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 Upside of Debt

By | 2017-07-17T12:21:46+00:00 August 19th, 2016|Global Market Update|

Is all this borrowing good for us? Source: St. Louis Fed A growing level of debt in an economy can be a good thing. By borrowing money to pay for capital, we can become more productive and everyone prospers. Think of the US borrowing massive amounts of money to build the interstate highway system in the ‘50s and ‘60s. The important thing to remember is that the return on investment has to be higher than the cost of the borrowing. That’s why today’s persistently [...]

Federal Reserve Reservations

By | 2017-07-17T12:21:57+00:00 May 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 [...]

Helicopter Money (Part 2)

By | 2017-07-17T12:22:00+00:00 April 27th, 2016|Uncategorized|

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: [...]

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 [...]

The Undersea World of Negative Interest Rates

By | 2017-07-17T12:22:22+00:00 October 28th, 2015|Global Market Update|

What happens when rates go under water? Source: NOAA Growing up, one of my favorite TV shows was “The Undersea World of Jacques Cousteau.” For an hour my family and I would sit in rapt attention, fascinated by the images of life in a coral reef, or under the polar ice cap, or even in a beaver pond. The series gave us a window into a strange, different world, where normal rules of gravity and body mass don’t apply—or, rather, apply in totally different [...]

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 [...]

Back to School / Back to Work

By | 2017-07-17T12:22:39+00:00 September 3rd, 2015|Global Market Update|

Will the start of the school year set monetary policy? Photo: Maria Bavuso. Source: Morguefile When I was growing up, schools opened after Labor Day. My brothers and I loved those last, lazy days of August—playing pickup football, or fishing, or just hanging out. And later, when I worked during the summer, I enjoyed earning one more week of extra spending money. I’m pretty sure our teachers appreciated that time as well. But as the school year has expanded and schools have built more [...]

Slacker Market

By | 2017-07-17T12:23:16+00:00 October 17th, 2014|Global Market Update|

How much slack is there in the labor market? Source: Wikipedia It depends what you mean by slack. Most people think the unemployment rate is a good measure of slack, and it’s intuitively appealing: divide the number of job-seekers by the number of people in the workforce, and that tells you what percent of people want to work, but can’t find a job. After falling for the last five years, the unemployment rate—currently 5.9%–is almost back to its post-World War II average of 5.8%. [...]