Greg Ip

Articles by The Economist’s U.S. Economics Editor

Archive for the ‘Ben Bernanke’ Category

The Fed’s new thresholds: The mandate is willing but the tools are weak

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Dec 13th 2012, 2:00 by G.I. | WASHINGTON, D.C.

[Greg Ip] Low inflation and full employment have been statutory goals of the Federal Reserve since 1977, but its officials always felt more comfortable with the first than the second. After all, in theory monetary policy can’t alter unemployment in the long run.

But the stubbornly weak economy of recent years prompted some at the Fed to question their historical neglect of the second half of their mandate. “The Fed’s dual mandate … has the force of law behind it,” Charlie Evans, president of the Federal Reserve Bank of Chicago, said in September, 2011.  “So, if 5% inflation would have our hair on fire, so should 9% unemployment.”

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December 12, 2012 at 4:40 pm

The Federal Reserve launches QE3: The power of positive thinking

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Sep 13th 2012, 21:11 by G.I. | WASHINGTON

[Greg Ip] Earlier this year, the Federal Reserve reached a crossroads. It had lowered short-term interest rates to zero and promised to keep them there until 2013, and then 2014. It had undertaken multiple rounds of bond purchases to lower long-term interest rates. Yet the recovery was actually losing steam; unemployment had stopped falling. Was there anything left to try?

The answer, it turns out, is yes. Read the rest of this entry »

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September 13, 2012 at 6:06 pm

Ben Bernanke in Jackson Hole: The road to QE3

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Aug 31st 2012, 21:00 by G.I. | WASHINGTON

[Greg Ip] IF THE Federal Reserve eases monetary policy again at its meeting on September 13th, as I expect, it will be its most meticulously debated, planned and scrutinised move in recent memory. The case for action has been apparent at least since the spring when it became clear the economy would underperform the Fed’s repeatedly lowered economic forecasts. Yet Ben Bernanke spent much of the press conference following the Fed’s meeting in June, when it extended Operation Twist (the purchase of long-term bonds financed by selling short-term bonds) on the defensive over why the Fed hadn’t done more. In August, it again chose not to pull the trigger. But it did release a statement that hinted the point was drawing near. The minutes to that meeting released three weeks later suggested it would take an immediate and powerful improvement in the economy to stay the Fed’s hand.

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August 31, 2012 at 8:01 pm

Monetary policy: Should the Fed target unemployment?

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BEN BERNANKE’S speech today in Minnesota cut and pasted the key sentence out of his Jackson Hole remarks: “the Federal Reserve has a range of tools…[and is] prepared to employ these tools as appropriate.” What does this mean? I’ll trust Neil Irwin and Jon Hilsenrath: they say the Fed will ease in September.

If they’re right then maybe the rest of this blog post is moot. Nonetheless, it’s worth revisiting a meaty and intriguing speech that Charlie Evans, president of the Chicago Fed, delivered yesterday. Mr Evans has emerged as a vocal dove and counterpoint to the Fed’s hawkish contingent. The task facing those like Mr Evans who want the Fed to do more is how to justify it. The Federal Reserve Act requires that it aim for both full employment and stable prices. But in both theory and practice, the inflation part of this mandate trumps the employment part. The Fed kicked off QE2 last year when deflation threatened. It hasn’t yet given us QE3 because deflation isn’t knocking on the door.

Mr Evans provides a theoretical argument why more vigorous monetary ease aimed explicitly at lowering unemployment is justifiable right now. There’s a lot about this speech that I love, in particular this observation: Read the rest of this entry »

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September 8, 2011 at 5:53 pm

Central banking and the crisis: Emergency manoeuvres

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With developed economies in dire straits, central bankers have taken the tiller. Not all of them are happy about that.

Aug 13th 2011 | from the print edition

[Greg Ip]

COMETH the hour, cometh the central bankers. On August 8th the European Central Bank (ECB) began buying Italian and Spanish bonds in an effort to stop the sovereign-debt crisis from crippling two of the continent’s largest economies. And a day later America’s Federal Reserve made an unprecedented commitment to keeping interest rates at more or less zero for two more years to keep a stalling economy out of recession.

In both cases the dramatic steps were taken in the face of political failures to get to the heart of the problems at hand. The fact that they took both banks well outside their normal zones of operation was underscored by the internal dissent both moves faced, dissent rarely seen in the consensus-driven world of central banking.

