Category Archives: Federal Reserve

"Rate cutting will not get us out of this mess"

Wolfgang Munchau of the Financial Times provides an excellent and from what I can tell, overlooked argument against central banks’ eagerness to cut interest rates to shore up wobbly financial markets. His point is simple, and I am annoyed that I didn’t think of it. The reason that monetary authorities are so quick to lower […]

The Economist and Brad Setser on the Dollar

The Economist put “The Panic About the Dollar” on its cover, which led to a speedy and lengthy analysis by Brad Setser who along with Menzie Chin are probably the most active and best informed bloggers on the currency beat. Although the Economist isn’t what it used to be, the two pieces (the leader and […]

"Should the Fed raise interest rates?"

Willem Buiter, the London School of Economics political economy professor who blogs at the Financial Times, asks the provocative question in the headline above, and after a very length discussion, that they probably shouldn’t yet, but they most assuredly should not cut rates. But what is more interesting about this post, and I’ve excerpted those […]

Commercial Credit Dropping at Fastest Rate Since 1973

The New York Times is having a good week. Today, in “Lenders’ Belt-Tightening Stifles Growth in Economy,” Peter Goodman examines the recent sharp fall in credit extension to commercial enterprises, particularly small businesses. It’s a solid piece of reporting, and reading it, one wonders why the Federal Reserve’s Vice Chairman Donald Kohn didn’t allude to […]

The Newly Hawkish Fed’s Communication Problem

From time to time, Mark Thoma features the views of his University of Oregon colleague and Fedwatcher Tim Duy. Duy got his last call wrong. He genuinely believed the Fed would not cut, basically because not cutting was the right thing to do, and misread the FOMC’s sensitivity to market reactions, or to be less […]

Bernanke Acting as Shill for SIV Rescue Plan?

Bernanke may not be touting the SIV rescue plan with the media, but this article in Bloomberg (hat tip Eschaton) suggests that he is supporting the selling effort: Loomis Sayles & Co. declined to invest [in the SIV rescue plan] after receiving one of 16 invitations for a meeting earlier this month with current Fed […]

Fed Plans Year-End Injection of Long-Term Funds

For the most part, we don’t pay much heed to the Fed’s daily market operations since the vast majority of it relates to maturing repurchase agreements, and too many commentators focus on gross rather than net injections, which gives an illusory view of the Fed’s actions (yes, we could get to the bottom of this, […]

Larry Summers Warns of "Deepening Crisis"

While a number of analysts, investors, and commentators have said for some time that the credit crisis is serious and is likely to damage the real economy, the only views that the Fed takes seriously are those of highly regarded economists, fellow regulators, and senior industry executives (oh, and of course, that of Fed futures […]

Greenspan: "No Regrets"

Does being a former Fed chairman mean never having to say you’re sorry? In Oslo, Greenspan maintained that the housing bubble was not due to negative real interest rates in the US, but instead was a “global phenomenon.” He is thus arguing that housing price appreciation in various markets resulted from a common source that […]

Fed’s Gary Stern Makes Lame Arguments Against Increased Credit Market Regulation

Perhaps I am attributing too much importance to a single speech, but the Minneapolis Fed President Gary Stern’s “Credit Market Developments: Lessons for Central Banking,” reveals a lot of what is wrong about the way policymakers are thinking about our credit crisis. And if Stern’s position is widely held within the Fed, we are in […]

Tim Duy on the Fed’s New Hawkishness

University of Oregon professor Tim Duy is featured on Mark Thoma’s Economist’s View with his latest prognostication: “Fed Watch: Headed For Another Game of Chicken?“ Readers may recall that Duy provided a great analysis prior to the Fed’s last FOMC meeting, and concluded the Fed shouldn’t cut, which he took to mead the Fed wouldn’t […]

Fed’s Krozner Talks Down Rate Cuts; Goldman Talks Up Recession

Two contrasting stories on Bloomberg: Federal Reserve Governor Randall Kroszner made the most explicit statement by a Fed official to date, saying that further rate cuts aren’t needed to get the economy through its “rough patch.” Although Fed futures declined, the implied expectation of a rate reduction is 84%. Yesterday, Goldman’s chief economist Jan Hatzius […]

Dallas Fed Chief Talks of Sustainable Growth, Rising Inflation Risks

Members of the Fed officialdom are doing their best to preserve the Fed’s policy options (i.e, not cave in to market pressures at the next FOMC meeting) by talking down expectations of another rate cut. Dallas Fed President Richard Fisher, in Sydney, spoke of solid US economic fundamentals and increasing inflation risks. Note that Fisher […]

Currency Controls Implemented to Combat Dollar Fall

In a sign of increasing desperation, some central banks are imposing currency controls in an effort to arrest the dollar’s decline. Oddly, none of them seem to be taking the most direct measure, which would be to sell their own currency. This may be due to the fact that traditionally, the job of trying to […]

The Markets Raise Bet Bernanke Will Cut

Perhaps saying that the markets still “expect” the Fed to cut rates isn’t putting the right coloration on Fed futures prices, which imply another reduction in December. Comments in the press prior to the last FOMC meeting indicated that a big factor in the Fed’s thinking was that it didn’t want to upset markets. if […]