Economics Topics

The latest move in the fiscal and monetary response to the global financial crisis has been to flood the world with money.

The Fed boosted its U.S. dollar swap line with foreign central banks by $180 billion....
The Fed also debuted new swap ...

Expectations of an early interest rate cut by the European Central Bank are growing on concern that the global financial turmoil will seriously dampen economic activity in the euro zone. Thursday’s overnight-index swaps, which represent market expectations of the average central-bank target rate, imply that the ECB will slash rates ...

I don’t think even the most alarmist of doomsayers could have anticipated the pace of events in financial markets over the past couple of weeks. In that time, the casualties (bankrupt, nationalised or firesale) include Fannie and Freddie, Merrill Lynch and Lehman, AIG and HBOS and probably others I’ve missed. ...

Here's the press release:

Press Release

Release Date: September 16, 2008

For immediate release

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Strains in financial markets have increased significantly and labor markets have weakened further. Economic growth appears to have ...

Despite the continued market turmoil and futures expecting a quarter-percentage point cut in the fed funds rate, economists expect the Fed to focus on long-term forecasts and keep its benchmark interest rate on hold at 2% at today’s meeting. However, many say that if the Fed does trim rates today, ...

In the wake of the of yesterday's turmoil in financial markets, there was growing talk of the possibility that the Fed may cut interest rates to provide a boost to the economy. Surprisingly, almost no one seemed to note the most obvious way that a rate cut would boost the ...

Just as a frantic two-day period in March cemented Fed Chairman Ben Bernanke’s image as an aggressive and creative protector of the economy and financial system, a similar 48-hour period now may define the Bernanke Fed’s limits.

And though the lineup has changed from Bear Stearns six months ago ...

The Fed continues to broaden the criteria for what it will accept in return for loans.

They are beginning to sound like the local pawn shop owner or Vegas loan shark, but somehow I doubt either one of these entrepreneurs would accept seemingly toxic paper in the form of mortgage-backed ...

Why on earth the FOMC would want to undo any of the work by Treasury with a rate cut? The whole idea of letting Lehman die is to reintroduce the concept of risk and eliminate some of the Moral Hazard� fostered by prior bailouts.

The current market bet is ...

A sharp jump in fed funds levels apparently caught the Federal Reserve Bank of New York’s attention, driving it to implement an unusual late-morning intervention.

The overnight repurchase agreement is technical ...

Is the Fed accepting equities as collateral? Bloomberg says yes, the WSJ says yes, Reuters says yes. So, yes. But if that's the case, why didn't it say so? Here's the relevant bit of the Fed statement:

The collateral eligible to be pledged at the ...

WASHINGTON (Reuters) - The U.S. Federal Reserve on Sunday launched a series of emergency measures to calm financial markets and ease any trading disruptions that could arise from a collapse of investment bank Lehman Brothers.

One of the ...

Tim Duy assesses the financial crisis, and what the Fed is likely to do at it's next rate-cutting meeting:

Endgame?, by Tim Duy: News is flowing in faster than the ability to process the implications.� When I went to bed Saturday night, the only sure thing looked like the liquidation ...

Into this weekend, the Federal Reserve’s next move on rates was generally expected to be up. What a difference a crisis makes.

Into August, rapidly rising oil prices and continued inflation fears coupled with a sense of some stability in credit markets had many Fed watchers expecting an ...

AIG, the world’s largest insurer, is planning a $20 billion (£11 billion) asset ...

How Wall Street reacts to Tuesday’s Federal Reserve interest-rate decision and policy statement may come down to one word, and it’s not Fannie, Freddie or Lehman. It’s “significant.”

Officia
ls are widely expected to hold the ...

Readers Question:

1. critically examine the effectiveness of monetary policy.

2. what factors do you think limit the effectiveness of monetary policy.

Previously, I have written an essay - what determines the effectiveness of monetary policy

In brief, the aim of monetary policy is to target low inflation (CPI = 2% ...

Tim Duy says it is an "illusion that the US is like Japan," and the differences between the two cases matter for the conduct of monetary and fiscal policy:

Get Shovel, Dig Deeper, by Tim Duy: The US is not Japan.

I realize, however, that whenever I suggest this, I am viewed ...

As bad as the August jobs report was, it doesn’t appear to be a game changer for the Federal Reserve and interest rate policy.

That’s largely because, as dismal as the state of the labor market was last month, the drop in hiring fits within the central bank’s ...

Federal Reserve policymakers often are separated along a spectrum that places the hawks, who are more concerned about inflation than growth, on one end and doves, who worry more about growth than inflation, on the other. The two extremes on that spectrum spoke today, but their caws and coos sounded ...

Despite some speculation to the contrary, the U.S. economy remains firmly linked to others around the world, Federal Reserve Board Governor Randall Kroszner said Monday.

Speaking at the 2008 Money and Banking Conference hosted by Argentina’s central bank in Buenos Aires, Kroszner called a “hypothesis” that the U.S. has decoupled ...

The New York Federal Reserve’s latest auction of Treasurys to investment banks Thursday drew just $26.65 billion bids versus the $50 billion that was on offer.

The central bank accepted all of the bids from the primary dealers — the 19 firms that deal directly with the Fed ...

It was only a matter of time until the ECB would challenge the emerging consensus that weaker economic growth would automatically lead to a fall in interest rates. Several senior central bankers, including Axel Weber, Lorenzo Bini Smaghi and Jurgen Stark came out with hawkish messages of varying degrees ...

If one were to judge importance by press attention, the key events of this past weekend’s annual Jackson Hole economic symposium hosted by the Federal Reserve Bank of Kansas City would be the bookend contributions of Fed Chairman Ben Bernanke’s opening address and Willem Buiter’s 141 ...

Yesterday's Financial Times ran a profile of Wells Fargo's had over from its former head, Dick Kovacevich to its new CEO John Stumpf (The Monday Interview - Wells Fargo cracks the whip). The bank ...

The European Central Bank is believed to be preparing to refine its rules on the kinds of collateral allowed under its liquidity-providing repurchase operations for banks.

The ECB may adjust the collateral rules as early as Sept. 4, when ECB President Jean-Claude Trichet holds a monthly press conference on policy decisions, ...

This looks like a good conference to miss this year. The world’s central bankers gathered at their annual junket in Jackson Hole over the weekend to conclude that inflationary pressures are subsiding, and that the crisis was transitory. The FT reports that Fed chairman Ben Bernanke ...

The most controversial presentation at the Kansas City Fed’s annual symposium came from London School of Economics professor Willem Buiter. And it wasn’t just because his academic paper, distributed in advance to participants, came in at 118 pages (or 146 including references and charts).

Mr. Buiter slams the Federal Reserve, ...

Full text of Fed Chairman Ben Bernanke’s speech to the Federal Reserve Bank of Kansas City’s Annual Economic Symposium in Jackson Hole, Wyo.

Reducing Systemic Risk

In choosing the topic for this year’s symposium–maintaining stability in a changing financial system–the Federal Reserve Bank of Kansas City staff is, once again, right on ...

Obviously a lot of people were hoping for some insight on inflation and the course of interest rates. However, the real story is here: (Full text of Bernanke's speech)

An effective means of increasing the resilience of the financial system is to strengthen its infrastructure. For my purposes ...

Full text of Fed Chairman Ben Bernanke’s speech to the Federal Reserve Bank of Kansas City’s Annual Economic Symposium in Jackson Hole, Wyo.

Reducing Systemic Risk

In choosing the topic for this year’s symposium–maintaining stability in a changing financial system–the Federal Reserve Bank of Kansas City staff is, once again, right on ...

Federal Reserve Bank of Dallas President Richard Fisher, in remarks Tuesday, says he expects economic growth to “decelerate to a snail’s pace, if not completely grind to a halt” in the second half of this year, with a slowdown that may extend into 2009. He devotes most of his speech ...

Tim Duy says "the economy will need to shift clearly in one direction or another – deflation or inflation – to drive any change in rate policy":

The Knife Edge Cuts Deep, by Tim Duy: The sharp decline in commodity prices has turned the tables on the inflation crowd, at least ...

Charles Evans, president of the Federal Reserve Bank of Chicago, says in a speech that the sluggish economy, “rising” inflation risks and financial distress pose a “three-front conflict for policymakers.” Mr. Evans, in a speech in Bloomington, Ill., that since the Fed’s June policy meeting “the risks for growth ...

Without a central bank, the political section of the bookstore would have to be reclassified as science fiction.

This is why you hardly ever hear a fundamental question on the right of the Fed to exist. This is why the political culture frowns on anyone who attacks ...

Gary Stern, president of the Federal Reserve Bank of Minneapolis, says the economy’s path may resemble the “subdued” recovery after the early 1990s credit tightening, which restrained consumer spending and business investment. A similar experience would imply “only modest expansion in the economy” ahead, along with higher unemployment and ...

To state the very obvious, it has been quite an eventful twelve months since I last committed fingers to laptop. I might well have titled this post "Four Fed programs that did not exist one year ago." Over the four months from December to March, the Federal Reserve ...

"Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee. The Committee will continue to monitor ...

Enrique Martinez-Garcia and Janet Koech at the Dallas Fed present their perspective on the international macro outlook. The first is particularly interesting to me.

Banks continue to have a healthy thirst for funding, as new longer-dated dollar-denominated auctions by the Federal Reserve, the European Central Bank and the Swiss National Bank received strong interest.

The $25 billion 84-day term auction facility offered by the Fed drew $54.8 billion ...

Tim Duy:

The Rapid Reversal, by Tim Duy: The rapid shift in financial markets over the past month caught me off guard. I have long been of the view the US economy was undergoing a fundamental adjustment to an unsustainable external imbalance. That adjustment required a lengthy period of relatively slow ...

Published here: "the Federal Reserve is legally accountable to the Congress for two objectives, maximum employment and price stability, on an equal footing. My colleagues and I strongly support the dual mandate and the equal weighting of objectives that it implies."

The European Central Bank and the Federal Reserve are facing similar problems but pursuing different policies. The ECB has been raising interest rates while the Fed has been cutting them. The overnight federal funds rate is now 2 per cent while the corresponding ECB rate ...

Martin Feldstein says there are good reasons for the difference in monetary policy between the Fed and the ECB, the most important being that unions are stronger in Europe than the US. This means there is a greater chance of a wage-price spiral developing in Europe forcing the ECB to ...

David Wessel moderates an ongoing debate on economics between two of the campaigns’ top policy advisers. Click here to read the economics debate so far. This is the last comment in the economics debate. Reader comments are welcome and may be used as questions in the debate.

QUESTION #6: ...

Efforts to shore up liquidity in the wake of the subprime collapse are better suited to help the economy than those aimed at boosting consumer confidence and demand, two economists concluded in a National Bureau of Economic Research paper.

“For the subprime mortgage crisis, our analysis ...

This was expected. Here's the statement.

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. However, labor markets have softened further and financial markets remain ...

The string of dissents at the Federal Reserve hit eight, as Dallas Fed President Richard Fisher again preferred an increase in the federal funds rate.

Economists and others weigh in on the Fed’s decision to leave interest rates unchanged.

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. ...

There was one dissent. Here's the statement indicating that "Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee":

Press Release
Release Date: August 5, 2008

For immediate release The Federal Open Market Committee decided today to keep its target ...

