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  • Mark Thoma Sees SIgns of Coming Fed Action

    In his Money Watch column, Mark Thoma looks at the below graph and sees signs that the Fed will pursue further quantitative easing measures: Thoma writes: The Fed is very sensitive to and very fearful of deflation, and the fall in inflation expectations evident in the graph was one of the reasons the Fed decided to implement QE1. And as you can see from the graph, this (along with the other steps the Fed took at that time) turned the expectations around, at least for awhile. However, just before the dotted vertical line on the graph, expectations began falling again. What is the vertical line? It shows the point in time when QE2 was announced by Ben Bernanke (August 27 of 2010 at Jackson Hole, Wyoming), and once again inflation expectations turned around. However, notice that recently the trend has turned downward again and if this continues the Fed is likely to intervene once again. What do you see in the graph? Do monetary policy measures need to be taken? What are the lessons from QE1 and QE2? Read The Fed Is Laying the Groundwork for Further Easing here .

  • Mark Thoma Explains the Fed's Exit Strategy as Detailed in the FOMC Meeting Minutes

    Perhaps you read the minutes that were released yesterday from the FOMC's June meeting. Perhaps you didn't. If you didn't you may prefer to just skip the reading and watch Mark Thoma explain the Fed's exit strategy as detailed in the minutes. heck, even if you did read the minutes, you might find this explanation useful:

  • Long-Run Debt and The Intersection of Fiscal and Monetary Policy

    Mark Thoma thinks Alan Greenspan and Ben Bernanke were wrong to give their opinions about fiscal policy during Congressional testimony. But he does think that the Fed chair should address the effect of fiscal policy on monetary policy: That is, while I don’t think the Fed chair should give advice on the specifics of fiscal policy, the chair should make clear how fiscal policy choices will affect or constrain monetary policy. Let me try to explain how monetary and fiscal policy are connected through the budget deficit. There are two different government budget issues to think about. The first concerns the long-run trajectory for the debt, and the projections are that the debt will expand to unsustainable levels if we don’t do something to stop it. That means, above all else, reducing the growth in health care costs. The second issue concerns the short-run debt created in an attempt to stimulate the economy. This is a small amount compared to the long-run debt problem, but it is still a lot of money and we will need to pay this back when things are back to normal (but not before then, since paying it back too soon could undermine a recovery). And Thoma goes on, in his Money Watch column, to look at "the long-run debt problems" as a way of exploring the potential challenges of the Fed moving forward. Read The Relationship Between Budget Deficits, Fed Independence, and Inflation .

  • Bernanke and the Fed's Independence

    Ben Bernanke delivered his Semiannual Monetary Policy Report to the Congress yesterday before the House Financial Services Committee , and he expressed a relatively upbeat view of the economy . He also defended the need for the Federal Reserve to hold onto independence in the face of proposals to give the General Accounting Office more auditing powers, saying "a perceived loss of monetary policy independence could raise fears about future inflation, leading to higher long-term interest rates and reduced economic and financial stability." Here is his opening statement, from Bloomberg : Bernanke will continue his testimony later today. Mark Thoma 's concern with the Fed these days has less to do with its independence as a whole, and more, it seems, with the independence of the district banks as currently structured: As it stands, the Board of Governors in Washington has considerable influence over who is appointed to key positions such as the President of the district banks, and those Presidents represent five of the twelve votes at the meetings where monetary policy is set. More independence of the district bank Presidents and other district bank personnel from the Board of Governors would be a healthy change (there is also a question of whether geographic representation through district banks is the best way to capture the public interest, but I'll leave that aside for now). Read Fed Independence here .

  • Bernanke on Growth in 2009, and The Fed's Reaction to the Crisis

    Federal Reserve Chair Ben Bernanke testified on the federal budget before the House Budget Committee today. He told the committee that he expects the US economy to grow later this year, and that, while recovery will be slow, he believes the federal government's overall response--and the Fed's approach specifically--has been effective in keeping the financial crisis for doing more damage. Here are three ways to catch his statement. 1) You can read his full statement, provided by the Fed here ; 2) You can watch an excerpt, thanks to the Wall Street Journal ; 3) You can watch some of the question and answer with Wyoming Rep. Cynthia Lummis (R), thanks to Cynthia Lummis; 4) Or you can read a fake interview from Mark Thoma , in which Thoma injects his own questions into Bernanke's prepared statement, and in the process provides some helpful context for the remarks. It's available here .