For Fed Presidents: Hope Springs Eternal in the Spring
Is Another Taper On Tap?
As the Fed gets ready to meet this week, here is what some of the Fed Presidents have been saying about inflation, employment, the weather and the possibility of another taper of quantitative easing (QE).
Dallas Federal Reserve President Richard Fisher (hawk)
Knock off the QE already! The Fed has printed enough dollars, the problems in the economy are caused by the weather and Congress
Perennial hawk Dallas Fed President Richard Fisher, has never been a fan of QE, calling it “monetary cocaine“. Speaking in Zurich in last week Mr. Fisher said “As soon as feasible, the Federal Reserve should stop large-scale asset purchases entirely.” Mr. Fisher noted that QE “has had limited efficacy, especially in terms of helping unemployment.”
Mr. Fisher weighed in on the weather and offered this prognosis: “What is sometimes a headwind can become a very strong tailwind.”
So perhaps instead of blaming the weather for poor economic performance the Fed will be crediting the weather for robust economic performance in the future.
Clearly frustrated that $4 trillion of Federal Reserve dollar printing has not led to strong economic growth, Mr. Fisher placed the blame on Congress and lashed out at that dysfunctional legislative body in a recent speech: “If the fiscal and regulatory authorities that you elect and put into office to craft taxes, spending and regulations do not focus their efforts on providing incentives for businesses to expand job-creating capital investment rather than bicker with each other for partisan purposes, our economy will continue to fall short and the middle-income worker will continue being victimized, no matter how much money the Fed prints.”
According to Mr. Fisher, if only Congress would have just taxed and regulated better, then we might have received some real benefits from the $4 trillion the Fed printed as part of QE.
Mr. Fisher is a voting member of the Fed’s policy panel this year.
St.Louis Federal Reserve President, James Bullard (moderate)
No worries, the economy is growing
James Bullard remains optimistic about the economy despite the downward revision to fourth quarter gross domestic product. “I’m not sure it makes me any less optimistic about 2014,” Bullard said. Mr. Bullard also seemed happy that the core inflation was revised higher and perhaps hopeful that inflation will increase more to get to the Fed’s target 2% rate of inflation.
The Fed, while blowing asset bubbles seems oblivious to the deleterious impact that inflation (even single digit annual inflation) has on an economy and consumers.
Mr. Bullard is not a voting member of the Fed’s policy committee this year.
Philadelphia Federal Reserve President Charles Plosser (hawk)
Keep up the measured tapering. Employment is only being held back by the weather
Mr. Plosser is encouraged by the recent economic data and jobs numbers but believes these reports are not enough to increase the pace of the tapering of QE. “It would have been nice, from my perspective, had we started at a faster pace” Plosser said last week. “Given the fact that we’ve embarked on measured reductions, it’s important to give some certainty or at least clarity to the markets on what we’re doing,” Plosser said. “It’s OK to continue at 10 billion. The hurdle rate for change is pretty high in either direction.”
Plosser also noted that the weak job gains in December, January and February were probably due to the cold weather. “All three of these numbers most likely reflected in part the effect of the unusually severe winter weather.” he said.
Mr. Plosser is a voting member of the Fed board this year.
Chicago Federal Reserve President, Charles Evans (dove)
The economy will continue to grow-the weather set it back recently and we need more inflation!
Chicago Fed President Charles Evans in a speech last week expressed optimism about the economy saying that growth will probably accelerate to 2.5 percent to 3 percent this year now that the winter weather that harmed first quarter growth is almost over. For Mr. Evans its full speed ahead with the Fed’s plan to taper. “We have got a pretty high hurdle for altering the tapering plan.” Evans said “I am still in the camp that thinks this (weather) is transitory. We have got better momentum ahead of us.”
Mr. Evans also spoke of measuring the health of the employment market and its influence on monetary policy in terms other than just the unemployment rate. “We are going to have to come up with a different language formulation that doesn’t mention 6.5 percent,” he said. “That is why I say I expect it will be a qualitative description. It ought to be something that captures the fact that it is going to continue to be low well past the time that we change the language because that is what we currently say.”
Mr. Evans, like Mr. Bullard, also spoke in favor of greater inflation to get the economy moving in a speech two weeks ago. “The surest and quickest way to get to the objective is to be willing to overshoot in a manageable fashion.” Evans said. “With regard to our inflation objective, we need to repeatedly state clearly that our 2 percent objective is not a ceiling for inflation.”
Mr. Evans does not have a vote this year.
New York Federal Reserve President, James Dudley (dove)
We need to remain accomodative and keep an better eye on the labor market
Mr. Dudley recently was interviewed by the Wall Street Journal. During the interview Mr. Dudley indicated “We don’t really have a really good sense” of what factors influence the drop in the unemployment rate. Mr. Dudley said. “I think that tells you have to look at a broad array of indicators rather than just focusing on the unemployment rate.” Indeed, Dudley’s New York Fed have created new tools to analyze the job market in ways that take into account more than just the unemployment rate.
Here is a look at the new Fed charts. The chart will display a variety of factors that influence the employment markets including: unemployment rates, employment, hours worked, labor demand, labor force participation, job losses, wages, and labor market mismatches.
While its encouraging to see the Fed realize that the health of the labor market can’t be viewed solely through the lens of the unemployment rate, there is not much the Fed can do (or has done) to create a healthy labor market other than to wind down QE and allow the free market to dictate interest rates. Ironically, the Fed has sold the concept of QE as being designed to help the labor market.
In a speech last week Dudley also remained optimistic about the prospects for the economy, prediciting GDP growth above 2.25 percent which he believes cautiously will boost the labor market. “This implies, in turn, that the current, highly-accommodative stance of monetary policy will remain appropriate for a considerable time to come.” Dudley said.
Mr. Dudley is a voting member of the Fed this year.
What Will Happen at the Fed March Meeting
Heading into the March Fed meeting the Fed Presidents, hawks and doves alike are optimistic and agree that the economy is improving and therefore tapering QE and eventually ending it is justified. All this rosy talk will probably lead to another taper of QE of $10 billion. This will bring the monthly Fed dollar printing to $55 billion – still a massive amount of stimulus that will be pumped into the economy (a rate of $660 billion annually).
The Fed Has Printed More Dollars in Four Years Than the GDP Growth During That Period
If the ostensible purpose was to help the economy, five years of QE has been an abject failure. GDP growth has been less than the $4 trillion of QE the Fed has thrown at the economy (or the too big to fail banks), with GDP growing just $1 trillion from Dec 2010 to Dec 2013.
The March Fed meeting will also be the first one chaired by Janet Yellen. She will need to have a taper under her belt to enhance her credibility and the Fed’s to show that they are not just mad money printers but have carefeully considered the benefits and can now exit QE as the economy is improving (but for the weather).
We predict, however, when faced with any type of financial uncertainty or crisis, real or imagined, whether it is weather related or originates in the Ukraine, Germany, China or in the United States, Ms. Yellen will pull the magic ring from her pocket and hit print.
The Fed’s next policy making committee will meet on March 18-19.
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