The following is the Federal Reserve’s statement following the August rate-setting meeting.

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and ...

Elizabeth A. Duke was sworn in this morning as a member of the Federal Reserve’s Board of Governors, allowing her to participate and vote in today’s Federal Open Market Committee meeting.

Ben Bernanke has published a few books of his own about monetary policy. Now comes the first one about him.

Ben Bernanke’s Fed: The Federal Reserve After Greenspan provides a view of the central bank chairman’s leadership in his first two years, into the early months of the credit crisis. Ethan ...

When they meet Tuesday, Federal Reserve policy makers are expected to leave the benchmark federal-funds rate unchanged at 2%. Most policy makers believe the next move in interest rates is up, but their views about timing vary. As Sudeep Reddy noted in today’s Journal, officials are ...

Tim Duy reviews the economy and the Fed's likely response to current and expected future economic conditions at its rate-setting meeting this week:

Anemic, by Tim Duy: Two weeks away from the blog. The first was spent dealing with a crashed computer – the technician said “your machine is sick,” which ...

The focus of the Federal Reserve’s upcoming policy meeting once again turns not on what the Fed does with interest rates but rather what officials say about the economic and inflation outlook.

The language policymakers use, as well as any sign of disagreement among Fed members, could settle ...

The Federal Reserve’s decision today to extend loans to investment banks into 2009 is one more hurdle to an eventual tightening cycle that now appears unlikely to begin before next year.

It’s not an insurmountable one, Fed watchers said, especially if inflation were to worsen ...

Among an array of changes the Federal Reserve announced today to ensure liquidity in credit markets was a proposal for options to borrow from the Term Securities Lending Facility that harks back to a similar program used around Y2K.

The new options will allow primary dealers — many of the ...

Poor Ben Bernanke. You gotta feel for the poor guy. Faced with a whole bunch of economic problems all occurring at once he took the only option that seemed to be open to him - which ...

Even as European Central Bank council member Klaus Liebscher told Bloomberg that the bank still has room to raise rates, the pace of money supply growth in the euro zone fell in June on slowing credit, removing one reason for to move rates higher.

The Federal Reserve is satisfied that its strategy for lending funds at auction to depository institutions in need has been a success, but there’s no hint so far as to the program’s future.

In a paper published on the bank’s Web site, New York Fed researchers described ...

Glenn Hubbard says the Fed can't do it alone:

We're Asking Too Much of the Fed, by R. Glenn Hubbard, Commentary, WSJ: The combination of eye-popping headline inflation of 5% year over year and dramatic expansions of the Federal Reserve's lending activities to limit the credit crunch raise a key ...

This looks like one of the first big power battles by the European Parliament in the area of monetary policy. Two senior members of the EP’s economic and monetary affairs committee, Pervanche Beres, head of the committee, and Werner Langen, have issued a draft recommendation according to which the ...

In its 95-year history, the Fed has never made a clear statement of its policy for dealing with failures.... So what can taxpayers expect from an increase in the Fed's discretionary authority over investment ...

Federal Reserve Chairman Ben Bernanke said Tuesday that given the fiscal implications of the plan to assist Fannie Mae and Freddie Mac, the Treasury Department is the more appropriate body to take the lead.

On Sunday, the Fed ...

The economy has continued to expand, but at a subdued pace. In the labor market, private payroll employment has declined ...

Federal Reserve officials marked up their outlook for inflation and economic growth in their latest projections. But their estimates suggest little expectation that underlying inflation trends will deteriorate significantly through 2010.

At the June policy meeting, officials projected that the rate of economic growth by the end ...

Fed Chairman Ben Bernanke may never be allowed to forget his onetime expectation about how the subprime housing mess would affect the broader economy.

Sen. Robert Menendez (D., N.J.), asking about the housing crisis during a Senate hearing ...

While the Fed lowers its interest rate to take to negative territory in real terms, the ECB goes in the other direction. It would seem that one of them is badly wrong. Of course, this is not necessarily the case if conditions are different, and they are. In fact, ...

John Fernald of the San Francisco Fed gives his view of the economic outlook. The bottom line?:

The relatively strong incoming data suggest that growth in the second quarter was close to trend, after two anemic quarters. Going forward, the continuing and, indeed, intensifying pressures from housing, credit markets, and commodity ...

With each new role from opening the discount window to investment banks one Sunday in March to now doing the same for Fannie Mae and Freddie Mac - with an additional consultative role tacked on in reform of the mortgage giants - the Federal Reserve risks getting further distracted from ...

Federal Reserve officials haven’t discussed discount-window access with government-sponsored enterprises Fannie Mae and Freddie Mac, a Fed spokeswoman said Friday.

“Federal Reserve officials are following the situation closely, but there have been no discussions with the GSEs about access to the discount window,” Fed spokeswoman Michelle Smith said when asked ...

Federal Reserve Chairman Ben Bernanke told Freddie Mac chief Richard Syron that his company and Fannie Mae could take advantage of the ...

That is what Janet Yellen, the president of the San Francisco Federal Reserve Bank, reportedly said yesterday. Of course, those were not her exact words. She warned of the dangers of inflation and then said, "we cannot and will not allow a wage-price spiral to develop."

USA Today readers ...

After the shocking June press conference, on July 3rd the ECB should hike interest rates by 25 bp, and conclude that for the time being that is enough. Indeed, we are probably approaching the moment when the growth/inflation trade-off hits its worst as the recent PMI and HICP for ...

We are somewhat astounded by commentators who purport to be “shocked, shocked” that the ECB is pursuing a price stability target after all. You can’t blame those central bankers for not telling you. How often have they annoyed us with long and boring speeches preaching the virtues of price ...

Some Democrats in Congress are pushing for a second economic stimulus package as the labor market sags and fuel prices surge, suggesting weak growth into next year. But they’re not going to get support from Ben Bernanke.

U.S. financial markets need to be made more resilient and stable, Federal Reserve Chairman Ben Bernanke said Tuesday, possibly by giving the central bank much broader authority to collect information and exercise authority over ...

Federal Reserve Chairman Ben Bernanke gave a wideranging speech Tuesday at the Federal Deposit Insurance Corp.’s forum on mortgage lending for low- and moderate-income households. The Journal’s Damian Paletta highlights some of his major points:

1) The Fed plans to issue its final rule next ...

This morning we were pleased to welcome Janet Yellen, President of the Federal Reserve Bank of San Francisco, to our UCSD Economics Roundtable. She focused on three main challenges: the housing slump, financial market turmoil, and commodity prices, which she likened to the three witches from Macbeth. ...

The former St Louis Fed president, William Poole, now consultant for California-based Merk Investments, made an interesting statement on the Fed policy tradition. In an interview with Germany's n° 1 daily, the Frankfurter Allgemeine Zeitung, Poole stated:

"In historical perspective inflation is a means to diminish the ...

Even as ECB president Jean-Claude Trichet aimed to calm markets by indicating the central bank is not embarking on a series of interest-rate increases after Thursday’s quarter-percentage point hike to 4.25%, he may also have rattled some nerves by suggesting policy makers are reviewing the bank’s collateral policy and that ...

The European Central Bank raised interest rates a quarter point to/ 4.25% in a bid to attack inflation despite signs of weakening growth. The U.S. Federal Reserve, meanwhile, appears to be on hold for the coming months — despite rising inflation concerns — to give the economy more time ...

Tim Duy looks at growing international imbalances that have "US and emerging market policy makers on a collision course":

Denying the Great Adjustment, by Tim Duy: While not always the dominant force in my outlook, the external imbalance consistently lurks in the background of the US economy. I tell local audiences ...

The Fed announced yesterday that it would begin conducting a series of funds auctions to increase liquidity in the financial system. It also said that it would be conducting a series of currency swaps with the European Central Bank and the ...

While financial markets are showing some signs of progress, it will still “take a substantial amount of time” to get the financial system fully back on its feet, Federal Reserve governor Frederic Mishkin said. That means the recovery as well as economic growth is likely to be sluggish, Mishkin ...

Ahead of the immanent interest rate rise, Nicolas Sarkozy started again an offensive against the ECB. On TV he said that the ECB should also consider economic growth and not simply inflation, reports Le Monde. He said that inflation is due to the price explosion in ...

After the shocking June press conference, on July 3rd the ECB should hike interest rates by 25 bp, and conclude that for the time being that is enough. Indeed, we are probably approaching the moment when the growth/inflation trade-off hits its worst as the recent PMI and HICP for ...

William Poole, the former President of the Federal Reserve Bank of St. Louis, will work as a senior economic advisor the Merk Investments, the mutual-fund company said.

Poole was an outspoken inflation hawk, who ...

Elizabeth A. Duke, initially nominated to a seat on Federal Reserve Board a year ago by President Bush, was confirmed by the Senate last week for a term that runs until 2012. Duke, the former chairman of the American Bankers Association, was the chief operating officer of Portsmouth, ...

The U.S. Senate on Friday confirmed former Virginia bank executive Elizabeth Duke to the Federal Reserve Board, but didn’t act on two other key nominations at the central bank.

Duke’s confirmation came as part of a deal between the White House and Senate Democrats that also included numerous nominees for ...

A major economic policy move could come in the final weeks of the U.S. presidential elections. Traders are betting that before November, the Federal Reserve may execute an interest rate hike for the first time in two years.

It’s far from certain the Fed will hike rates this ...

The U.S. Federal Reserve is considering steps to make it easier for private-equity firms and others to invest in banks, the Wall Street Journal reported on Thursday, a move that could open the door to more ...

The Federal Reserve yesterday talked about fighting inflation by raising rates, but so far it's only talk. But while the central bank chatters, inflation expectations continue creeping higher.

Consider the yield spread between the conventional 10-year Treasury and its inflation-indexed counterpart, a.k.a., the 10-year TIPS. The difference between the two ...

Jean-Claude Trichet reconfirmed yesterday that the ECB will raise interest rates at its next meeting, repeating his words from last time that such a move was probable. Speaking in front of the European Parliament’s Economic and Monetary Affairs Committee, Trichet said that inflation will remain high throughout this year, ...

You didn't really think they'd raise rates at this meeting, did you? Here's the full statement:

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Recent information indicates that overall economic activity continues to expand, partly reflecting some firming in ...

The well-parsed FOMC statement remains too cheery on growth, not concerned enough about inflation -- and is totally irrelevant.

What matters is whether the Fed can tighten or loosen rates or not -- and they apparently cannot. The Fed has painted themselves into a box, with a recession, housing ...

Tim Duy assesses today's decision from the FOMC to leave the target interest rate unchanged:

Cutting It Down the Middle, by Tim Duy: Today’s FOMC statement was largely in-line with expectations – worries were tilted toward higher inflation risks, but fell short of setting the stage for a rate hike in August. ...

As expected, the FOMC left the target federal funds rate unchanged:

Press Release, Release Date: June 25, 2008

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Recent information indicates that overall economic activity continues to expand, partly reflecting some firming in ...

The following is the text of the Federal Reserve’s statement following the June meeting:

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Recent information indicates that overall economic activity continues to expand, partly reflecting some firming in household spending. However, ...

There’s little mystery surrounding the Federal Reserve’s rate decision tomorrow. Economists and markets appear certain that the Federal Open Market Committee will keep the federal funds rate at its current 2% target, halting a monthslong cycle of cuts. However, two issues remain unclear: how the accompanying statement ...

