Looking back on the past year, in which lots of people have been pretending that the U.S. economy had not, in fact, achieved the soft macroeconomic landing that it has…
If Powell pushes for a rate cut now, will Michelle Bowman go full Trumpian, bat-shit crazy in the FOMC? Because I'm guessing she's been lobbied hard to do so.
Here are some data on recent inflation pressures. These are appx. monthly % changes annualized, in May and June (in parentheses). Headline PCE (0.4%, 1.0%), Core PCE (1.5%, 2.1%), Core Services ex housing (2.1%, 2.3%), Market-based PCE that excludes segments requiring imputation (0.2%, 0.6%), Core Market-based PCE (1.5%, 2%).
Even for those who think 2% is a threshold, this ought to be persuasive evidence that the near-term changes in prices have been subdued. Still not confident?
I think 2024 is meant... given soft landing occured in 2023
>>
Risks seem definitely unbalanced. There are many plausible scenarios in which the Fed will wish after the fact that interest rates had been substantially lower so far in 2023. There are almost no plausible scenarios in which the Fed will wish after the fact that interest rates had been higher so far in 2023.
I think the reason is that it thinks that a cut implies further cuts. That is, it feared that if it cut, say last December, it might have to dis-cut later on. This is reinforced by the idea that is should public speculate on _future_ settings of policy instruments, what it calls "forward guidance." The deeper question is where these funny ideas came from. The certainly are in conflict with the Fed being "data driven."
"“The Fed Funds rate is a control variable, and basic optimal-control tells us that [as] information arrives we move the Fed Funds rate so that the odds are about 50-50 with respect to whether the next move will be up or down’?" SHOULD be understood and could only be improved by noting that "the Fed Funds rate" really means the entire vector of control instruments.
Even that, however is not enough to explain why it did not cut a couple of months ago. That can only be explained by the belief that the _economy_ must do penance (increased probability of recession) for the _Fed's_ error of not starting to raise the EFFR until March 2022 instead of September 2021. This theory of atonement may need a whole team of Jesuit macroeconomists to make sense of.
In order to disabuse markets of the no reversals fallacy, perhaps it should, when it makes the clarification, also move the rate down by ten or even 5 basis points and always move one way or the other, if only by those increments, at every meeting.
Of course it would REALLY help if Treasury would give it 1, 2, and 3 year TIPS's as well as an NDGP Trillionth of the same tenors.
Besides policy, I'm waiting to see what the policy wonks say if there's a change in administration after November. The great transformation from before Nov 2016 to after Nov 2016 was comical, giving us a fabulous list of clowns. "Don't bother, they're here."
If Powell pushes for a rate cut now, will Michelle Bowman go full Trumpian, bat-shit crazy in the FOMC? Because I'm guessing she's been lobbied hard to do so.
In other words, the Fed lacks, ahem, testicular fortitude?
Here are some data on recent inflation pressures. These are appx. monthly % changes annualized, in May and June (in parentheses). Headline PCE (0.4%, 1.0%), Core PCE (1.5%, 2.1%), Core Services ex housing (2.1%, 2.3%), Market-based PCE that excludes segments requiring imputation (0.2%, 0.6%), Core Market-based PCE (1.5%, 2%).
The appx. 3-month % change, annualized, are: PCE (1.5%), Core PCE (2.1%), Core Services ex housing (2.6%), Market-based PCE (1%), Core Market-based PCE (1.9%).
Even for those who think 2% is a threshold, this ought to be persuasive evidence that the near-term changes in prices have been subdued. Still not confident?
I think 2024 is meant... given soft landing occured in 2023
>>
Risks seem definitely unbalanced. There are many plausible scenarios in which the Fed will wish after the fact that interest rates had been substantially lower so far in 2023. There are almost no plausible scenarios in which the Fed will wish after the fact that interest rates had been higher so far in 2023.
<<
I think the reason is that it thinks that a cut implies further cuts. That is, it feared that if it cut, say last December, it might have to dis-cut later on. This is reinforced by the idea that is should public speculate on _future_ settings of policy instruments, what it calls "forward guidance." The deeper question is where these funny ideas came from. The certainly are in conflict with the Fed being "data driven."
"“The Fed Funds rate is a control variable, and basic optimal-control tells us that [as] information arrives we move the Fed Funds rate so that the odds are about 50-50 with respect to whether the next move will be up or down’?" SHOULD be understood and could only be improved by noting that "the Fed Funds rate" really means the entire vector of control instruments.
Even that, however is not enough to explain why it did not cut a couple of months ago. That can only be explained by the belief that the _economy_ must do penance (increased probability of recession) for the _Fed's_ error of not starting to raise the EFFR until March 2022 instead of September 2021. This theory of atonement may need a whole team of Jesuit macroeconomists to make sense of.
In order to disabuse markets of the no reversals fallacy, perhaps it should, when it makes the clarification, also move the rate down by ten or even 5 basis points and always move one way or the other, if only by those increments, at every meeting.
Of course it would REALLY help if Treasury would give it 1, 2, and 3 year TIPS's as well as an NDGP Trillionth of the same tenors.
Besides policy, I'm waiting to see what the policy wonks say if there's a change in administration after November. The great transformation from before Nov 2016 to after Nov 2016 was comical, giving us a fabulous list of clowns. "Don't bother, they're here."
I wish I could justify a subscription to Tim Duy. I miss his insights
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