Tag: george yacik

Well, what do you know? That precious Federal Reserve independence we keep hearing about turns out to be a crock.

That reality was exposed in the most blatant terms last week when William Dudley, just a year removed from his serving as the president of the Federal Reserve Bank of New York – the second most powerful position on the Fed, just below the chair – argued in a Bloomberg op-ed that the current Fed should do absolutely nothing to try to fix the economy if President Trump is hell-bent on destroying it through his tariff war with China. The Fed, he said, shouldn’t “bail out an administration that keeps making bad choices on trade policy, making it abundantly clear that Trump will own the consequences of his actions.”

But he went well beyond that, urging the Fed to use its monetary policy to help defeat Trump in the 2020 president election.

“There’s even an argument that the election itself falls within the Fed’s purview,” he said. “After all, Trump’s reelection arguably presents a threat to the U.S. and global economy, to the Fed’s independence and its ability to achieve its employment and inflation objectives. If the goal of monetary policy is to achieve the best long-term economic outcome, then Fed officials should consider how their decisions will affect the political outcome in 2020.”

Thank you, Mr. Dudley, for that admission. Some of us have suspected, Continue reading "That Precious Fed Independence" →

There was a profusion of communications and opinions from the Federal Reserve last week. The challenge now is to try to make sense of it all.

The first thing that caught my attention was the release of a survey conducted by the New York Fed measuring how well the Fed communicates its intentions to market makers. It didn’t do so well.

The bank found that a majority, or 15 out of 24, of the primary dealer banks that bid on U.S. Treasury debt auctions and make a market in government securities found the Fed’s communications prior to its July 31 decision to lower interest rates to be “ineffective” or close to it. “Several dealers indicated that they found communication confusing, and several characterized communications from various Fed officials as inconsistent,” the New York Fed said.

A similar survey of money managers found only slightly better results, with exactly half, or 14 of 28, giving the Fed “low grades for communications effectiveness.”

Then, at the Kansas City Fed’s annual “symposium” in Jackson Hole, Wyoming, Athanasios Orphanides, a professor at MIT, released a paper including suggestions on how the Fed can improve how it communicates its policy-making process. While the paper commends the Fed for increasing the amount of information it provides to the public over the past three decades – it surely has – there’s room for improvement in how it communicates that information. Specifically, Orphanides recommended that Fed members provide more details about their confidence or uncertainty in their various economic projections and how those might change given different scenarios or over time.

While all of the information the Fed already provides, and the prospect of more, is good in theory, the problem is that the Fed is providing too much information, which is creating more confusion and uncertainty, rather than less, about exactly where it stands collectively, while businesses, investors and consumers crave simple guidance on the direction of future Fed policy so they can make more intelligent decisions. Continue reading "The Fed's Tower Of Babel" →