Just as the European Central Bank gears up for its first rate increase in a bit over a year in the face of rising price pressures, the economic data from the euro zone is taking a sharp turn for the worse.

In reports out today, Germany’s Ifo Index of business ...

Should the Fed be more concerned with inflation, or with weak output growth and rising unemployment? Robert Kuttner says the answer is easy, worry about output growth and employment:

My dissent on the risk of inflation, by Robert Kuttner, Commentary, Boston Globe: The Federal Reserve and the European Central Bank ...

Nearly 9% of all U.S. mortgages--or 4.8 million loans--are past due or in some stage of foreclosure. So when a company claims to offer distressed homeowners both relief from their mortgages and revenge against the bankers who saddled them with too ...

Interest rates are the hot topic once more. The pressing question: when will the Fed hike rates?

Inflation chatter has been in a bull market of late, and the bond market is again focused on the risks. The benchmark 10-year Treasury yield is roughly 4.2% as we write, up from ...

Treasury Secretary Henry Paulson says the government must move quickly to give the Federal Reserve more powers to regulate the financial system. Paulson said today that the central bank's powers should be expanded in the wake ...

The Washington Post reports Thursday morning ("Paulson to Urge New Fed Powers," p. D01) on Treasury Secretary Paulson's call for expanded regulatory role for the Fed of the financial industry. Some excerpts:

"We should quickly consider how to appropriately give the Fed the authority to access necessary information from ...

The San Francisco Fed is expecting stronger U.S. economic growth in the second and third quarters than it had previously anticipated, an economist with the bank said.

Inflation in the eurozone has a climbed to a record level amid higher food and fuel costs, official figures show. The annual rate of inflation in the 15 state zone hit 3.7% in May, according ...

ECB President Jean-Claude Trichet earlier this month warned that a July 3 rate increase was possible. With inflation data out this morning showing a jump — to a fresh 16-year high of 3.7% year-over-year in May — the central bank looks likely to raise rates by 25 basis points ...

Federal Reserve Board Chairman Ben Bernanke has no plans to push for an increase in interest rates, columnist Robert Novak writes Monday in the Washington Post, citing people close to Bernanke.

Bernanke, writes Novak, is more concerned about low growth than inflation, and disagrees more with the European ...

Alan Blinder says there are two types of bubbles, and the Fed should only try to prevent one of them:

Two Bubbles, Two Paths, by Alan S. Blinder, Economic Scene, NY Times: Lately more and more people have been questioning the received wisdom about what a central bank should do ...

Let's have a quick Fed recap:

-Fed Funds Futures are now pricing in a 100% chance that the Fed raises rates by a total of 50 bps by the October meeting.

The Federal Reserve seems in recent months to have taken a risk-management approach to fighting economic weakness, cutting rates sharply to avoid a worst-case scenario of what officials have referred to as a possibly “severe” downturn.

They should take the same approach to raising rates now that those ...

Like Captain Renault in Casablanca, the ECB appears “shocked, shocked” that the financial markets interpreted last week’s statement by Jean-Claude Trichet that interest rate would have to go up and up. Nothing further from the truth, apparently. They will go up once, but not necessarily twice, according to Jurgen ...

In a speech today, Federal Reserve Bank of St. Louis President James Bullard largely retraces remarks from last week suggesting a pickup in growth in the second half of this year while also warning that inflation expectations could break down “over a very short horizon.”

Federal Reserve Vice Chairman Donald Kohn said Wednesday the best policy response to a jump in oil prices may be to allow “some” rise in both inflation and unemployment in the short term.

He also emphasized, as other Fed officials have in recent weeks, that he’s concerned about the recent rise ...

A lot of people seem to be watching the Fed Funds futures contract these days. I'm no expert in how to read it, but the consensus seems to be that if the market is right, the Fed will hold steady in June, raise by 25bp in August, and ...

The European Central Bank isn’t considering a series of interest rate increases, ECB Executive Board member Juergen Stark told Bloomberg news agency in an interview.

ECB President Jean-Claude Trichet announced Thursday that the Governing Council may raise interest rates by a small amount in July.

“The markets have understood the Governing Council’s ...

What will the Fed do in coming months?:

Between a Rock and a Hard Place, by Tim Duy: Fedspeak turned decidedly hawkish this week, and market participants responded accordingly, moving up expectations for a rate hike to as early as this August. But is Federal Reserve Chairman Ben Bernanke really ready ...

We have been talking about decoupling for a long time. Now it is happening. No, I do not mean that the European or Asian economies are decoupling from the US. The world economy is too interlinked for real economic decoupling to take place. But there is a form of ...

The NYT told readers today that the European Central Bank (ECB) might raise interest rates because it is concerned about a strong dollar. It also told readers that "European leaders are increasingly impatient about the weak dollar, which is hurting their economies because Europe depends more on exports than ...

The Bank of Canada held interest rates steady today. Going into the April 22 decision, I thought it was about time to stop the round of interest rates cuts, so I certainly agree with the decision.

But I was a bit surprised at the move. Since his arrival at ...

The strength of any nation’s currency depends on the strength of its economy and the containment of inflation expectations, the president of the Federal Reserve Bank of Dallas said Tuesday.

Sound management of price pressures ...

The surprising jump in the unemployment rate last month — a half-percentage point — hasn’t materially affected the economic outlook, Federal Reserve Chairman Ben Bernanke said in a speech Monday night. Still, the Fed chief said, the runup in oil prices “has added to the upside risks to inflation and ...

The FT reports on remarks by Lucas Papademos, vice-president of the ECB, as saying that the ECB’s primary goal is domestic price stability, and it would pursue that goal even if it conflicts with the Fed’s goal of stabilising the dollar. The ECB’s readiness to fight ...

Ben Bernanke gave a speech today at a Boston Fed conference on inflation and the Phillip's curve. Part of the speech discusses the difficulties with real-time policymaking, and those remarks are repeated below. To complement the discussion, I also included an academic paper by S. Boragan Aruoba, Francis ...

Federal Reserve Bank of New York President Timothy Geithner called for greater central bank authority over banks so the financial system can better withstand shocks and recover from the credit crisis.

Officials are searching ...

James Bullard, making his first remarks this week as president of the Federal Reserve Bank of St. Louis, voiced worries about inflation right out of the gate. He says in a speech today that interest rates are now “appropriately calibrated” for the economy. But he expects stronger growth in ...

Thomas Palley says "current criticism of the Bernanke Fed is unjustified." I agree:

Defending the Bernanke Fed, by Thomas I. Palley: Federal Reserve Chairman Ben Bernanke has recently been on the receiving end of significant criticism for recent monetary policy. One critique can be labeled the American conservative critique, and ...

Readers of Eurointelligence are among the few who are probably not surprised. In our ECB Watch have been saying for some time now that euro area interest rates are more likely to go up than down – as the ECB realises that the present monetary stance is ...

Richmond Federal Reserve Bank President Jeffrey Lacker said the lending to securities firms that the central ...

Charles Plosser, president of the Federal Reserve Bank of Philadelphia, warns in a speech today that a central bank’s efforts to maintain financial stability may distort markets and prevent necessary corrections to asset prices. He says lending to financial institutions should have “rule-like features” that outline in advance the ...

Federal Reserve Vice Chairman Donald Kohn testified before the Senate Banking Committee during a hearing on the state of the banking industry, and said banks can raise more capital and further boost their reserves to help insulate themselves from the ongoing economic and credit turmoil. He also said the ...

The Federal Reserve Chairman is chatting up the dollar these days. On two separate occasions this week, Ben Bernanke made some extraordinary comments about inflation and the greenback. Extraordinary, that is, for a sitting Fed chairman.

Typically, the tired remarks about a strong dollar being in the best interests of the ...

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Tim looks at the Fed's likely policy direction, and the difficulty the Fed's stance on inflation poses for workers hoping to realize gains in real wages:

Inflation Concerns Growing, But Don’t Look For a Rate Hike Yet, by Tim Duy: Earlier ...

The oil price shock of the 1970s began in October 1973 when, in response to the Yom Kippur War, Arab oil producers imposed an embargo on exports. Before the embargo, in 1972, the price of imported oil was about ...

The middle class actually faces many important economic problems, but in reality they boil down to three current problems and one that looms large in our future. All four problems stem from a common cause -- the Federal Reserve. History tells us that we either root out ...

Fed Chairman Ben Bernanke’s speech Tuesday emphasizing the inflation risk posed by the weak dollar may mark a turning point in Fed rhetoric on currencies away from their positive effect on the economy.

In congressional testimony in February Bernanke said “part of the effect of [dollar] depreciation ...

Although the severity of the financial stresses became apparent only in August, several longer-term developments served as prologue for the recent turmoil and helped bring us to the current situation.

Over a frantic weekend in mid-March, Ben S. Bernanke rewrote the rule book as chairman of the Federal Reserve. Like a military commander applying overwhelming force, he ...

Tim Duy argues that "Fed Chairman Ben Bernanke can be criticized for following the wrong playbook" in his response to the financial crisis:

The Perils of Being the Reserve Currency, by Tim Duy: With inflation expectations in the US on the rise, the Fed is facing a withering round of Monday-morning ...

New York Fed President Timothy Geithner has had a hand in responding to financial crises for nearly 15 years, but he’s facing criticism for his involvement in the Bear Stearns rescue. The outcome of the deal, which bears his personal stamp, could make or break Geithner’s reputation. Greg Ip ...

Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, says in a speech today that — despite improvement on some fronts — “the path of the economy is still enveloped in considerably uncertainty, and serious risks remain.” He describes inflation as having reached “uncomfortable levels of inflation with hints ...

How will the Fed respond to recent information about inflation expectations and the state of the economy?:

A Newly Hawkish Fed, by Tim Duy: The Fed’s shift to a more hawkish stance in recent weeks has put an end to expectations of additional easing, shifting the debate to the timing of ...

From the minutes of the most recent meeting of the Federal Open Market Committee:

New England is no stranger ...

Eric Rosengren, president of the Federal Reserve Bank of Boston, discusses in a speech today some complications with proposals to prevent foreclosures and other problems in the housing market. Mr. Rosengren says the extent of the housing troubles is “highly dependent” on the outlook for the economy and the path ...

New York Fed President Timothy Geithner has had a hand in responding to financial crises for nearly 15 years, but he’s facing criticism for his involvement in the Bear Stearns rescue. The outcome of the deal, which bears his personal stamp, could make or break Geithner’s reputation. Greg Ip ...

Federal Reserve Vice Chairman Donald Kohn devoted a speech tonight to money markets and the Fed’s role in maintaining financial stability. He says central banks “should not allocate credit or be market makers on a permanent basis” but adds that the Fed “should not lose” some facilities such as loan ...

Federal Reserve Bank of Dallas President Richard Fisher said he sees the U.S. economy slowing down in the near term, but not heading into a recession.

“I think we’ll have a long period of anemic ...

John Taylor thinks the Fed needs to tighten policy to reduce the pressure on global inflation:

Easy policy behind global inflation: Taylor, Reuters: Inflation is rising globally because of an easy monetary policy, ... John Taylor said... To tackle rising inflation, Taylor urged the world's policy-makers ...

