The (In)Effectual Fed?

By | 2017-07-31T07:40:57+00:00 July 31st, 2017|Global Market Update|

What good is the Fed? Federal Open Market Committee. Public Domain. Source: Federal Reserve The conventional wisdom is that the Fed controls the economy in the short run by controlling short-term interest rates. But folks didn’t always think this way. In the ‘60s and ‘70s Keynesian economists thought that interest rates only had a tiny effect on spending, and therefore a minimal impact on the economy. Then came Paul Volker. He made ending inflation the goal of Fed policy, and he did this by [...]

The Dangers of Success

By | 2017-07-17T12:21:33+00:00 December 21st, 2016|Global Market Update|

The Dangers of Success What happened to “The Maestro”? Public Domain. Source: IMF Alan Greenspan chaired the Federal Reserve from 1987 to 2006. He’s a fascinating character: a mostly self-taught economist, a jazz clarinet player, a policy advisor and skilled political operator. He understood how political power ebbs and flows, and used that understanding to direct Fed policy for almost 30 years—an eternity in Washington. His greatest success came when he successfully intuited that productivity was growing much faster in the mid-‘90s than initially [...]

Dissent and Dysfunction?

By | 2017-07-17T12:21:42+00:00 September 22nd, 2016|Global Market Update|

Does the Federal Reserve need to do some team-building? Federal Reserve “Dot Plot.” Source: Federal Reserve As expected, the Fed did not increase their interest rate target. Instead, they decided to wait for further progress in the economy. In her prepared remarks, Janet Yellen emphasized that their decision doesn’t reflect a lack of confidence in the economy. Rather, she noted, the pace of hiring in the labor market seems to have slowed, and inflation is still running below 2%. In their projections for economic [...]

Wagging the Dog

By | 2017-07-17T12:22:08+00:00 February 16th, 2016|Global Market Update|

Wagging the Dog Where does finance fit into the economy? Photo: David Whelan. Source: Morguefile Time was that the real economy was considered the dog and the financial economy the tail. Except for an occasional bubble, the tail didn’t wag the dog. What people ate and how they dressed was critical; how the saved and where they invested wasn’t. Now it’s not so clear. The world produced about $80 trillion in goods and services in 2015. At the same time, public and private markets [...]

Fed To Markets: Never Mind

By | 2017-07-17T12:22:10+00:00 January 29th, 2016|Global Market Update|

Fed To Markets: Never Mind Photo: NBC Television. Source: Wikipedia When I read the latest policy statement coming out of the Fed on Wednesday, I was reminded of how the character Emily Litella from Saturday Night Live would always close our her commentary: “Never mind.” This is a critical time for the Fed. Their very legitimacy has been called into question. So they’ve been trying to guide the markets, to make sure we aren’t blindsided by a sudden action. Some Fed Ph.D. must have [...]

“We Have Liftoff”?

By | 2017-07-17T12:22:19+00:00 December 7th, 2015|Global Market Update|

“We Have Liftoff?” What happens when the Fed starts to raise rates? Photo: Kim Shiflett. Source: NASA Many investors are worried about the value of their bond portfolios. When interest rates rise, bond prices fall. It’s simple mathematics: bonds have a contractual future payment stream, and that payment stream isn’t worth as much when the discount rate rises. With the Fed now poised to raise rates, their portfolios may be at risk. As a result, many investors have shifted to short-term bonds, because short-term [...]

Golden Fetters?

By | 2017-07-17T12:22:20+00:00 November 24th, 2015|Global Market Update|

Every few years someone suggests we return to a gold standard. Source: Pixabay It’s an election year, so discussions about money, the Fed, deficits, debt, and the gold standard are bound to come up. For millennia gold served as medium of exchange, unit of account, and store of value. As the densest material in the world, it’s fairly easy to determine its purity. Politicians often suggest tying the currency to something—in order to restrain the government’s ability to print money at will. But economists [...]

Getting Fed Up

By | 2017-07-17T12:22:20+00:00 November 18th, 2015|Global Market Update|

Getting Fed Up What is the Fed? Photo: Tania Thompson. Source: Shutterstock For most people, the Federal Reserve is this mysterious place that makes mysterious announcements and that tells the banks where to set interest rates. Academics and politicians may rail at the Fed for various reasons, but their debates often sound like medieval scholastics debating how many angels can dance on the head of a pin: interesting but irrelevant. The Fed is an essential part of our financial infrastructure—the banker’s bank—that keeps things [...]

Central Banker to the World

By | 2017-07-17T12:22:26+00:00 September 18th, 2015|Global Market Update|

What is the Fed’s role? F15s and F16s over Kuwait, 1991. Photo: USAF. Source Wikipedia Yesterday the Fed decided to keep interest rates near zero. It was a tough call. Employment has improved by more than the Fed expected, but inflation has moved away from the Fed’s target. Economists were evenly divided as to whether they would or even should raise rates this meeting. In their statement, they comment that “recent global economic and financial issues may restrain economic activity.” Janet Yellen reinforced this [...]

Chair and Vice Chair: Happy Together?

By | 2017-07-17T12:22:27+00:00 September 15th, 2015|Global Market Update|

What is the role of the Fed’s Vice Chair? Fed Eccles Building, Washington, DC. Photo: APK. Source: Wikipedia. CC BY-SA 3.0 When the stock market crashed in 1987, the Fed’s Vice Chair Jerry Corrigan called newly confirmed Chair Alan Greenspan and told him, “Alan, there’s a crisis, and you’re it!” They quickly agreed to call an emergency meeting, after which the Committee issued a statement affirming “their readiness to serve as a source of liquidity to support the financial system.” This assured the markets [...]