tag:blogger.com,1999:blog-6616959642391988608.post4547363585287968586..comments2024-03-28T00:18:25.641-07:00Comments on Calafia Beach Pundit: The Fed's game plan: it's all about the demand for moneyScott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.comBlogger16125tag:blogger.com,1999:blog-6616959642391988608.post-38499730693460557152015-06-26T07:55:57.182-07:002015-06-26T07:55:57.182-07:00When I look at this rate hike cycle I see a lot of...When I look at this rate hike cycle I see a lot of political risk that was not present before. With IOER there is a high probability we will see populist politicians on the left and right arguing over how much interest can be paid through IOER, especially to foreign institutions. At what point does the rate on IOER pose a significant political risk? Hard to pin point for me but there is likely a Thinking Hardhttps://www.blogger.com/profile/11528747799967719972noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-26079814476384050492015-06-26T07:36:59.649-07:002015-06-26T07:36:59.649-07:00Benjamin: Yes, inflation expectations in the bond ...Benjamin: Yes, inflation expectations in the bond market are subdued. But the Fed can't always drive monetary policy by looking in the rearview mirror. It needs to anticipate things. As Milton Friedman explained, monetary policy acts on the economy with long and variable lags. The Fed can't wait for inflation to rise in order to then tighten policy.<br /><br />I'm focused on the signsScott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-40039914438779329972015-06-26T07:29:01.606-07:002015-06-26T07:29:01.606-07:00Tim: Explaining, much less predicting, currency mo...Tim: Explaining, much less predicting, currency movements is difficult. But here's my two cents. The dollar strengthened from '94 to '02 because 1) the U.S. economy enjoyed rather healthy growth, and 2) the Fed was actively trying to slow the economy (because it worried that strong growth might prove inflationary) throughout the period, keeping the real Fed funds rate between 3 and Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-14953155929807411322015-06-25T21:31:05.689-07:002015-06-25T21:31:05.689-07:00Why did the dollar go so high from 94 to 2002. Wha...Why did the dollar go so high from 94 to 2002. What made it decline after 2002. I would like to read about it if someone can direct me to a historical record. Thanks.Anonymoushttps://www.blogger.com/profile/09388308734042732343noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-59919912133775153932015-06-25T20:26:00.490-07:002015-06-25T20:26:00.490-07:00Cleveland Fed Estimates of Inflation Expectations
...Cleveland Fed Estimates of Inflation Expectations<br /><br />News Release: June 18, 2015<br /><br />The Federal Reserve Bank of Cleveland reports that its latest estimate of 10-year expected inflation is 1.82 percent. In other words, the public currently expects the inflation rate to be less than 2 percent on average over the next decade.<br /><br />The Cleveland Fed’s estimate of inflation Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-16106372668267147812015-06-25T19:50:32.611-07:002015-06-25T19:50:32.611-07:00Scott:
Earlier you posted charts showing the mark...Scott:<br /><br />Earlier you posted charts showing the market expects inflation below target for the next 10 years, at less than 2% on the CPI (although the Fed targets the PCE, which is running even lower). If that is true, is the Fed being "too easy"? <br /><br />If markets expect inflation running below target for the next 10 years, how can the Fed be "too easy"?<br /><br Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-11988627177221926492015-06-25T12:33:55.866-07:002015-06-25T12:33:55.866-07:00Thinking Hard: I suspect the forex markets are alr...Thinking Hard: I suspect the forex markets are already priced to the expectation that the Fed will raise rates sooner, and perhaps more than, other central banks. That would explain the dollar's substantial strengthening in the second half of last year. Is this a bad thing? I don't think so. The dollar is only moderately stronger, adjusted for inflation, than its long-term average againstScott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-69817086595185025432015-06-25T12:19:19.217-07:002015-06-25T12:19:19.217-07:00William: It's unfortunate, but I believe one r...William: It's unfortunate, but I believe one reason the Fed is reluctant raise rates is that it is composed of humans, and humans aren't perfect. I'm sure they worry that if they raised rates at a time when the economy is not particularly strong and inflation is quite low, and then something went wrong, they would be blamed. They would dearly like to see some stronger economy news to Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-35849401021646892412015-06-25T11:58:23.980-07:002015-06-25T11:58:23.980-07:00Scott thank you again for the detailed explanation...Scott thank you again for the detailed explanation. You wrote: "The Fed can raise rates by hundreds of basis points without damaging the economy or threatening the health of financial markets, because higher rates will be a natural response to a stronger economy and a decline in the demand for money."