Dallas Fed president Richard Fisher reminds us that bubbles are nothing new (suggested by email):

Listening to Washington Irving, by Richard Fisher, Dallas Fed: There is nothing “unprecedented” about the situation we find ourselves in. To illustrate the point, I want to read a passage from Washington Irving’s 1819 ...

Investment banks such as Goldman Sachs (GS) that have ...

Federal Reserve Bank of Minneapolis President Gary Stern fretted about the pace of inflation, and said keeping prices under control remains a key goal of policymakers.

The Federal Reserve announced today that governor Frederic Mishkin plans to step down at the end of August and return to academia.

Mr. Mishkin has been an important intellectual force at the Fed in ...

Federal Reserve Bank of San Francisco President Janet Yellen said Tuesday the central bank won’t allow a ...

As I noted in a previous post, monetary policy works through various channels, one of which is the "bank lending channel". Lower policy rates, as witnessed in the past few months and shown below, should induce greater lending.

European Central Bank President Jean-Claude Trichet spoke with The Wall Street Journal’s Joellen Perry ahead of the bank’s upcoming 10th anniversary. Excerpts from the interview:

??????We find that food and energy prices are not the most volatile components of inflation and that depending on which inflation measure is used, core inflation is not necessarily the best predictor of total inflation..."� (emphasis added)

-Core Measures of Inflation as Predictors of Total Inflation

>

You may have ...

Steve Waldman has a great description of the powerful and inventive Ben Bernanke today:

Our man Ben is like an Amadeus-cum-MacGyver, he's brilliant, unpredictable, he'll improvise a Delaware company from paper clips and vacuum up your derivative book with a toenail clipper.

The problem is, in the ...

A quick note about the new GDP forecasts from the Fed:

Policy makers estimate U.S. gross domestic product will increase by 0.3 percent to 1.2 percent this year, compared to the 1.3 percent to 2 percent growth they predicted in January, according to Fed records released today...
...

That's the headline of a WSJ article about the views of Christian Noyer, a member of the governing council of the European Central Bank. The WSJ also has an article today about how the Fed is now painting a gloomier picture of the future. It looks as though ...

Fed Vice Chairman Donald L. Kohn  in a speech yesterday, addressed a theory to which I am partial:   the theory that low real interest rates have been a factor behind the continued rise in prices of agricultural and mineral commodities, including oil, over the ...

The Fed posted their minutes from the last FOMC meeting today. Check out the charts at the back that show the shift in the forecasts of the participants on variables such as GDP and inflation going out to 2010. There has been a noticeable shift since January. ...

Federal Reserve governor Kevin Warsh, a prominent figure in the central bank’s response to the economic turmoil, remarked Wednesday about how difficult it is to use historical precedents as guides when forecasting aggregate supply and demand.

“My favorite saw of this period has it about right: If you have seen one ...

The Federal Reserve on Wednesday appeared to shut the door to the possibility of further interest rate cuts, saying in April meeting minutes that the last rate cut was a "close call," and that many ...

Speaking in Washington, Federal Reserve governor Kevin Warsh presented one of the most hawkish speeches from a policymaker in recent weeks. Even if the ailing economy were to weaken, central bankers should resist new calls to further reduce the federal funds rate, he said, arguing that private-industry efforts may be ...

Surprisingly high euro-zone inflation, mixed messages from policymakers and a resilient European economy has made it a tough year for forecasters hoping to call the European Central Bank’s next interest-rate move.

The Federal Reserve will start raising interest rates early next year even as the economy faces slow employment growth and moderate inflation, according to a survey of economists by the National Association for Business Economics.

A panel of 52 forecasters expects the federal funds rate to hold steady ...

The optimal communications strategy for a central bank is not known:

What we know and what we would like to know about central bank communication, by Alan S. Blinder, Jakob de Haan, Michael Ehrmann, Marcel Fratzscher, and David-Jan Jansen: Central banks used to be shrouded in ...

Tim Duy on bubbles and Fed policy:

Bubbles, Not in the Abstract, by Tim Duy: I am working on a presentation for an audience in the Bend, OR area next week, and thought I would share some charts that I thought interesting. They touched a nerve as well. Using Census data ...

1.15 As Monetary Authorities, we have been humbled and have taken heart in the realization that some leading Central Banks, including those in the USA and the UK, are now not just talking of, ...

Federal Reserve Chairman Ben Bernanke asked Congress to accelerate the date when the Fed can pay interest on reserves, a power that would give it better control over interest rates and more leverage to battle the credit crunch.

Federal Reserve officials have been chatting more about what to do about bubbles, but some are arguing that the central bank should look more closely at its own role in creating bubbles through both supervisory and monetary policy.

Policymakers have basically reaffirmed the orthodox view ...

Senate Banking Committee Chairman Christopher Dodd (D., Conn.) had high praise for Federal Reserve Chairman Ben Bernanke, saying the central bank chief has been a responsive advocate for consumers during the recent credit turmoil.

Manias can persist even though many smart people suspect a bubble, because no one of them has the firepower to successfully attack it. Only when skeptical investors act simultaneously -- a moment impossible to predict -- does the bubble pop.

...Mr. Bernanke hired finance experts who had broad interests and were eager to work with ...

The Federal Reserve’s five-month-old program to auction billions in cash to banks hasn’t been a credit crisis cure-all, yet economists say it warrants a permanent place in the Fed’s toolbox.

Fed officials this week publicly praised the program, known as the Term Auction Facility, and one official pushed ...

Federal Reserve Board Governor Frederic Mishkin again repeated the Greenspan "who could have known" mantra in reference to the housing bubble. In a speech presented yesterday, Mishkin attributed the financial crisis associated with the housing bubble to a breakdown in underwriting standards and distorted incentives, but asserted that:

"These problems ...

Justin Lahart has a front-page article today on a group of economists studying bubbles at Princeton. It's a perfectly interesting piece, marred only by relative weakness on the monetary-policy front. Given that the piece is illustrated with a dot portrait of Ben Bernanke, I wanted more than just this:

...

The Federal Reserve should try to aggressively deflate some types of asset bubbles before they can harm the economy, Fed ...

In a speech Thursday night, Federal Reserve Governor Frederic Mishkin maintained the common central bank view against attempting to prick asset-price bubbles through monetary policy. His key reasons: bubbles can be hard to identify; using interest rates may not even restrain a bubble; and monetary policy, as a ...

The Federal Reserve's direct loans of cash to commercial banks climbed to the highest level on record in the past week, a sign of continued stress in financial markets that threatens to curtail credit for households and companies. ...

Janet Yellen is on the lecture circuit. (Reuters)

"The 1970s were a horrible period. If there's one thing that has to be very high priority, we don't want to go back to a period that is anything like that," she said, critiquing presentations on the economy at a symposium for ...

The FT reports that the Fed is abandoning the Greenspan doctrine and will start to take asset bubbles seriously. If this is true, it is huge.

--Dean Baker

Axel Leijonhufvud doesn't like strict inflation targeting:

Central banking doctrine in light of the crisis, by Axel Leijonhufvud, Vox EU: On April 8 of this year, Paul Volcker addressed the Economic Club of New York about the current crisis. The Federal Reserve, he noted, has gone ...

Steve Waldman responds:

Capabilities, constraints, and confidence, by Steve Waldman: Mark Thoma offers a very thoughtful rejoinder to my post on whether the Fed should be given authority to pay interest on deposits. Mark's comments range from specific, technical points to broad questions about governance. ...

Is there some kind of law saying that any long magazine profile of Ben Bernanke must mention Milton Friedman in the opening sentence and the Great Depression in the opening paragraph? First Roger Lowenstein did it, and now Steve Matthews is following suit, for Bloomberg Markets.

You won't learn ...

I doubt a week has gone by since last summer during which I haven't seen some pundit or other trot out Walter Bagehot's dictum that in the event of a credit crunch, the central bank should lend freely at a penalty rate. More often than not, this is contrasted with ...

Now that's what I call a power lunch:

Federal Reserve Chairman Ben S. Bernanke lunched on March 11 with a Who's Who of Wall Street leaders, including JPMorgan Chase & Co.'s Jamie Dimon, three days before the central bank rescued Bear Stearns Cos. from bankruptcy.
...

Now let me turn to the second of the three main factors behind the current economic weakness—namely, the housing cycle. I have ...

Janet Yellen, president of the Federal Reserve Bank of San Francisco, said in a speech today that the Fed was behind the curve as the credit crunch began to unwind, and reiterated that challenges will continue in the credit markets. She stressed three major risks to the economy: the credit ...

Federal Reserve Chairman Benjamin S. Bernanke said the health of financial markets has improved but “conditions in financial markets are still far from normal.” He also signaled that some of the Fed’s recent steps, extending term financing to commercial banks and new auctioning facilities of credit from the discount window, ...

Amid rising worries about food and energy prices, the head of the Federal Reserve’s Chicago branch said Monday that the Fed’s current monetary policy stance balances out the risks of economic weakness and inflationary pressure.

Charles Evans, in prepared remarks for a presentation at Harper College in Palatine, Ill., said, ...

In December, the Fed had $775B worth of Treasury securities. That stock will soon have dwindled to $300B, give or take. The difference, about $475B, represents an investment by the central bank in risky assets of the US financial sector. $475B is an extraordinary sum of money. It is as if the Fed borrowed more ...

In today’s Journal, Greg Ip reports that the Fed is formally asking Congress for authority — starting this year — to pay interest on commercial-bank reserves, in an effort to gain better control over interest rates and more leverage to battle the credit crunch.

In 2006, Congress gave ...

Reuters carried the story a few days ago and somehow I missed it.

WASHINGTON (Reuters) - The Federal Reserve's Board of Governors will hold a closed meeting on Wednesday [Apr. 30] to discuss paying interest on bank reserves, one of a number of options officials have been mulling to ...

Barry Ritholtz notes:

Another Tool for the Fed?, by Barry Ritholtz: Have you ever even thought about this?

"The Federal Reserve is formally asking Congress for authority -- starting this year -- to pay interest on commercial-bank reserves, in an effort to gain better control over ...

A veteran U.S. central bank official said Tuesday he’s worried about a deteriorating inflationary environment, and suggested that when the Federal Reserve begins to raise rates, it could do so swiftly.

Tim Duy says the economy is entering an eerie calm, and the Fed is holding steady as it waits to see what will happen next:

The Calm, by Tim Duy: The flow of data suggests economic activity is entering a very unnerving period of calm, not unlike the ...

You have to read the text carefully to see it, but Federal Reserve Chairman Ben Bernanke appears to be inching closer toward blessing House Financial Services Chairman Barney Frank’s approach to aiding “underwater” homeowners whose houses are worth less than their mortgages.

In a speech in New York ...

Bernanke rejected Dodd's request in an April 25 letter, saying it's up to Congress and the Bush administration to address diminishing profits ...

The departure of two European Central Bank Governing Council members this summer could rebalance of group that has left interest rates unchanged since last June.

Nicholas Garganas, whose term expires June 14, announced on Friday that he won’t seek reappointment as head of the Greek central bank. ...

... The Federal Reserve announced today an increase in the amounts auctioned to eligible depository institutions under its biweekly Term Auction Facility (TAF) from $50 billion to $75 billion, beginning with the auction on May 5. ...

... the Federal Open Market Committee has ...