The initial market reaction was positive, at least on one side of the Atlantic. Yields on Italian and Spanish bonds fell sharply relative to Germany’s. In America Treasury yields fell and stocks rose—but not for long, as equity markets fell again on August 10th. No one should see this as a fundamental turnaround. The ECB’s earlier bond-buying hasn’t saved smaller countries from punitively high government-bond yields; the Fed’s previous interventions haven’t spurred a robust recovery. The big issues of America’s stagnant economy and Europe’s debt crisis remain in the hands of elected politicians who still seem inadequate to the task. But at least central banks have shown themselves ready and able to act.

The entire article is linked here.

American economic policy: Running out of road

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Although America’s recovery from recession is disappointingly slow, policymakers doubt the merits of another monetary or budgetary push

Jun 16th 2011 | WASHINGTON, DC | from the print edition

[Greg Ip] THIS month America will reach two economic milestones. The Federal Reserve’s “quantitative easing”, or QE—loosening monetary policy by buying bonds with newly created money—will draw to a close. And the recovery QE was designed to spur will reach its second anniversary.

Yet no one will be celebrating at next week’s meeting of the Fed, where officials are almost certain to reiterate that the $600 billion programme of bond purchases will end this month. For all the monetary and fiscal stimulus applied to the economy, the recovery has been a disappointment. Though the chance of renewed recession is slim, in a dreary rerun of last year a promising acceleration in hiring and spending is fizzling.

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June 16, 2011 at 1:22 pm

The Fed, the budget and the economy: Policy fatigue

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Policymakers seem helpless in the face of bad economic news

Jun 9th 2011 | WASHINGTON, DC | from the print edition

[Greg Ip] WHEN America’s economic recovery stalled last summer, Washington swung into action. The Federal Reserve announced it would buy $600 billion of government bonds with newly printed money, pushing down long-term interest rates. Then, at the end of the year, Barack Obama struck an agreement with the Republicans to cut payroll taxes and extend unemployment benefits.

Economic history seems to be repeating itself, in part. A promising recovery is again sputtering as job growth, which averaged 220,000 from February through April, slumped to 54,000 in May. The unemployment rate rose to 9.1%, the second monthly increase in a row (see chart). The economy grew at just a 1.8% annual rate in the first quarter and probably only a little faster in the second. Though not a double dip that barely qualifies as a recovery.

The response from Washington, however, is quite different from last year.

The entire article is linked here.

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June 9, 2011 at 3:43 pm

Five myths about the Federal Reserve

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By Greg Ip
Friday, November 12, 2010;

Washington Post Outlook

The Federal Reserve’s announcement on Nov. 3 that it will buy $600 billion worth of Treasury bonds to help boost the struggling U.S. economy reverberated around the world this past week, with condemnation from critics as varied as Sarah Palin and the president-elect of Brazil. Yet much of what the Fed and its chairman, Ben Bernanke, have done is shrouded in confusion and misperceptions.

1. By printing money, the Fed will create runaway inflation.

The Nobel Prize-winning economist Milton Friedman issued a famous dictum nearly 50 years ago: “Inflation is always and everywhere a monetary phenomenon.” His belief has become widespread over the years, to the point that even many non-economists assume that when the Fed prints money, higher prices inevitably result. But the link between money and inflation is weaker than people think. Read the rest of this entry »

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November 14, 2010 at 9:56 pm

The Fed’s big announcement: Down the slipway

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“Quantitative easing” is unloved and unappreciated—but it is working

Nov 4th 2010 | WASHINGTON, DC

[Greg Ip] EVEN before the Federal Reserve unveiled its second round of quantitative easing (QE) on November 3rd, critics had already denounced it as ineffectual or an invitation to inflation. It cannot be both and it may not be either.

The announcement of “QE2” was hardly breathtaking. The Fed said it will buy $600 billion of Treasuries between now and next June, at about $75 billion a month, although it also said it could adjust the amount and timing if need be. That was about what markets expected but far less than the $1.75 trillion of debt it bought between early 2009 and early 2010 in its first round of QE. Yet QE2 seems already to have exceeded the low expectations it has aroused. Since Ben Bernanke, chairman of the Fed, hinted at it at Jackson Hole on August 27th, markets have all done exactly what they should (see chart).

The original article is linked here.

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November 4, 2010 at 10:13 pm

The economy: It’s all up to the Fed

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The Fed will try to force the economy into orbit with more bond purchases

Oct 14th 2010 | Washington, dc

[Greg Ip] ROCKET science may be out of fashion on Wall Street, but it still has a following at the Federal Reserve. All year long officials there have looked for signs that the economy has reached “escape velocity”: growth that is strong enough to bring down unemployment once the propellants of government stimulus and inventory replenishment are spent.

Such signs remain maddeningly elusive.

The entire  article is linked here.

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October 14, 2010 at 3:22 pm


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