Marking Beliefs to Market, Stan Fischer edition
I cannot help but note strong divergence between the near-consensus views of Fed Chair Janet [Yellen]’s and Fed Vice-Chair Stan [Fischer]’s still-academic colleagues and students that tightening now is grossly premature, financial markets’ agreement with the hippies as evidenced by the ten-year breakeven, commercial-banker and wingnut demands for immediate tightening, the extraordinarily awful performance since 2007 of not all but the average regional Fed president as revealed in the transcripts, and the Federal Reserve’s strong predisposition to an interest-rate liftoff soon.
Prolix but accurate, and with the strong implication that Yellen and Fischer Know Better, but are constrained by their cohort.
Stan Fischer, Saturday morning (via Mark Thoma, whose presentation is more accurate and informative):
[B]ecause monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening.
As I said before—to the apparent dissatisfaction of those who want to be polite losers or believe that “well, they’re saying the right things now” is redemptive and not damning— who of the Sensible Technocrats is worth the trouble of paying attention to when they have a chance to do something in government and make a point of forgetting everything they have learned?
The “we can’t wait until inflation is 2%” meme may be founded on an outdated expectation that in the absence of some sudden and unforeseen political shock, inflation could just shoot up into really large numbers at any time.
I’m not sure that is a relevant concern anymore.
The problem is that the economy hasn’t responded to monetary stimulus in the way expected…It has goosed the stock market but done relatively little for the “real” economy. Both the hawks and doves seem to be prisoners of their internal thinking that the extended and unprecedented levels of stimulus are JUST ABOUT going to have either their intended effect (boosting the real economy) or their unpleasant side effect (a rapid increase in the CPI) When you have a hammer, everybody is wearing a nail-shaped hat. Because the money supply is the only real tool that the Fed has, they’re inclined to think that it is a powerful tool But it appears that monetary stimulus is simply not having the effect on the economy that it used to.
Instead of insisting that recovery or inflationary spiral are “just around the corner,” because their models say that they are, they should be trying to figure out WHY they haven’t happened already after years of stimulus. Is there either a different way of boosting the real economy or a way of making monetary stimulus more effective? THAT would seem to be a better use of their time and brain-power than arguing over exactly how much ineffective stimulus to give the economy.
True, but maybe the market should be goosing a bit. Looks like real gdp has risen to 3.1% since the 2nd quarter of 2014.
I think markets get caught in trades and struggle to adjust until they basically are left full in the face of whats going down. A weak China/low oil world needs to readjust and speculate……….errr I mean buy shares in that economy.