For immediate release

Central banks have continued to work together and to consult regularly on liquidity conditions in financial markets. In view of the persistent liquidity pressures in some term funding markets, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing an expansion of their ...

The governor of the Bank of England, Mervyn King, opines that finance jobs shouldn't be so remunerative.

Lots of luck with that, Mr. King.

Link via my colleague, Richard Warr.

My class was right... including about who the dissenters would be. (Though they actually predicted more dissent, I cautioned them that two was probably the most you'd see in the vote.) Not that this was a particularly hard call. On the surprise meter, today's move by ...

The string of dissent at the Federal Reserve continues. Today marked the sixth straight Federal Open Market Committee meeting drawing at least one dissent. Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser were the opposing votes in the 8-2 decision to lower the federal funds rate a ...

Economists and others weigh in on the Fed’s decision to cut interest rates by another quarter percentage point.

The Federal Reserve could use proposed new regulatory powers to try to stop credit and asset market excesses from reaching the point where they threaten economic stability, the US Treasury said on Tuesday.

David Nason, assistant ...

The Fed decided to cut rates to 2%. Here's the statement:

Press Release

The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 2 percent.

Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor ...

The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 2 percent.

Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets ...

It’s time for Ben Bernanke, a noted basketball buff, to show Wall Street his pivot move.

After an unprecedented three-month period of fastbreak policy easing and credit market intervention — when the Fed threw half-point and even three-quarter-percentage-point cuts in the fed funds rate at the economy and ...

Greg Ip of the WSJ:

Source:

Fed Weighs Pause After Next Rate Cut

Inflation Worries Loom as Economy Continues to Stall

GREG IP

WSJ, April 24, 2008; ...

Greg Ip says:

The Federal Reserve is likely to cut its short-term interest rate by a quarter of a percentage point next week -- but then may be ready for a breather. ... If it does cut rates, the Fed could signal in the statement accompanying the ...

Tim Duy looks for - and finds - signs we are nearing the bottom of this cycle:

Time to Think About The Other Side?, by Tim Duy: It is easy to fall into “the world is ending” trap.� But economic downturns do not last forever, and the current ...

The Bank of England will announce Monday a scheme which will see it lend money to banks in return for collateral in a bid to help the troubled U.K. mortgage market, U.K. Chancellor of the ...

The Bank of England came under further pressure to act quickly on the mortgage crisis today, as the Council of Mortgage Lenders reported that mortgage lending tumbled 17pc in March.

The trade ...

Federal Reserve Bank of Philadelphia President Charles Plosser, who is a voting member of the Federal Open Market Committee and dissented last month when the Fed cut rates, addressed concerns about inflation in a speech at Drexel University, where he warned of rising inflation and said ...

Frankfurter Allgemeine has an article saying that Axel Weber, Bundesbank president, hinted at an ECB rate increase (yes, increase). The ECB was concerned about the rise in food prices, he said, and would have to evaluate whether the present monetary stance is consistent with price stability.

Two major Australian retailers are on the brink of collapse thanks to sustained Reserve Bank interest rate hikes which have knocked the economic life out of our suburbs.

Sporting goods and apparel chain Paul's Warehouse is facing ...

Today's CPI release has generated certain expectations (documented here, here, and I expect in pretty much every story covering the March inflation numbers) that a 50 bps cut in the overnight rate target is in the offing next Tuesday. Those expectations may very well be fulfilled - ...

The New York Federal Reserve accepted $24.999 billion of bids in its swap of Treasury securities for agency and agency mortgage collateral Thursday. Bids totaled $35.1 billion in the Term Securities Lending Facility auction, for a bid-to-cover ratio of 1.40, the New York Fed said Thursday. The ...

Setting aside the 100 largest banks, the share of commercial real estate loans in bank loan portfolios nearly doubled over the past 10 years and is approaching ...

In a speech in Charlotte, N.C., Federal Reserve Vice Chairman Donald Kohn today discussed risks to the financial system due to the changing nature of banks’ businesses, from securitization to asset-management for hedge funds. Mr. Kohn called on banks to improve their risk management through greater due diligence and stronger ...

Anyone who believes that the Fed can pretend that heavily damaged mortgage securities are worth more than toilet paper and literally build a $200 billion loan portfolio upon them does not understand finance. Just because Ben Bernanke declares something to be "valuable" does not bestow value upon ...

[R]esearch ... reveals that the single best predictor of subprime delinquency rates is the pace of house price changes. ...

Janet Yellen, president of the Federal Reserve Bank of San Francisco, said in a speech today that the housing sector “will be a major drag” on the economy into 2009. She also says “it would not be surprising” to see businesses slow or even cut spending this year due to ...

John Berry says the Fed needs to be given the power to oversee investment banks:

Fed Needs Permanent Investment Bank Oversight, by John M. Berry, Commentary, Bloomberg: ...Federal Reserve examiners now are operating inside the nation's biggest investment banks, and by all accounts the banks ...

Martin Feldstein says the Fed has cut the federal funds rate enough, further cuts will hurt the domestic economy more than they will help, and the cuts would have a negative impact on developing economies:

Enough With the Interest Rate Cuts, by Martin Feldstein, Commentary, WSJ: ...

One of the few positive developments from the housing bubble is that many mainstream economists have recognized the pernicious role played by the Federal Reserve. Indeed, some analysts on CNBC have discussed the outright abolition of the Fed. The case against the Fed is straightforward: In an attempt ...

There is nothing fundamentally broken on Wall Street that a little regulation and incentives for participants to be slightly more honest couldn't fix, said Federal Reserve Chairman Ben Bernanke said Thursday.

Bernanke's comments put him at odds with former ...

ONE benefit of the Federal Reserve’s rescue of Bear Stearns is that public outrage has aroused the political system to action in mitigating the foreclosure crisis.

Never mind ...

(Via David Beckworth at Macro and Other Market Musings, April 11:

Previously I discussed how much of what you learned in your money and banking class is now outdated given the many policy innovations by the Federal Reserve since last summer. Stephen Cecchetti now has a nice summary of ...

Fed 2002 Transcripts: Inflation Fight Personal
For Fed Vice-Chairman Roger Ferguson, keeping inflation low was a pocket book issue: “Since in some sense I’ve mortgaged my house based on keeping inflation low and stable, I think it’s pretty important that we understand that. This is the only ...

The 2002 transcripts include a stenographer’s markers for laughter in the Federal Open Market Committee meeting room. And the nation’s top economists didn’t just laugh at then-Chairman Alan Greenspan’s jokes. On the laugh track in 2002:

January 29, 2002: What the FOMC drinks during downtime

CHAIRMAN GREENSPAN. ...

At his first meeting as a Fed governor, future Chairman Ben Bernanke quickly established himself as a source of one-liners if not decisive policy advice:

“As we search for the signal of an incipient recovery, we have heavy noise coming from two sides,” he said in his first ...

I get tired of getting yelled at in comments for saying that the Fed should help to rescue financial markets, so I'm going to let Alice Rivlin say it this time. But I do agree with what she says:

The Fed’s Money Well Spent, by Alice Rivlin, ...

Tim Duy says, given the way things stand at the moment, to expect a quarter point cut in the target interest rate the next time the Fed meets:

Looking – Again – For 25bp, by Tim Duy: Market participants are once again split on the outcome of the next FOMC ...

The Federal Reserve is considering contingency plans for expanding its lending power ...

is considering contingency plans for expanding its lending power in the event its recent steps to unfreeze credit markets fail.

Among the options: Having the Treasury borrow more money than it needs to fund the government and leave the proceeds on deposit at ...

The Federal Reserve is considering contingency plans for expanding its lending power in the event its recent steps to unfreeze credit markets fail.

Among the options: Having the Treasury borrow more money than it ...

In a speech in San Antonio, Federal Reserve Bank of Dallas President Richard Fisher outlines causes of the latest financial crisis and recaps the central bank’s response. He compares the housing bubble to Texas’ 1980s boom and bust, starting with high oil prices and ending in widespread bank failures. ...

As reported by The Wall Street Journal, one of the more remote contingencies the Federal Reserve has considered is a mirror image of the Term Securities Lending Facility: it would take the mortgage backed securities pledged to it by dealers in return for ...

Federal Reserve governor Randall Kroszner said Wednesday that recent, “aggressive” steps by policy makers and financial institutions over the last six months are likely to prevent the U.S. from seeing a repeat of the lengthy and painful economic mess that Japan suffered through during its infamous “lost decade” during the ...

Since the Federal Reserve began rolling out ever more creative steps to unfreeze credit markets, it has sold or pledged a growing portion of its portfolio of Treasurys in order to put loans on its balance sheet to banks and securities dealers backed by mortgage-backed securities and other shunned collateral. ...

Click image for video or visit Bloomberg video.

Volcker Says Fed's Bear Loan Reaches Edge of Legal ...

Former Federal Reserve Chairman Paul Volcker roundly criticized the central bank’s extraordinary response to the financial crisis that’s been gripping markets since late last summer in a speech Tuesday.

The former official, in an address before the Economic Club of New York, had no less scathing words for the financial ...

According to the minutes of last month's Federal Open Market Committee meeting released Tuesday, members said prospects for both economic activity and near-term inflation had deteriorated. ...

Some members ... thought it likely that U.S. economic activity ...

Many Federal Reserve officials appear to be bracing for a recession. Minutes of their March 18 policy meeting, released today, said some officials believed that a “prolonged and severe economic downturn could not be ruled out” due to credit constraints and weakening housing markets. The Federal ...

At maverecon Willem Butier counter's Alan Greenspan's latest claim the he and the US Fed not be held responsible, in large part, for our current mess. Butier lists eight "tragedies" of Fed policy/practice:The Greenspan Fed (August 1987 - January 2006) did indeed contribute, through excessively lax monetary policy, to the ...

In today’s Journal, Greg Ip examines former Fed Chairman Alan Greenspan’s legacy, which has come under attack amid the current crisis roiling the economy. Below are some excerpts:

Hailed three years ago as “the greatest central banker who ever lived,” the retired chairman of the Federal Reserve now ...

The WSJ has an interview with Greenspan in which he defends himself against his critics, many of whom were former acolytes. The WSJ discussion focuses on the views of the critics who only recognized Greenspan's failings in retrospect.

Critics who saw Greenspan's errors at the time felt it was a ...

The Fed failed to identify the twin bubbles of the last decade — in the stock market and in real estate — and we have to ...

Robert Shiller says changes in the institutional structure of the financial system such as the breakdown of the traditional lines between what is and what isn't a bank require the Fed to reevaluate and expand its role in managing the economy. I agree, and I also agree that Ben Bernanke ...

One of the hottest (if not the hottest) intra-Austrian debates today is between what is sometimes referred to as deflationists and inflationists/stagflationists. This is not a policy debate of course, as all Austrians is anti-inflation, but rather a debate about whether the current recession will be associated with deflation or ...

Janet Yellen, president of the Federal Reserve Bank of San Francisco, offered a sobering view of the growth outlook in her latest speech. Ms. Yellen, who falls on the dovish end of the Fed spectrum, said the economy should improve in the second half with a “sluggish performance for the ...

With day after day of bleak news regarding the credit crunch -- and in particular, articles that constantly remind us that the Fed's recent actions haven't been tried since the Great Depression -- the average American is understandably perplexed. And although what I'm about to admit may not ...

