since the most recent meeting in
March, the incoming data has been a little weaker, so the FOMC will probably
adjust the wording of the statement.
27-APR
The Fed versus fiscal
policy.
If you look at
macroeconomic policy since last fall, there have been two big moves. The
Federal Reserve has committed to much bolder action in adopting the Evans Rule
and QE3. At the same time, the country has entered a period of fiscal
austerity. Was the Fed action enough to offset the contraction?
We could get close to
a proper experiment if the Fed explicitly expressed a goal of above-target
inflation (or, better still, a level of nominal output consistent with some
catch-up growth) and declared its willingness to do what it took to get there.
If it did that and failed to hit the announced goal then we could say with
reasonable confidence that fiscal policy trumps monetary policy. Maybe we'll
get that but we probably won't.
25-APR
Commentary: 5
misconceptions about the effects of QE and monetary policy
Ms. Yellen is now
widely viewed as a logical candidate to succeed the current Fed chairman, Ben
S. Bernanke, when his term ends in January 2014.
24-APR
It may take the Fed
nearly a decade to bring its massive balance sheet back toward a more
historically normal size, Goldman Sachs economists argue in new research.
If the Fed believes
that its credibility is the reason inflation has been stable during the
recovery, then it will almost certainly continue to do too little and
unemployment will eventually settle a natural rate substantially higher than
the pre-crisis level. If, on the other hand, it determines that wage rigidities
are mostly responsible for stable inflation, then the Fed must actively seek a
higher inflation rate in order to increase employment growth.
22-APR
If Kocherlakota is
correct and monetary policy can only pursue the dual mandate in the context of
financial - and, by extension - macroeconomic instability, then we really need
to consider which part of the dual mandate needs to be loosened to reduce the
reliance on financial instability. My fear
is that if Fed policy makers were asked this question, they would unanimously
answer that it is the full-employment portion of the mandate that should be
jettisoned.
21-APR
Bernanke told global
policymakers he sees no risk to inflation in the United States, ECB Governing Council member Ewald Nowotny
said on Saturday.
The Fed’s ultra
accommodative policies will inevitably result in financial market instability
for years but such risks are necessary to boost employment and inflation, a top
U.S. central bank official said on Thursday.
Talk of tapering Fed
bond buying has dominated the monetary policy debate over recent weeks. But
over recent days, several central bankers have reminded market participants
pulling back is not a done deal.
17-APR
16-APR
The data flow is not
as uniformly positive as it seemed just a month ago. Arguably, we are experiencing yet another
spring slowdown. This should trigger
some monetary policymakers to reassess their predictions that QE could be
safely terminated at the end of this year.
But there may be a contigent that has dug in its heels on the issue and
are asking themselves "how bad does the data have to get to continue
assets purchases"
Plosser: Now Is A Good
Time To Revisit Tightening Plan – WSJ
Yellen Doesn’t See
Excessive Risk Taking – WSJ
Tapering Talk: What
Fed Officials Are Saying About Winding Down Bond Purchases – WSJ
14-APR
The Fed may have to
push the unemployment rate beyond the point that it starts generating inflation
if it wants to heal underlying labor-market weakness, a paper written by two
economists working at the IMF argues.