<br /><br />So what do you believe are the real reasons that the FED hasn't raised Williamhttps://www.blogger.com/profile/04418491109912775561noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-1035000363406022732015-06-25T09:45:53.578-07:002015-06-25T09:45:53.578-07:00Scott - What impact do you see overseas from raisi...Scott - What impact do you see overseas from raising IOER? Raising it too far or too fast will likely create an arbitrage opportunity that outweighs any short to mid term sovereign debt in many areas. Will this impact create a theoretical ceiling on IOER because of the potential negative externalities in overseas economies and markets?<br />Thinking Hardhttps://www.blogger.com/profile/11528747799967719972noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-53613496608988533262015-06-25T08:18:47.195-07:002015-06-25T08:18:47.195-07:00Alter: Conceptually, I suppose what happened was s...Alter: Conceptually, I suppose what happened was similar to a run on the banks. Too many people wanted to sell, and there were not enough buyers. Too many people wanted to shift from holding risky assets to holding cash and cash equivalents, and there weren't enough people willing or able to do the opposite. Almost overnight, the world wanted more cash and cash equivalents than existed. Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-23860674810830808762015-06-25T08:02:23.474-07:002015-06-25T08:02:23.474-07:00“The Federal Reserve’s primary tool for conducting...“The Federal Reserve’s primary tool for conducting monetary policy prior to the financial crisis was to raise or lower the federal funds rate via open market operations that changed the amount of reserves outstanding. However, this mechanism became inadequate during the Great Recession, as both employment and inflation remained below targets even though the FOMC had reduced the federal funds rateThinking Hardhttps://www.blogger.com/profile/11528747799967719972noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-74256451153422657332015-06-25T07:47:35.792-07:002015-06-25T07:47:35.792-07:00Scott,
"The problem was that the world sudde...Scott,<br /><br />"The problem was that the world suddenly wanted a lot more money and money substitutes (e.g., cash, bank savings deposits, T-bills) than were available"<br /><br />Why weren't they available? Is this because of fractional reserves?<br /><br />Thanks.Johnhttps://www.blogger.com/profile/08240666361923978620noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-70077291285966479552015-06-25T07:38:11.715-07:002015-06-25T07:38:11.715-07:00Benjamin: the Fed does not "print or digitize...Benjamin: the Fed does not "print or digitize money" when it buys bonds. It buys bonds from primary dealers and credits their account (at the Fed) with bank reserves. To the extent that the primary dealers buy bonds from other banks, they can pay for those bonds with reserves. Scott Grannishttps://www.blogger.com/profile/14028519647946868684noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-36036297868149486402015-06-24T23:25:43.333-07:002015-06-24T23:25:43.333-07:00Scott- nice post but you make a fundamental error....Scott- nice post but you make a fundamental error. <br /><br />"Banks have taken in almost $4 trillion of savings deposits since late 2008, and instead of lending all that money to the private sector, they lent most of it to the Fed, receiving bank reserves in exchange. (In practice, banks used their deposit inflows to purchase notes and bonds which they then sold to the Fed, which the Fed Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-6616959642391988608.post-2351631154154360442015-06-24T16:59:12.382-07:002015-06-24T16:59:12.382-07:00Scott, as always, thank you for taking the time to...Scott, as always, thank you for taking the time to share your thoughts.Cabodoghttps://www.blogger.com/profile/08299113185481067179noreply@blogger.com