Greg Ip

Curbs on the Fed’s independence are advancing through Congress

[Greg Ip] POPULISTS and bankers have been at odds since America’s earliest days. Its first two central banks were shuttered in the 19th century in part because of their perceived closeness to financiers. In the wake of the financial crisis those tensions have bubbled back to the surface. The central bank is again in the cross hairs. Read the rest of this entry »

The original article is linked here.

GREG IP

An academic background stood the chairman of the Federal Reserve in good stead during his first term. Political skills may be more important in his second

AP

AS THE financial crisis gathered force in August 2007, Jim Cramer, a hyperbolic market commentator on cable television, hurled the worst epithet he could muster at the chairman of the Federal Reserve: “Bernanke is being an academic. It is no time to be an academic!” By August 25th this year, when Barack Obama nominated Ben Bernanke to a second, four-year term, what had once been an epithet had become a source of strength. Read the rest of this entry »

The original article is linked here.

By Greg Ip

Politics stops the Fed from expanding an asset-purchase scheme

BACK IN 2002, before he became chairman of the Federal Reserve, Ben Bernanke claimed that if short-term interest rates fell to zero, a central bank still had the ultimate weapon: printing money by purchasing government bonds. Having now actually tried quantitative easing himself, Mr Bernanke is discovering its limits. Read the rest of this entry »

The original article is linked here.

Economics focus

Put out

Uncertainty over the size of the output gap complicates the task of central banks

HAVING raised the alarm on deflation, the Federal Reserve has now begun to sound the all clear. The statement it released after its policy meeting on June 24th notably omitted the warning from its three prior meetings that “inflation could persist for a time below rates that best foster economic growth and price stability”. To be sure, with the economy gradually finding a bottom and the rate of decline in home prices slowing, the chances of a downward spiral of deflation and economic activity have diminished. Yet it seems premature to write off the threat as long as a large output gap persists. Read the rest of this entry »

The original article is available here.

The Federal Reserve weighs plans to unwind its unconventional stimulus

Illustration by S. Kambayashi

A FIREFIGHTER’S first rule of survival is “know your way out”. The same can be said of financial firefighting. Though it has no intention of exiting soon, the Federal Reserve is planning its path out from the extraordinary measures it has taken to free credit markets and boost demand. Read the rest of this entry »

The original article is available here.

William Dudley, president of the Federal Reserve Bank of New York, speaks with The Economist about quantitative easing and exit strategies

Q: Treasury yields are up sharply in the past few weeks. Why?

A: The economy is looking less dark so people are taking away the Japanese deflation scenario. Basic financial conditions have generally eased quite a bit in the last six weeks. If you thought the equilibrium funds rate was wildly negative six weeks ago, it’s not so negative anymore. I don’t know if the economy has turned out better than forecast, but the adverse tail has diminished significantly. The risk of the banking system melting down, the deflation outcome, has very much diminished. And supply is enormous. Another thing of course is the mortgage market, which has its own dynamics: rates go up, duration extends. The third reason is some uncertainty by some people about the whole exit from all these programmes and the possible inflationary consequences of that. Read the rest of this entry »

The original story is linked here.

Inflation is bad, but deflation is worse

MERLE HAZARD, an unusually satirical country and western crooner, has captured monetary confusion better than anyone else. “Inflation or deflation,” he warbles, “tell me if you can: will we become Zimbabwe or will we be Japan?”

How do you guard against both the deflationary forces of America’s worst recession since the 1930s and the vigorous response of the Federal Reserve, which has in effect cut interest rates to zero and rapidly expanded its balance-sheet? Read the rest of this entry »

 The original story is linked here.

The simple rules by which central banks lived have crumbled. A messier, more political future awaits

Illustration by Derek Bacon

IN THE world that existed before the financial crisis, central bankers were triumphant. They had defeated inflation and tamed the business cycle. And they had developed a powerful intellectual consensus on how to do their job, summarised recently by David Blanchflower, a member of the Bank of England’s monetary policy committee, as “one tool, one target”. The tool was the short-term interest rate, the target was price stability.

This minimalist formula fitted the laissez-faire temper of the times. A growing array of financial markets could price risk and allocate credit efficiently. Central bankers had merely to calibrate their interest-rate tools and all other markets would automatically adjust. Central banks still cared about financial stability and full employment, but could argue these were best served by stabilising prices—without, if you please, interference from politicians.

The financial crisis has upended all that. Read the rest of this entry »

Managing Crisis, Fed Chief Dulls Notion That Turmoil In Market Leads to Rate Cut