There isn’t much going on today. All the breathless excitement from the Mueller investigation came yesterday, the president of Catalonia escaped to Brussels, and Trump is dragging out the Fed Chair announcement. I’m going to do a quick write up with the Taylor Rule and the assumptions made by the San Francisco Federal Reserve (I’ll post it later), but see if you can win!
- See if you can set monetary policy better than the Fed. I got 4.49% unemployment and 2.36% inflation. SF Federal Reserve
- Tyler Cowen, my favorite economist, on Trump and the Fed decision. Bloomberg
- Despite additional PBOC measures, Chinese treasuries down. Yields highest since 2014. Nasdaq
- As much as we love the Powell/Yellen/Taylor race, the succession at the PBOC may be infinitely more important. Nikkei Asian Review
- Long form interview with ECB Executive Board Member Benoît Cœuré. ECB
I’ve been talking a lot about Taylor and his eponymous rule lately. I’ve made a point of saying all along that I think Yellen gets renominated for Fed Chair, but those arguments all basically apply to Powell also. I’ve been looking at FOMC voting patterns to see if Powell is even a hair more hawkish or dovish than Yellen, and I found something interesting. No Fed Governor has dissented since the June 2012 meeting (Powell’s first).
Continue reading “The Board of Governors voted unanimously”
Political Risk on the agenda today: Paul Manafort being charged with stuff, Bundesbank is annoyed about QE, and Catalonian independence marches on.
- Former Trump campaign manager, Paul Manafort, told to turn himself in. This is a bit of style drift, but it’s important. CNN
- The most interesting thing about BOJ meetings is how many different ways they can talk about not doing anything. ForexLive
- I can’t believe they don’t throw a press conference at the end of every Fed meeting … although I also run a website about the FOMC. MarketWatch
- Cracks in Europe. Catalan officials only face 30 years in jail for Rebellion … not bad. BBC
- Cracks in Europe. Germany says they hate open-ended quantitative easing. Seattle Times
What should interest rates be now?
stir = π+ r* + 0.5(π – 2%) + 0.5(y – y*)
Continue reading “The Taylor Rule, part 2”
Big day for Catalonia. I don’t know how we got to this place in Spain. It seems like the Catalans have been threatening to leave for as long as I can remember. Spanish bonds are down (obviously) and yet the ECB is continuing to tighten. Political risk is a real thing, guys.
- Catalonia parliament votes to become independent. CNBC
- Trump gets to fill more FOMC seats than any president since Woodrow Wilson. Daily Reckoning
- PBOC testing demand for more easy money. Bloomberg
- Mnuchin talking about the tax plan. FT
- The Euro and European bonds are getting smushed. Reuters
Am I extra attuned to it recently, or is there a TON of talk about inflation these days? The BOJ doesn’t care about low inflation, the Philly Fed says some inflation goes away because stuff is free online, and Yellen is talking specifically about changing inflation expectations. Weird.
- Don’t bet on Trump’s Fed pick to really move the bond needle. FT
- “No need to take excessive steps to meet price target.” Reuters
- The ECB decision is exactly what they said it would be. CNBC
- Measuring the “Free” Digital Economy. Philadelphia Fed
- Did Yellen dent the Fed’s credibility on inflation? Bloomberg
I linked to this piece in the Links post the other day, but I wanted to dive into it a little more thoroughly, as it pertains to the the Fed Chair, Monetary Policy, etc.
I’ll talk a little about my questions regarding internal Fed politics (maybe too much), and then look at former Fed Governor Tarullo’s white paper “Monetary policy without a working theory of inflation”. He offers some really good insight into the policy and projection making practices at the fed.
Continue reading “Former Fed Governor Tarullo doesn’t much care for models based on inflation.”
Ooo! Trump asked Republicans what they think of the candidates! Ooo!
I like to think that he did this like we did in grade school where your teacher doesn’t want the popular kids to influence the vote. “Everybody put your head down and close your eyes. If you think Jerome should be Fed Chair, please raise your hand. Mitch, please stop peeking.”
- Trump asked for Senate show of hands on who he should make Fed chair. CNBC
- Co-Fed Chairs? That sounds like a terrible idea … MarketWatch
- Brazil should be fine with Fed tightening because severe recession lowered inflation. Reuters
- Regulation leading to consolidation? Fewer financial institutions and size of financial sector larger. ECB
- Model assumptions may be leading the ECB to being too dovish. Bank of Finland
Continue reading “Links – 2017.10.25”
The media seems to think that if Yellen is re-nominated as Fed Chair, stocks will skyrocket … but there’s probably not as much difference between potential Chairs as we think.
During a speech last week, Yellen acknowledged that even a little downturn, which would necessitate a few percentage points of easing under “normal” circumstances, could require additional use of “unconventional” monetary policy. Obviously, this is true … if your main weapon is to lower rates, and rates are near zero, you have to find another weapon.
Continue reading “Are the potential nominees that different?”
A few thoughts on the top four candidates for Fed Chair. I was going to do the top six, but the prediction markets are giving the top four 85% chance to win this thing.
Continue reading “Musical Chair”