The International Monetary Fund recommended in a housing study released today that central banks in countries with more developed mortgage markets such as the U.S. should take home prices into account when crafting monetary policy. However, monetary policy shouldn’t directly target housing prices, it said.

“Given the uncertainty surrounding both ...

The Fed wants to increase liquidity. But given the weakening in economic activity, this is not easily done. Obviously, if the Fed were to decide to set the interest rate target to nil, then it could have the freedom to pump as much money as it likes. But ...

In a Q&A back in March, Mark Thoma proposed that the Fed should simply buy up distressed assets, rather than simply accept them as collateral:

If it were my choice, If I were king of the Fed, I'd do more. First, I'd trade for any financial assets at a price ...

The Fed has added 3 new monetary policy tools on their webpage. Numbers 1-3 are in every economics textbook. Number 4 was new back in February when I first checked with my macro class. Numbers 5 and 6 were added in March.

Open Market ...

The Bank of England will need to cut rates gradually, probably allowing some slack to develop in the economy, if it is to reach its inflation target medium term, its Executive Director for Markets said Wednesday.

How does the current economic crisis compare to the Great Depression? Should Congress do anything to help homeowners and the states? Members of the Joint Economic Committee were looking to Ben Bernanke for guidance today.

As Rep. Elijah Cummings (D., Md.) told the Fed chairman: “You’re ...

The Federal Reserve System on Tuesday announced the availability of a set of dynamic maps and data that illustrate subprime and alt-A mortgage loan conditions across the United States.

The maps, which are maintained by the Federal Reserve Bank of New York, will ...

The Federal Reserve is posting maps to illustrate subprime loan conditions across the U.S.

The Fed on Tuesday announced the maps will be maintained by its district bank in New York. Monthly updates are planned. The maps will display regional variation in the condition of securitized, owner-occupied ...

Federal Reserve Chairman Ben Bernanke still sees some trouble spots in the economy, but he didn’t characterize the U.S. as being in a recession during a meeting with U.S. lawmakers Tuesday, one of the meeting’s participants said.

A few points on the new plan:

1. The Fed is smarter than other regulators, the Fed can pay higher salaries, and the Fed has more independence.

2. Ceteris paribus, the Fed usually can do a better job than other potential regulators.� If someone is going to oversee hedge funds and ...

Treasury Secretary Hank Paulson has set himself upon a Herculean task. He wants to replace the hodgepodge of financial regulators that has grown up over the past century with a Prudential Financial Regulatory Agency (“PFRA”) and a Conduct of Business Regulatory Agency (“CBRA”) (see

ECB Governing Council member Christian Noyer made the clearest public case to date for why the ECB isn’t following the Fed with interest-rate cuts.

Mr. Noyer — a noted moderate who heads of France’s central bank — commended the Fed’s proactive response in a Prague speech, saying ...

Ok. Clearly Robert Reich hate Secretary Paulson's self-proclaimed reform proposal, concluding: "Hank Paulson’s discussion paper – it's not even meant to be enacted under the Bush Administration – is not broad, it’s not an overhaul, and heaven forbid, if we’re facing another Great Depression, it will do absolutely ...

On a day that authorities proposed to give the Federal Reserve broad new regulatory powers, San Francisco President Janet Yellen argued more aggressive action may be required to address mortgage-related troubles.

How does the Fed feel about Treasury’s blueprint for a new regulatory structure? It depends partly on who you ask. By proposing to take the Fed largely out of the business of supervising banks, it creates more anguish for the 12 regional reserve banks than for the Board of Governors ...

Socialist-style Fed or financial saviour?

The cover of the latest issue of BusinessWeek shows Ben Bernanke in profile against a bright red and orange backdrop, pensively stroking his grey beard and looking remarkably like Vladimir ...

Getting your OMOs confused with your TAFs, PDCFs and TSLFs?

The Federal Reserve’s alphabet soup of innovation is running over the side of its bowl with the central bank’s new programs designed to prevent economic disaster. (Or at least prevent more of a disaster than ...

Monetary policy’s role in the economy? Limited, says Federal Reserve Bank of Philadelphia President Charles Plosser.

“There seems to be a view that monetary policy is the solution to most, if not all, economic ills,” Plosser said in a speech Friday. “Not only is this not true, it is a dangerous ...

Minneapolis Fed President Gary Stern told a London audience today he’s not concerned the central bank could run out of ammunition to boost the economy — after slashing the federal funds rate to 2.25%. “That’s not at the top of my list of concerns.”

Asked what is his No. ...

Eric Rosengren, president of the Federal Reserve Bank of Boston, discusses at a conference in Seoul the importance of the central bank having access to non-public information at financial institutions. He says the Fed’s supervisory authority over banks is helping officials understand problems in U.S. financial markets and assess ...

Atlanta Fed President Dennis Lockhart says in remarks to the Rotary Club of Chattanooga that the economy “is in a slowdown that resembles past periods that were the leading edge of a recession.” Though some strengths — such as strong business balance sheets and export growth — may prevent ...

Gary Stern, president of the Federal Reserve Bank of Minneapolis, discusses in a speech today the problem of banks being “too big to fail” (about which he co-authored a book) and the risks of government bailouts. He also addresses bubbles — as in housing today or technology stocks in ...

I would give the Federal Reserve either a C or C-, reflecting an average of one good grade and one poor grade.

The Fed has ...

Federal Reserve Bank of Dallas President Richard Fisher said monetary policy may not be the best tool to repair impaired financial markets right now, especially when inflation pressures remain worrisome.

In the current environment, ...

The global financial crisis is spreading – towards the real economy in the US and towards other developed countries. A frightening example came from Iceland, where the central bank yesterday raised interest rates by 1.25% to 15% to bring down inflationary expectations. We have not seen such action in ...

Because we're tied up doing other projects at the moment, we thought it might be fun to take a moment to consider just what the heck the Federal Reserve is doing lately. ...

The Federal Reserve Bank of St. Louis, after looking at several outsiders to succeed its retiring president, turned to an 18-year veteran of the bank’s research staff, James B. Bullard. Mr. Bullard, 47, is to take office April 1, succeeding William Poole, who is retiring after 10 years in ...

The FT leads its Saturday edition with a story that the Fed and the Bank of England have put pressure on the ECB to take part in a scheme to accept junk mortgage based paper as collateral in repo operations. The article said the idea came ...

Central banks on both sides of the Atlantic are actively engaged in discussions about the feasibility of mass purchases of mortgage-backed securities as a possible solution to the credit crisis.

Such a move would involve the use ...

"Stage III of a financial crisis is when a central bank runs out of ammunition--when pushing interest rates too the floor and swapping out all of ...

“There’s one nomination here that would be for somebody [for] 14 years,” Dodd told reporters on a ...

Central banks on both sides of the Atlantic are actively engaged in discussions about the feasibility of mass purchases of mortgage-backed securities as a possible solution to the credit crisis.
...
Any move to buy mortgage-backed securities would require government ...

The U.S. Federal Reserve, responding to press reports, said it is not discussing coordinated purchases of mortgage-backed securities with other central banks.

“The Federal Reserve is not involved in discussions with foreign central banks for coordinated buying of MBS,” a senior Fed official said.

The Financial Times reported on its web site ...

Jeff Sachs says Greenspan and the Fed are to blame for our current troubles. Greenspan disagrees:

The roots of crisis, by Jeffrey Sachs, Project Syndicate: The US federal reserve's desperate attempts to keep America's economy from sinking ... do not seem to be effective. Although ...

The Federal Reserve Bank of New York announced the terms of its first Treasury swap auction set for March 27, indicating that it will offer $75 billion in government securities to the primary dealer banks and modifying the type of collateral it will accept in return.

The Term ...

A roundup of economic news from around the Web.

From Real Time Economics (New York Fed Unveils TSLF Terms):

The Federal Reserve Bank of New York announced the terms of its first Treasury swap auction set for March 27, indicating that it will offer $75 billion in government securities to the primary dealer banks and modifying the ...

From the not-always-reliable Real Time Economics blog:

and the exception, the Royal Bank of Australia, which has been raising rates lately to fight inflation in the commodity-rich economy, to boost its key rate from 7.25% to 7.5% later this year.

This discussion of the birth of the Federal Reserve System and the regulatory responses to the problems Paul Krugman describes begins with an illustration of how to stop a bank run:

Born of a panic: Forming the Federal Reserve System, The Region, FRB Minneapolis: The banker was ...

If Bernanke believes his own research, and if the zero interest rate bound begins to come into play, we should expect to hear lots of discussion from FOMC members about the future course of monetary policy. Here are a few excerpts from papers on the topic of "Monetary Policy ...

Justin Fox follows up on the post noting that all of the current Federal Reserve Governors have been appointed by Bush:

Why is the Federal Reserve Board made up entirely of Bush appointees? Because Fed governors don't serve out their terms, by Justin Fox: Mark Thoma points out that ...

Quick hits:

FOMC Statement
http://federalreserve.gov/newsevents/pres
s/monetary/20080318a.htm

Very different statement than previous ones; the Money quotes are underlined:

Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened.� Financial markets remain under considerable stress, and the tightening of credit ...

From Reuters:

Goldman Sachs plans to test the program sometime this week, a spokesman said. Morgan Stanley Chief Financial Officer Colm Kelleher said his bank has already tested the program, and a spokeswoman for Lehman said the investment bank has also done so.

The Wall Street Journal reports that there ...

The pattern is always the same. When the Fed cuts interest rates, investors pile into the markets, pushing up share prices for a few hours. It takes then only a few hours until some other scare story comes up, and the whole process goes into reverse. US shares shot ...

As dissension in central banking goes, yesterday's discord was fairly tepid but significant nonetheless.

The Fed's whopping 75-basis-point cut on Tuesday, which lowered the Fed fund rate to 2.25%, was approved by eight and questioned by two. Richard Fisher and Charles Plosser, questioning the FOMC majority, voted against the rate cut. ...

How much ammo is left in that fed funds gun?

The Federal Reserve is trying a range of new tricks to push new forms of lending as a means of preventing what they fear may otherwise be a major collapse in financial markets. What all these strategies have in common is an unwillingness to ...

The Real Time Economics Blog collected some reactions from Wall Street concerning the rate cut. One firm chose to emphasize their concerns about inflation.

These actions were taken despite rising inflation pressures. The Fed expects these pressures will subside as energy and other commodity prices flatten out, and as ...

The Fed dutifully cut, by 75 basis points, a little less than what been expected by markets this week, but, lest one forgets this, still one of the largest ever rate cuts in history. The stock market reacted positive to the next, after some volatility.� There was a strong ...

With the Fed's target interest rate falling, there's been some worry about running up against a "zero interest rate bound." This is from Federal Reserve Governor Frederic Mishkin's textbook on monetary economics:

3. Monetary policy can be highly effective in reviving a weak economy even if short-term interest rates are already ...

Volcker: We’ve seen the Federal Reserve take more extreme measures in some respects than any that have been taken in the past to deal with a financial crisis, which ...

Former Federal Reserve Chairman Paul Volcker said the Fed’s decision to lend money to Bear Stearns Cos. to keep it from collapsing is unprecedented and “raises some real questions” about whether that’s the appropriate role for the Fed. The wisdom of the decision depends on “how severe this crisis was ...

