By Jon Faust.   Kevin Warsh has made no secret of his desire to remain silent about where monetary policy is headed.  Indeed, this is the main thing about the day-to-day conduct of policy that he has been transparent about.  So those of us interested in the likely course of policy may be left to the […]

By Jon Faust On Friday, Kevin Warsh will bring two agendas to the Fed, regime change and lowering interest rates.  To be fair, Trump assigned that second one, and unless the outlook changes materially, the FOMC won’t be lowering interest rates any time soon.  As I argued in my previous post, Warsh will likely go […]

by Bob Barbera Consider the chart, directly below. It depicts quarterly readings on consumer sentiment and the equity risk premium. In general, the happier are consumers, the smaller the premium investors get for bearing risk. Conversely, when despair is in the air, stocks are cheap, and accordingly, the risk premium is high. Except for the […]

By Jon Faust With all the news about the Gulf last week you may have missed some remarkable Fed news.  Going against Trump’s demand for lower interest rates, Treasury Secretary Bessent said that Fed rate cuts should come eventually but, “if they want to wait for some clarity, I understand that.”  Fed Governor Stephen Miran […]

By Bob Barbera and Jon Faust Fed Chair William McChesney Martin famously said that the Fed’s job was to remove the punchbowl just when the party was warming up.  That always struck us as astute to a point, but following that advice too strictly would surely ruin what might otherwise be some wonderful parties.  Of […]

By Jon Faust In light of recent events and today’s front pages, I have an update to something I said last April: “Trump seems to want all the significant sources of authority in this world to bend to his whims: courts, elite universities, foreigners—both friend and foe. It strikes me as quite unlikely that the […]

By Jon Faust This is the second in a series of posts on my (perhaps quixotic) quest to clarify the Fed’s balance sheet function. The first post is QE Eternity? The Fed’s currently conducts monetary policy in what is called an ample reserves regime in which banks hold roughly $3 trillion in reserves.  The banks […]

By Jon Faust The Fed’s balance sheet is much in the news these days and will probably remain so for a considerable period.  Perhaps the most insightful commentary I’ve seen on this topic came from Treasury Secretary Scott Bessent who recently said, “Now there’s a balance sheet function which I can tell you no one […]

By Jon Faust For the last several months, many analysts (including me) have warned about the growing threat to Fed independence.  But some people that I respect have pushed back. Bond market vigilantes, they assert, will protect us–these vigilantes are market players who cause sufficient turmoil in financial markets in the face of bad monetary […]

By Bob Barbera and Jon Faust The July snapshot of U.S. employment suggests that job gains have slowed to a crawl, with three-month average gains down to 35,000. Days before the jobs report Fed Chair Powell argued that “a wide set of indicators suggests that conditions in the labor market are broadly in balance and […]

by Jon Faust In August 2020, the FOMC adopted revisions to its policy framework that were mainly intended to deal with the problems of chronically low inflation and interest rates.  In the best tradition of Greek tragedy, high inflation almost immediately ensued. While inflation rose above 2 percent in March 2021, it was not until […]

by Robert Barbera & Jonathan Wright Labor force growth determines the steady-state monthly change in payrolls.   Recently, payrolls have expanded at a fast clip notwithstanding a slight uptick in the unemployment rate.  The reason why the economy, despite aging baby boomers leaving the work force, can sustainably expand payrolls by about 200,000 per month is […]