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Stephen Williamson: New Monetarist Economics

Stephen Williamson, Vice President of the St. Louis Fed, guides his readers through a very in-depth view of current monetary policy and economics. This blog is recommend for people with a deep knowledge in economics and math.

Sorry You’re Let Down By the Fed’s Monetary Policy Review

On Thursday, the FOMC released a revised Statement of Longer Run Goals and Monetary Policy Strategy, and Jay Powell made a speech at the virtual Jackson Hole conference, explaining the changes in the FOMC's approach. The new statement is rather murky, though that's of course nothing new in the world of fedspeak. Why did the FOMC think these changes were needed, and what will they imply for monetary policy going forward?We'll start with the statement itself. This document originated in 2012,...

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The Bank of Canada Dives Into Unconventional Policy

The Bank of Canada has been doing things that, for it, are unprecedented. And, since our new Bank fo Canada Governor, Tiff Macklem, has made his first policy decision on July 15, now would be a good time to figure out what the Bank of Canada is up to. Since late March, the Bank's target for the overnight policy rate has been at 0.25%, which Macklem referred to in his press conference last week as the "effective lower bound." That's not an effective lower bound in the usual sense, as it's...

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What Sort of Financial Panic Is This?

Well, as you know, things are changing by the day in financial markets, and central banks are moving quickly to keep up. Most central banks have taken aggressive action recently. After a between-meetings policy rate cut of 50 basis points on March 3, the Fed yesterday reduced its target range for the fed funds rate to 0-0.25%. More to the point, the interest rate on the Fed's overnight reverse repo facility is set at 0%, the interest rate on reserves is 0.10%, and the interest rate on...

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Coronavirus and Monetary Policy

On Tuesday, the FOMC voted to reduce the Fed's range for the fed funds rate by 50 basis points, to 1.00-1.25%, and on Wednesday, the Bank of Canada followed suit with a 50 basis point cut in its overnight interest rate target, from 1.75% to 1.25%. As you know, 50 basis point cuts by central banks are aggressive, particularly in the Fed's case where the cut occurred outside a regularly scheduled FOMC meeting. Other central banks might be doing the same - if their policy rates were not already...

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Is Inflation Targeting the Best We Can Do?

In the U.S., the Fed is considering modifications to its longer-run goals and monetary policy strategy, and last year Fed officials went on a listening tour to hear public views on its approach to monetary policy. This is new territory for the Fed, but the Bank of Canada does this sort of public outreach on a regular basis, in between renewals of its policy agreement with the government of Canada. The Bank conducts in-house research, runs conferences, and interacts with the public in various...

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The FOMC: Where It’s Come From, and Where It’s Going

After three reductions of 25 basis points each in its fed funds rate target range since the middle of last year, the Fed seems to be on pause. What is the FOMC concerned about, and why, and what's in store for the rest of the year?What does the data look like? First, the labor market has become increasingly tight:The unemployment rate is lower than it's been for a very long time, and the job openings rate is higher than at any time since the BLS started collecting the vacancy data. Most...

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An Attempt to Sort out the Fed’s Overnight Market Issues

First, we'll get up to speed on the state of monetary policy implementation in the United States of America, in case you haven't been paying attention. After the financial crisis, the Fed substantially increased the size of its balance sheet, primarily through the purchase of long-maturity Treasury securities and mortgage-backed securities. On the liabilities side of the balance sheet, the Fed has seen a steady increase over the last 10 years in the quantity of Federal Reserve notes...

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The Fed’s Failed Experiment

Last week, on Tuesday September 17 in particular, overnight credit markets were misbehaving. Since then, various folks have been struggling to understand what is going on, with little assistance, apparently, from the Fed, whose job it is to prevent such misbehavior, and to tell us exactly what is going on. Here's what happened. On Tuesday of last week, the market in overnight repos became very tight:The chart shows the repo rate (secured overnight financing rate), the effective fed funds...

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Is the Fed Doing Anything Right?

I'm not sure the Fed has many friends these days. Donald Trump is unhappy with it, and the financial media seems puzzled by what the Fed is doing. Can we make sense of the Fed's behavior, particularly its change in policy last week, or is the Fed simply incoherent?It might help to start with first principles. What would good central bank policy look like, were we ever to have the good fortune to observe such a thing? A central bank should have clearly-stated goals. Those goals could be...

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Libra: Financial Inclusion for the World’s Poor, or Scam?

In case you haven't heard, Facebook has recently set up a financial subsidiary, Calibra, and has issued a so-called "white paper" which is a proposal to issue a cryptocurrency, Libra. As stated in the white paper, "Libra's mission is to enable a simple global currency and financial infrastructure that empowers billions of people." Sounds rather lofty, don't you think? Financial innovation that's going to make a significant fraction of human beings, particularly the world's poor,...

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