Despite the widely-held view that the Fed will lower the Federal funds rate another 25 basis points this Halloween, some continue to argue against further reductions. We’ve taken that position here before, and will recap some of the reasons. The 50 basis point cut in September was a pre-emptive strike, based not on evidence of […]
Read more...Bernanke is hoist on his own petard. He and the members of the FOMC had hoped that their dramatic cut in the Fed funds rate in September would be enough of a balm to the markets to give them more policy latitude in later months. Instead, the markets took it as a signal that Uncle […]
Read more...Even though I have said some unkind things about the Economist, once you get outside the world of politics, it is a very good guide to leading edge conventional wisdom. What do I mean by “leading edge conventional wisdom?” It is the sort of thinking dispensed by well regarded think tanks and private sector experts […]
Read more...I’m late to a very useful tidbit on the structured investment vehicle front, and will also provide an update on the continuing skepticism regarding the proposed rescue plan, the Master Liquidity Enhancement Conduit, the MLEC (aka The Entity). The Financial Times via its Alphville blog, provided a chart and some commentary on SIVs from the […]
Read more...By an interesting happenstance of timing, Barclays and the Royal Bank of Scotland have announced the establishment of $30 billion of facilities between them from the Federal Reserve. The Fed approved this move 10 days ago but it came to light only over the weekend. Both banks said these applications were unrelated to the SIV […]
Read more...At the Economics Club of New York, Fed chairman Benjamin Bernanke, gave a nuanced speech about the economy (meaning he showed as few cards as possible without pulling a Greenspan of hiding behind tortured sentence structures). But nevertheless a few revealing statements were made. The Wall Street Journal and Bloomberg both focused on his cautionary […]
Read more...In a fine comment in today’s Financial Times, Wolfgang Munchau argues that central bankers need to straighten out our current credit mess, since they created it in the first place. He argues that many of the alleged causes are actually secondary, and the underlying source was negative real interest rates, which is guaranteed to produce […]
Read more...“SOS to the SEC,” from the New York Post: Did Federal Reserve Chairman Ben Bernanke give away any secrets to Treasury Secretary Hank Paulson when the two had an hour-long lunch on Aug. 16? And did Paulson share what he and Bernanke discussed with anyone in the hours immediately after that lunch?Those are two key […]
Read more...George Magnus, the UBS economist who popularized the term “Minsky moment,” has a thoughtful comment, “The credit crisis: why it is still too early to relax,” in today’s Financial Times. The article expresses doubts about the beliefs that undergird the current optimism in the financial markets, namely that the credit crisis is pretty much over, […]
Read more...Bill Gross. chief investment officer of bond investment giant Pimco, uses his monthly newsletter to tackle the question of whether the Fed and the Treasury really understand what they are up against. Although he reaches no definitive conconclusion, he suggests they have a bank-centric, and therefore badly outmoded, view of the world. We’ve raised this […]
Read more...Tim Duy, economics professor at the University of Oregon, posts from time to time on Mark Thoma’s blog, Economist’s View, and Fed watching is one of his favorite topics. His latest, “The Fed’s Next Move,” is particularly thorough and cogent. He goes through the case for further rate cuts and finds the consensus view, that […]
Read more...A couple of stories confirm that, despite the peppy response of the equity markets and the return to more-or-less upbeat reporting in the financial media, the Fed’s 50 basis point cut has not restored normalcy to the sector most in need of aid, namely, the money markets. Central bankers have limited and for the most […]
Read more...The president of the Philadelphia Fed, Charles Plosser, is tough on inflation. He is not a member of the FOMC until 2008, and is breaking rank with the official Fed view in expressing his worries about the risks of permissive monetary policy. Plosser argued prior to the Fed rate cut that a reduction wasn’t necessary; […]
Read more...Despite the lift the Fed’s rate cut gave to the stock and corporate bond markets, the commercial paper market remains in distress. While CP outstandings are still falling, which is not good, particularly given this month’s maturing CP is much greater than last month’s, the level of decline is not as severe as during the […]
Read more...The Fed’s unexpectedly large cut to the discount rate said loud and clear that its priority is domestic growth, not preserving the value of the depreciating dollar. Yet as we have pointed out, the dollar’s status is a tremendous asset for the US, not to be squandered. It gives us the ability to borrow in […]
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