What will the Fed do? (June 2016, update!)

My previous post described the well-disguised, steady predictability of recent FOMC policy. All that’s out the window now. (No.) Brexit changes everything! (We’ll see.) Will the Fed’s intermeeting rate cut go negative? (Get ahold of yourself.) But Brexit is putting a wrinkle in this blog: I had promised that the next post would be entitled […]


What will the Fed do? (June 2016 edition)

Over the last several weeks, we’ve seen what Michael Mackenzie in the FT called a renewal of the market’s tortured dance with the Fed. The basic story seems to be that the Fed “moved policy to the sidelines” at its March meeting, causing market participants to discount any risk of a near-term rate increase. The […]


Beyond the dots

Since the last FOMC meeting, we have again heard cries of lost Fed credibility and of general confusion. In contrast, my colleagues and I at the CFE have been arguing for many months now that we would likely see what has in fact transpired. In our view, the Fed’s actions, including those at the March […]


Improving conventional unconventional policy

The Fed has taken the position that the distressing signals from around the world do not clearly warrant a large and definitive downward shift in the outlook for the U.S. While some folks might argue that point, let’s accept it. There is, nonetheless, a heightened probability of some sort of downturn, and policymakers and others […]


The Pause that Refreshes

How will the Fed respond to the recent drops in the stock market? We might get a hint from the Fed’s conduct after last August’s turbulence, which now looks like a dress rehearsal for the current problems. In that event, the Fed chose to forgo the widely-signaled liftoff in September, but then implemented liftoff amid […]


Liftoff? And then…

Early December finds us asking the traditional question on the eve of the holidays: What will the Fed give us for interest rates next year? Holidays past might provide some guidance. The Fed’s policy projections going into the December FOMC last year showed a year-end 2015 median federal funds rate of about 1.5 percent, with […]


Unconventional Lessons for Unwinding Unconventional Policy, I: The Volcker Disinflation

The Fed is (data dependently) on the cusp of attempting to engineer something unprecedented—a relatively benign liftoff of short-term interest rates after an extended period with those rates near their lower bound. Many analysts have been carefully analyzing past tightening episodes hoping to understand the likely Fed behavior, and I am regularly asked what I […]


Dots …

Just before the release of the FOMC’s Survey of Economic Projections (SEP) in December, I posted a piece saying that the dots would reveal nothing and arguing that, by design, the dot plot is not likely to help us understand policy. My main critique is that the dots convey the range of opinions, but shed […]


Two big questions

Simple plots of recent GDP and inflation data highlight two profoundly important questions facing monetary policymakers in the United States. GDP is at a level several percentage points below reasonable estimates of its pre-crisis trajectory (Fig. 1):[1] Will we ever regain that lost output? Inflation had run well below the Fed’s objective for the two […]


Patience and prices

Consensus expectations were off regarding the November estimate for U.S. CPI inflation released yesterday. The 0.3% fall for headline inflation was a larger drop than estimated by 82 of the 84 economists who ventured forth with an opinion in Bloomberg’s survey. No-one offered up a forecast of a greater fall than 0.3%. We suspect that […]


Of dots and (considerable) periods

In a recent post, I argued that the Bernanke and Yellen Fed’s have been striving for a ‘no tea leaves’ approach to policy communications. An astute JHU student responded, ‘How about those dots?’ Good students can be annoying that way. There is a sound reason for publishing the dot plot, but we should not expect […]


Hawks, Doves, and Tea Leaves

In its most recent policy statement, the FOMC removed the phrase, “there remains significant underutilization of labor resources” and substituted that the “underutilization of labor resources is gradually diminishing.” Fed watchers have pronounced this hawkish. I have a different reading, resting on my perception of two recent changes I perceive in Fed communications. Having been […]