Bumpy Roads

By |2018-12-27T07:16:42-05:00December 27th, 2018|Global Market Update|

Have you ever been on a long drive down a bumpy road? Photo: Valley Isle Excursions. Source: Flikr. CC-BY-2.0 As a newly-minted driver some umpteen years ago, I never understood why my parents always told me to slow down while driving on roads that got a little rough. It felt fine to me. To be honest, the chop and rattle could be a little exhilarating, a break from the monotony of long, straight, flat highways in the Midwest. But now that I’m a little [...]

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Navigating by the Stars

By |2018-08-27T05:45:53-05:00August 27th, 2018|Global Market Update|

Where is the Fed taking our economy? Public Domain. Source: NASA In a widely-anticipated speech at the Fed’s annual conclave in Jackson Hole, Wyoming, Chairman Jerome Powell discussed how he and the Fed Board of Governors see their role as policy-makers in a dynamic economy. He described the economy as having three natural rates: the natural rate of unemployment, the natural rate of inflation, and the natural rate of interest above inflation: u-star, pi-star, and r-star. These three “stars” remain fairly steady in any [...]

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The Essential Federal Reserve

By |2017-07-17T12:21:27-05:00March 15th, 2017|Global Market Update|

Has the Fed become irrelevant? FOMC Meeting. Public Domain. Source: Philadelphia Fed In case you hadn’t noticed, the Fed is raising rates today. We’ve come a long way from the rock-star Greenspan era – where observers tried to guess which way Fed policy was headed by the girth of The Great One’s briefcase, and markets hung on his every word. Now, with quarterly dot-plots and press conferences, we’re awash in information. By trotting out Fed Governors and Presidents at every opportunity to give interviews [...]

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The Tyranny of Norms

By |2017-07-17T12:21:46-05:00August 24th, 2016|Global Market Update|

Will the economy ever get back to normal? Source: New York Fed Fed officials keep telling us what they want. But that’s not their job. The Fed was established to support the banking system—to serve as bankers to the bankers. Part of that job involves managing bank reserves, the money supply, and short-term interest rates. The 1978 Humphrey-Hawkins legislation specifically instructed the Fed to pursue two goals: full employment and price stability. This is sometimes called the Fed’s “dual mandate.” So it is understandable [...]

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Reforming Money, Tightening Money

By |2017-07-17T12:21:46-05:00August 23rd, 2016|Global Market Update|

Are money markets doing the Fed’s job? Photo: Jon Sullivan. Source: Public Domain Images The Fed is in Jackson Hole this week, discussing how to design a monetary policy framework that enhances the global economy. Luminaries from all over the world will be there—from other global central bank leaders to politicians to academics. On Friday, Janet Yellen will speak, and she is expected to offer some hints as to how she—and by extension, the rest of the Fed—sees the economy, and where Fed policy [...]

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Bankers to Bankers

By |2017-07-17T12:21:51-05:00August 16th, 2016|Global Market Update|

What do central banks do? Eccles Building in Washington, DC. Source: Wikipedia The Federal Reserve was formed in 1914 as a way to stabilize the banking system. The late 19th century had been plagued by a series of financial panics and stock market crashes, topped off by the Panic of 1907. This was headed off by J.P. Morgan and a consortium of bankers, who set themselves up as lenders of last resort to banks that were in trouble. Newspapers at the time repeatedly reported [...]

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The Irrelevant Federal Reserve

By |2017-07-17T12:21:55-05:00June 16th, 2016|Global Market Update|

What if they had a Fed meeting and nobody cared? Janet Yellen at her press conference. Source: Federal Reserve The FOMC had been trying to talk up rates for the past two months. Some notable policy doves were commenting that the market had it wrong—that interest rate expectations were too low, and that we should expect two or three rate hikes this year. Even Chair Yellen got in on the act. In May, she noted that long as the economy continues on-track, the Fed [...]

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Federal Reserve Reservations

By |2017-07-17T12:21:57-05:00May 16th, 2016|Global Market Update|

Federal Reserve Reservations It’s all good. Eric Rosengren, President, FRB Boston. Source: FRB Boston That’s what Eric Rosengren, President of the Federal Reserve Bank of Boston assured about 150 business leaders from the Concord area last week. Rosengren has spent his entire career and the Boston Fed. He got a BA from Colby College and a Ph.D. from the University of Wisconsin – Madison in economics. He joined the Fed as an economist right out of graduate school, and ran the research department as [...]

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Helicopter Money (Part 2)

By |2019-02-20T13:04:45-05:00April 27th, 2016|Global Market Update|

What’s wrong with helicopter money? Photo: Eric Salard. Source: Wikimedia “Helicopter money” is money created by the central bank so that the government can spend it. It typically happened during wartime: the government unmoors the currency from a gold or silver standard, and the central bank credits the government’s financing agency the funds. Governments do this when their very existence is threatened, when war or insurrection require them to raise a large army and buy a lot of material. The result is always inflation: [...]

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Helicopter Money (Part 1)

By |2017-07-17T12:22:00-05:00April 26th, 2016|Global Market Update|

What is helicopter money? Photo: BegoBego. Source: Morguefile “Helicopter money” is a concept first floated fifty years ago by Milton Friedman, where he proposed – theoretically – that the government fly over a community and drop thousands of dollars, financed by the central bank. What would that do to the economy, he wondered. This notion was revived by Ben Bernanke in 2002 when he gave a speech on preventing Japan-like deflation here in the United States. The speech earned him the nickname “Helicopter Ben.” [...]

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