How shall we describe what happened this weekend with Bear Stearns? The first big casualty of the credit crisis, yes. Bailout, no.

Five for five: Today’s Federal Reserve meeting marked the fifth straight meeting with dissenting votes, the first time that has happened since the central bank started announcing its policy decisions in 1994. It was also the first time since September 2002 that more than one Federal Open Market Committee ...

Economists and others weigh in on the the Fed’s decision to lower interest rate by three-quarters of a percentage point to 2.25%..

The economic factors clearly took a back seat to liquidity fears and the restoration of confidence in a system fraught with uncertainty. A prudent, economics-focused Fed would more ...

Here's the statement.

The Federal Open Market Committee decided today to lower its target for the federal funds rate 75 basis points to 2-1/4 percent.

Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets ...

Here's the Press Release:

Press Release

Release Date: March 18, 2008

For immediate release

The Federal Open Market Committee decided today to lower its target for the federal funds rate 75 basis points to 2-1/4 percent.

Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed ...

The Federal Open Market Committee decided today to lower its target for the federal funds rate 75 basis points to 2-1/4 percent.

Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial ...

They might.

So say Spencer Dale, a Federal Reserve Board economist; Athanasios Orphanides, a former Fed staff member who is now central banker of Cyprus and thus a member of the European Central Bank’s Governing Council; and Par Osterholm of the International Monetary Fund.

In ...

Federal Reserve Chairman Ben S. Bernanke may be running out of room to pump money into the financial markets and cut interest rates to rescue the economy. The Fed has committed as much as 60 percent ...

The Fed has committed as much as 60 percent of the $709 billion in Treasury securities on its balance sheet to providing liquidity and opened the door to more with yesterday's decision to become a ...

Jim Rogers:

"They are really giving up on the dollar, they are driving the dollar down, they are printing money as fast as they can. Look, the Federal Reserve has just in the last week spent 230 billion dollars taking on loans, house loans, mortgages, out of the system. This ...

Unless I'm mistaken, the Fed just took a first step toward Thomas Palley's suggested solution to our current mess:

Central Bank Offers Loans To Brokers … Historic Steps, Greg IP, WSJ, March 17: … It took a unanimous vote by the Fed's five governors yesterday to invoke a Depression-era ...

Forecasts for the Federal Reserve’s policy meeting changed following the central bank’s Sunday night move to expand its direct lending reach and lower the discount rate. Futures markets are now fully pricing in a one percentage point cut in the federal funds rate to 2%, and ...

I know it is a worn cliché, but the financial system really is in uncharted territory. The Fed's actions over the weekend are unprecedented. First there is the degree of Fed involvement. According to the New York Times -

At Economist's View, Tim Duy tries to sort out Bernanke and Co.'s next moves. In short the Fed risks a dollar collapse on one horn of its dilemma and a systemic banking crisis on the other. Which path will they choose? Or is there some way to ...

The Fed's Press Release:

The Federal Reserve on Sunday announced two initiatives designed to bolster market liquidity and promote orderly market functioning. Liquid, well-functioning markets are essential for the promotion of economic growth.

First, the Federal Reserve Board voted unanimously to authorize the Federal Reserve Bank of New York to ...

The Fed's Press Release:

The Federal Reserve on Sunday announced two initiatives designed to bolster market liquidity and promote orderly market functioning. Liquid, well-functioning markets are essential for the promotion of economic growth.

First, the Federal Reserve Board voted unanimously to authorize the Federal Reserve Bank of New York to ...

In its first weekend emergency action in almost three decades, the central bank lowered the so-called discount ...

This post continues the discussion from here. The immediate question is, of course, whether the Fed's facilitation of JPMorgan's rescue of Bear Stearns was a good idea. Here is a "no" vote from Willem Buiter (via Felix Salmon)

The Federal Reserve Act (1913) allows the Federal ...

When the Fed begins bailing out financial institutions, how does it avoid helping people who don't deserve to be helped, people who ought to be held accountable for their choices?:

The B Word, by Paul Krugman, Commentary, NY Times: O.K., here it comes: The unthinkable is ...

In an extraordinary weekend move, the Federal Reserve announced the most dramatic expansion yet of its lending, promising to lend for up to six months to securities dealers under terms normally reserved only for tightly regulated banks.

The Fed also cut the rate on such direct loans by ...

Joseph Mason, an economist at Drexel University who has studied bailouts, weighs in on the moral hazard problem created by the Federal Reserve’s intervention (in the name of market stability) to prop up Bear Stearns on Friday and the Fed’s $30 billion loan to support J.P. Morgan Chase’s purchase of ...

I have nothing against Ben Bernanke. By all accounts he is a very decent person. His predecessor, Alan Greenspan left him with a time bomb just waiting to explode in the form of the housing bubble. The loss of $8 trillion in housing wealth was guaranteed to lead to a ...

The Federal Reserve released this statement late Sunday:

For immediate release

The Federal Reserve on Sunday announced two initiatives designed to bolster market liquidity and promote orderly market functioning. Liquid, well-functioning markets are essential for the promotion of economic growth.

First, the Federal Reserve Board voted unanimously to authorize the Federal Reserve ...

The aggressive actions taken Sunday by the Federal Reserve - including a reduction in the discount rate - were aimed at providing “greater assurance” to financial institutions about their access to funds in ...

The Federal Reserve Board, aiming to alleviate the deepening crisis in financial markets, is expanding its reach as a lender and taking emergency action to encourage direct borrowing from the central bank through lower rates.

In an unprecedented Sunday night announcement that underscores the depth of the market fears, the Fed ...

From Calculated Risk:

Fed Announces New Initiatives, by CalculatedRisk: From the Federal Reserve:

The Federal Reserve on Sunday announced two initiatives designed to bolster � market liquidity and promote orderly market functioning. Liquid, � well-functioning markets are essential for the promotion of economic ...

The Federal Reserve on Sunday announced two initiatives designed to bolster market liquidity and promote orderly market functioning. Liquid, well-functioning markets are essential for the promotion of economic growth.

First, the Federal Reserve Board voted unanimously to authorize the Federal Reserve Bank of New ...

The Federal Reserve is monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system. The Board voted unanimously to approve the arrangement announced by JPMorgan Chase and Bear Stearns this morning.

Four Federal Reserve governors voted unanimously to approve a 28-day secured Fed loan facility to Bear Stearns Friday using a rarely used Depression-era provision of the Federal Reserve Act that normally requires five governors’ approval, Fed officials said.

The Fed normally has seven governors but two seats are ...

J.P. Morgan Chase & Co. and the Federal Reserve Bank of New York have agreed to provide, as necessary, secured funding to Bear Stearns Cos. for an initial period of up to 28 days.

J.P. ...

The Federal Reserve said:

“The Federal Reserve is monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system. The Board voted unanimously to approve the arrangement announced by JPMorgan Chase and Bear ...

What happens if the Fed fails to stabilize financial markets? Paul Krugman says in that case, which looks more and more likely, "The next steps will be up to the politicians":

Betting the Bank, by Paul Krugman, Commentary, NY Times: Four years ago, an academic economist ...

Let's say the new common knowledge is "this asset class isn't as liquid as ...

It so happens that the Austrian Scholars Conference this year takes place in the midst of one of the most spectacular attempts to reflate the economy ever undertaken in American history. Ben Bernanke might as well be bombing Wall Street with silos full of cash.

What we see here is different ...

I remember a Federal Reserve economist once recounting a conversation with his young daughter, who asked him, "What do you do at work, Daddy?" He answered, "I help make important decisions." "What kind of decisions, Daddy?" "Oh, things like how much money the government needs to print."

The next time the Fed sees an asset bubble inflating, what should it do? This paper argues that even if the Fed recognizes a bubble, it may not want to respond by raising interest rates. Why not? Because raising interest rates to pop an asset bubble will cause output to ...

The Fed uses the Term Auction Facility:

In another global show of financial force, the Federal Reserve and four other central banks announced significantly expanded loans of cash and securities to banks and securities dealers in an effort to alleviate growing strains in the credit markets.

From the ...

Can’t the media find any economists who don’t think that handing hundreds of billions of taxpayer dollars to the big banks and the incredibly rich people who own and manage them is a good idea? Apparently not, given the coverage so far to the Fed’s proposal to lend $200 billion ...

Early this morning, the Fed announced it would accept mortgage backed securities as collateral -- Fed Statement on Expansion of Securities Lending:

The Federal Reserve announced today an expansion of its securities lending program. Under this new Term Securities ...

The Fed expands its lending facility:

FOMC Approved Liquidity Actions, but Not, so Far, a Rate Cut, Greg Ip, WSJ Economics Blog: The Federal Open Market Committee met by conference call Monday to approve a new securities lending facility and the extension of swap lines to the European and Swiss ...

[I]n particular cases, senior management was not fully aware of the firm's latent concentrations to U.S. subprime mortgages, because they did not realize that in addition to ...

Wondering about the size of the Fed’s term securities lending facility announced today. Tony Crescenzi of Miller Tabak & Co. writes:

As of February 27th, primary dealers held the following positions:
$139.7 billion of agency securities
$ 60.2 billion of mortgage-backed securities

I mention these, because the Fed said today that ...

The Federal Reserve announced today an expansion of its securities lending program. Under this new Term Securities Lending Facility (TSLF), the Federal ...

The Fed uses the Term Auction Facility:

In another global show of financial force, the Federal Reserve and four other central banks announced significantly expanded loans of cash and securities to banks and securities dealers in an effort to alleviate growing strains in the credit markets.

From the ...

Since the coordinated actions taken in December 2007, the G-10 central banks have continued to work together closely and to consult regularly on liquidity pressures in funding markets. Pressures in some of these markets have recently increased again. We all continue to work together and ...

Douglas Elmendorf, a former senior Federal Reserve staffer and now senior fellow at the Brooking Institution, weighs in on the Fed’s “appropriate” response to “unfounded and damaging” mortgage-backed securities selloff.

Economists and others weigh in on the the Fed’s expansion of its securities lending program.

[This is] the smartest thing I’ve seen the Fed do in a long time… [The move] is based on the Fed’s existing securities lending facility with some key changes. First, the existing program is overnight ...

The following is the text of the Federal Reserve’s statement released Tuesday, March 11:

Since the coordinated actions taken in December 2007, the G-10 central banks have continued to work together closely and to consult regularly on liquidity pressures in funding markets. Pressures in some of these markets have recently increased ...

With worsening strains in credit market threatening to deepen and prolong an incipient recession, analysts are speculating that the Federal Reserve may be forced to consider more innovative responses -– perhaps buying mortgage-backed securities directly.

“As credit stresses intensify, the possibility ...

Since the start of the global financial crisis last August, monetary policy has been remarkably ineffective. The US Federal Reserve has cut short-term rates by a cumulative 225 basis points since then. Yet, borrowing costs for US consumers and companies have actually gone up. While the European Central Bank ...

I think the Fed has effectively abandoned its traditional aversion to inflation, and might even welcome a modest increase in its rate. This is why: 1. Although Alan Greenspan in his autobiography would have us believe that he didn't make any important ...

The divergence in approaches on either side of the Atlantic is likely to stoke tensions. Americans resent Europeans for not sharing the burden of stimulating the world economy, forcing them into unilateral action. Europeans resent Americans for blundering foolishly ahead, exacerbating inflation.

