Hilsenrath tips more easing

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The WSJ’s well connected Hilsenrath tips that the Fed will look closely at more stimulus at their next meeting.

This should not be surprising. Every time US growth has looked like slipping sub-trend (remember, potential GDP is probably motoring ahead to ~2.5% YoY) or there has been trouble in Europe, Ben has done more.

Both are the case this time. Making the main question which option is chosen.

The paragraph that struck me, however, was this one:

The landscape for the Fed is complicated by the presidential election. Mindful of his own legacy and the Fed’s independence, Chairman Ben Bernanke seems unlikely to allow the political calendar to sway his decisions. He appears especially immune from politics now, with just 18 months left in his term as chairman and little indication that he wants another. Still, some investors speculate the Fed has an incentive to decide quickly to avoid shifting policies close to the November vote.

Is there a chance that Ben has life in academia, and the criticisms from his former (and prospective) peers in mind?

I suspect that this is the case – and that Ben is therefore likely to go for a substantial MBS programme, with a bit of long term bond buying, most likely unsteralised.

Bernanke and Yellen are likely to hint in this direction when they speak over the next few days.


  1. It will be an interesting test of my hypothesis that central bank independence is overrated.

  2. Bond yields rose overnight due to expectations of more easing – consistent with the market monetarist view of the transmission mechanism.

    1. I think that MBS buying will drive down spreads but that the inflation expectations impact will be larger than the duration-lightening impact, and that UST yields will rise.

      Sent from my iPad

  3. Bernanke has been a terrible disappointment given his academic background and his writings on Japan

    1. Give him a chance – i think he was speaking last night as the chairman of the board. Saying they will act prior to a meeting is something volker or greenspan might have done, but it is not Bernanke’s style.

      I think we are very lucky to have had his leadership for the last few years. Imagine if the gig had gone to john taylor – it very nearly did!

      Sent from my iPad

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