Tag Archives: central banking

Fed to shrink assets next month, boost rates by year-end

Source: Bloomberg

"Federal Reserve officials set an October start for shrinking their $4.5 trillion stockpile of assets, moving to unwind a pillar of their crisis-era support for the economy. They continued to forecast one more interest-rate hike later this year, saying storm damage will have only a temporary impact on the economy. … U.S. central bankers are counting on steady growth and low unemployment to raise inflation closer to their goal, which would support their policy of gradual tightening through interest-rate increases and a reversal of quantitative easing." (09/20/17)


How we know eurozone monetary policy is working again

Source: Cobden Centre
by Benn Steil

"In 2013, I showed that the ECB’s monetary transmission mechanism had broken down in the crisis-hit periphery countries. ECB rate cuts were not being passed on to rate cuts on new loans to businesses. Perhaps the strongest sign that the crisis has ended is that this mechanism has now been restored in the periphery countries. In fact, the link between ECB rates and the rates banks charge on new business loans is now, on average, considerably stronger in the periphery than in the core …. The turning point was the ECB’s June 2014 announcement of a negative deposit rate and cheap long-term loans to banks—known as targeted longer-term refinancing operations, or TLTROs. This is because these new measures have disproportionately benefited periphery banks." (09/19/17)


Money multiplier is really about credit out of "thin air"

Source: Cobden Centre
by Dr. Frank Shostak

"According to traditional economics textbooks, the current monetary system amplifies the initial monetary injections of money. The popular story goes as follows: if the central bank injects $1 billion into the economy and banks have to hold 10% in reserve against their deposits the initial injection of $1 billion will become $10 billion i.e. money supply will expand by a multiple of 10. Note that in this example the central bank has actively initiated monetary pumping of $1 billion, which in turn banks have amplified to $10 billion. Economists from the post-Keynesian school of economics (PK) have expressed doubt about the validity of this popular framework of thinking." (09/13/17)


See no evil, speak no evil …

Source: Cobden Centre
by Alasdair MacLeod

"The Jackson Hole speeches of Janet Yellen and Mario Draghi last week were notable for the omission of any comment about the burning issues of the day: Where do the Fed and the ECB respectively think America and the Eurozone are in the central bank induced credit cycle, and therefore, what are the Fed and the ECB going to do with interest rates? And why is it still appropriate for the ECB to be injecting raw money into the Eurozone banks to the tune of $60bn per month, if the great financial crisis is over? Instead, they stuck firmly to their topics, the Jackson Hole theme for 2017 being Fostering a dynamic global economy. Both central bankers told us how good they have been at controlling events since the last financial crisis." (09/08/17)


White House list for Fed chair lengthens to six

Source: Financial Review [Australia]

"The White House is considering at least a half-dozen candidates to be the next head of the Federal Reserve, including economists, executives with banking experience and other business people, according to three people familiar with the matter. The breadth of the search goes against the narrative that has taken hold in Washington and on Wall Street that the Fed chair nomination is a two-horse race between National Economic Council Director Gary Cohn and current Fed chair Janet Yellen, whose term expires in February." (09/07/17)


Fed vice chairman Fischer to resign for "personal reasons"

Source: Chicago Tribune

"Federal Reserve Vice Chairman Stanley Fischer will resign next month for personal reasons, leaving a fourth vacancy on the seven-member Fed governing board. Fischer is a widely-respected economist who taught at MIT and was head of the Bank of Israel for eight years. His unexpected departure adds to a leadership vacuum at the top of the Fed as it navigates a difficult path. Fischer, 73, was a close confidant of Fed Chair Janet Yellen, whose own term ends in February." (09/06/17)


Why did Yellen defend Fed's regulatory failure?

Source: Investors Business Daily
by staff

"News flash! Janet Yellen just submitted her resignation from the Fed. Well, not exactly. But based on her remarks about post-financial crisis regulation of the banking system, she might as well have. Yellen, speaking at the Fed's annual conference in Jackson Hole, Wyo., strongly defended the post-2008 financial crisis regulatory response and suggested that it had actually been a boon to the economy, rather than a bane. 'The balance of research suggests that the core reforms we have put in place have substantially boosted resilience without unduly limiting credit availability or economic growth,' Yellen told conference attendees. More than one news outlet noted that Yellen's views are starkly at odds with those of President Trump, who has repeatedly criticized the Dodd-Frank financial reforms for hurting small businesses and crimping credit. Given that Yellen's time as Fed chair expires in February, her remarks may be tantamount to a resignation." (08/25/17)


Just how political is the Fed?

Source: EconLog
by Scott Sumner

"The Fed likes to portray itself as being a bunch of selfless, well-meaning technocrats, who faithfully try to carry out the mandate they have been given by Congress. Is this true, or has the Fed been politicized?" (08/23/17)


How Rand Paul can free Americans from the Fed

Source: Ludwig von Mises Institute
by Tho Bishop

"When pushed to defend the lack of transparency for the Federal Reserve, officials like Janet Yellen and Treasury Secretary Steve Mnuchin point to the myth of the Fed independence — a position that requires outright ignorance of the history of America’s central bank and the executive branch. Of course it’s quite usual for the Senate to base the merits of legislation entirely off of fallacious arguments, so they have continued to be the legislative body holding up a Fed audit with little indication they are prepared to move. Given that reality, it is time for Senator Rand Paul to change his approach and introduce another piece of legislation from his father’s archives: the Free Competition in Currency Act." (08/23/17)


Austrian monetary theory vs. Federal Reserve inflation targeting

Source: Future of Freedom Foundation
by Richard M Ebeling

"One of the leading policy guideposts for central banks and many monetary policy proponents nowadays is the idea of 'inflation targeting.' Several major central banks around the world, including the Federal Reserve in the United States, have set a goal of two percent price inflation. The problem is, what central bankers are targeting is a phantom that does not exist. Perhaps we can best approach an understanding of this through an appreciation of some of the writings by members of the Austrian School of Economics on matters of monetary theory and policy." (08/21/17)