What will the Fed do at its next rate setting meeting? Will it cut the target rate by 75bps, 50bps, 25bps, or will there be no cut at all?:

Set to Accede to the Market?, by Tim Duy: Since last September, Bernanke & Co. have consistently sent the signal ...

Paul Krugman uses a graphical analysis to explain what the Fed is doing with the TAF:

What’s Ben doing? (Very wonkish), by Paul Krugman: The financial crisis seems to have entered its third wave. Panic in August, then partial recovery thanks to lots of money ...

Janet Yellen at a Bank of France conference cites “unpleasant combination of risks.” Excerpts below.

In the U.S. case, it is the credibility of monetary policy that, in my view, has helped to insure that the inflation shocks resulting from energy, food, materials, and exchange rates do ...

Kansas City Fed President Thomas M. Hoenig said in a speech in Brazil: There is “too much burden” on the Fed. Excerpts below.

We are placing too much burden on monetary policy in dealing with financial crises….we need to focus more attention on measures aimed at reducing ...

Frederic Mishkin says dollar depreciation has had “modest” impact on inflation.

The presence of a strong commitment to a nominal anchor in many countries–that is, the use of monetary policy actions and statements to maintain low and stable inflation–helps explain why even sizeable depreciations of the nominal exchange rate have ...

Fed Vice-Chairman Donald Kohn is “mindful” of oil’s inflation impact.

Because monetary policy has a limited ability to counter short-term price surprises, the distinction between transitory and persistent influences on inflation from oil and other factors is critical. If we were to project a continued significant rise in energy prices ...

The Federal Reserve on Friday announced two initiatives to address heightened liquidity pressures in term funding markets.

First, the amounts outstanding in the Term Auction Facility (TAF) will be increased to $100 billion. The auctions on March 10 and March 24 each will ...

Richard Fisher, president of the Federal Reserve Bank of Dallas, says in a speech in London today that his growth forecast “is one of the more bearish” among his colleagues on the Federal Open Market Committee. But he’s also one of the more hawkish Fed officials and devotes most of ...

The Bank of Japan should consider cutting interest rates to prevent an economic slowdown, said Heizo Takenaka, economy minister under former Prime Minister Junichiro Koizumi. Takenaka, answering audience questions after a speech in New York, said ...

Is the Fed, through it's operation of the Term Auction Facility, bailing out banks and assuming too much risk by accepting financial assets of questionable quality as collateral against loans?

Fed Isn't Getting Snookered by Collateral Risk, by Caroline Baum, Commentary, Bloomberg: Ever since the ...

... is from the Wall Street Journal's Greg Ip. In today's piece, "For the Fed, a Recession -- Not Inflation -- Poses Greater Threat", he writes:

So why is the Fed more worried about growth than inflation? First, it thinks run-ups in commodity prices explain the increases, not only ...

How does Bernanke jump-start the banking system? Bernanke decided that, instead of waiting for timid customers at the discount window, he would announce a series of auctions called Term Auction Facilities, or TAFs, where the high bidders would get the bank reserves. This maintains ...

In the context of macroeconomic stability, ...

The Federal Reserve left interest rates at 1% too long earlier this decade, one of the policymakers behind that decision said Friday.

“With the benefit of hindsight — and the importance of the word ...

We have known for many years that moral hazard is a potentially serious issue. If a firm believes that it will be bailed out if it ...

The Calculated Risk blog has an interesting entry about Ben Bernake's latest statement to Congress. It picked on his comments that the Fed had problems controlling long term interest rates. This is the Bernanke quote: 'We have a problem, which is that the spreads between the ...

Some analysts are saying that Fed Chair Ben Bernanke is walking a tightrope-- if he does not drop interest rates quickly enough, the U.S. will be in recession, but if he goes too far, we'll see a resurgence of inflation. I am increasingly persuaded that's not an accurate ...

Fed Chairman Bernanke to Sen. Richard Shelby (R-Ala.): “Senator, I realize my testimony wasn’t the most cheerful thing you’ll hear today.”

Many prognosticators predict a recession this year that will be worse than the mild downturn of 2001. Fed Chairman Ben Bernanke gave that view some support Thursday.

Mr. Bernanke said “both fiscal and monetary policy face some additional constraints” relative to the start of this decade, ...

Central banks take, on average, about four weeks to prepare for policy meetings. Some central banks admit their forecasts tend to “smooth” the business cycle, underestimating the strength of upturns and the depth of downturns. The most problematic aspect of publishing inflation and economic forecasts, according ...

CNNMoney calls it a "high wire act." BusinessWeek says Bernanke "faces stiff headwinds." And Allan Meltzer in today's Wall Street Journal asks if the Fed has "reverted to its mistaken behavior in the 1970s?"

The immediate source of the sobering commentary is yesterday's chit chat between the House ...

How will the Fed respond to recent evidence of heightened inflationary pressures and slower economic growth?

This Train Doesn’t Stop, by Tim Duy: Dual mandate, but one policy tool. A choice has to be made in the short run. Focus on inflation, and hold policy relatively tight? Or focus on growth, ...

Here's a video of Ben Bernanke's testimony this morning before the House Financial Services Committee and a link to a text version of his prepared testimony (video expires in 15 days):

A major threat to the economy is the squeeze on banks’ capacity to lend from, on the one hand, hits to capital from losses on subprime loans and the like, and on the other, the need to take onto their balance sheets assets that were previously held ...

Fed Chairman Ben Bernanke was dragged back to his academic career when Spencer Bachus, the top Republican on the House Financial Services Committee, asked if a “financial accelerator” was affecting the economy.

As an academic, Mr. Bernanke coined the term to describe how financial distress hurts growth which worsens the ...

Here is a look at Federal Reserve Chairman Ben Bernanke’s statements in today’s congressional testimony on major economic themes, followed by commentary from economists.

Bernanke: A critical task for the Federal Reserve ...

The economic situation has become distinctly less favorable ...

Many of the challenges now facing our economy stem from the continuing contraction of the U.S. housing market. In 2006, after a multiyear boom in residential construction and house ...

Has the Fed been too timid with rate cuts? Or too aggressive? The Congressmen who will grill Fed Chairman Ben Bernanke today almost certainly are more likely to say the first rather than the second. But a panel of experts who appeared before the same panel Tuesday ...

Federal Reserve Vice Chairman Donald Kohn suggested policymakers may need to lower rates still further to offset the “important” risks facing the economy.

Kohn also said that while recent inflation data have been disappointing, price ...

John Mauldin points out this morning that the Fed cut something else recently -- their economic projections for 2008:

Source:
The Muddle Through Fed� ��
John Mauldin
Frontline, Feburary 22, 2008
http://www.frontlinethoughts.com/printarticle.
asp?id=mwo022208

The U.S. central bank must serve both sides of its mandate and not allow concerns over rising unemployment to overwhelm its duty to rein in inflation, Dallas Federal Reserve President Richard W. Fisher said Friday in Fort Worth, Texas.

The is the question that the NYT should have asked in its discussion of the prospect of stagflation: rising inflation coupled with slow economic growth. The reason that lower Fed rates may not promote growth is that the recent cuts in short-term rates have actually been associated with higher ...

After voting to cut interest rates by one-half percentage point at their Jan. 29-30 meeting, Fed officials turned to a diagnosis of the current credit mess, the minutes of the Federal Open Market Committee, released today, reveal.

First came the general diagnosis. “A staff presentation began by noting that the ...

Many wait for Ben Bernanke and his colleagues at the Fed to save the economy from further turmoil. The reality, though, is that monetary policy is limited in addressing the crisis. In particular, the economy is slowing because the housing boom is over, which was caused and fuelled by deteriorating ...

John Berry says the Fed may disappoint "investors and traders who are convinced officials will have to do another 50 basis-point cut":

Fed Forecasts Clash With 'Downside Risks' Policy, by John M. Berry, Commentary, Bloomberg: ''Downside risks'' have become a mantra recited by Fed Chairman ...

Since financial innovations can amplify the impact of financial-market events on the real economy, the Federal Reserve’s aggressive rate cuts are the right way to prevent market turmoil from exacting a major macroeconomic toll. While this sounds like the rationale recently offered by some Fed policy makers, the verdict of ...

Federal Reserve Bank of Minneapolis President Gary Stern defended recent central-bank rate cuts as “wholly appropriate,” and he warned the U.S. economy may be in for a period of weaker growth.

The Fed “has taken appropriate policy steps to respond to a financial shock” that parallels the financial strains seen in ...

US banks have been quietly borrowing massive amounts of money from the Federal Reserve in recent weeks by using a new measure the Fed introduced two months ago to help ease the credit crunch. The use of the Fed’s ...

This is interesting.

NEW YORK (Reuters) - Banks in the United States have been quietly borrowing "massive amounts" from the U.S. Federal Reserve in recent weeks, using a new measure the Fed introduced two months ago to help ease the credit crunch, according to a report on the web site ...

Should we be worried that the Fed is worried about our worries about inflation?

Tales from the TIPS, by Tim Duy: Sure, the Fed cares about inflation….but enough to do anything about it? If inflation did begin to edge up, does anyone believe the Fed would ...

Tim Duy says the Fed is looking for some level land where they can pitch a tent, rest up for awhile, and assess the economic geography before setting out again in one direction or another:

Fed Set to Cut Again, But Looking For a Chance to Pause, by Tim Duy: Reading

I actually read Ben Bernanke's testimony today all the way through to the end - this should get me a gold star from Barry Ritholtz, at the very least. The not-particularly-surprising news, of course, is that he'll continue to cut rates. That's the main thing: actions speak ...

"At present, my baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal stimulus begin to be felt," Mr. Bernanke ...

As Ben Bernanke testifies before the Senate Banking Committee today, Sudeep Reddy looks at how the economy affects the Fed chairman’s chances of being reappointed for a second term.

A significant economic recovery this year could bolster Mr. Bernanke’s credibility with Wall Street and the public. ...

Many economists say the Fed’s interest rate cuts are less potent than usual because first, the most interest-sensitive part of the economy, housing, is a deflating bubble, and because credit markets are so dysfunctional that the rate cuts aren’t filtering through to the rates consumers and businesses ...

Federal Reserve Chairman Ben Bernanke told Senate Republicans at their weekly closed-door luncheon that he expects the housing sector to start improving later this year.

“He led us to believe that the housing situation should begin to ameliorate by the end of the year… not get over with, ...

Outgoing St. Louis Fed president William Poole gave a speech to the St. Louis NABE today. I linked to the Reuters story in the previous post. Now, I would like to post some excerpts from the speech that didn't make the wires. Most of the speech ...

Via Reuters:

ST. LOUIS (Reuters) - The U.S. appears likely to avoid an economic slowdown but the chances of a recession have risen, St. Louis Federal Reserve Bank President William Poole said on Monday.

"I think the best bet is that we will not have a recession," he said in response ...

Janet Yellen, president of the Federal Reserve Bank of San Francisco, became the first Fed official since last month’s aggressive cuts to stress downside risks to growth over inflation concerns. In remarks to financial analysts in Honolulu Thursday night, Ms. Yellen said housing declines, financial-market turmoil and a softening ...

Tim Duy states the differences between Japan in the 1990s and the US today and what that means for monetary policy, and he follows up on earlier comments on Fed independence:

Japan Again?, by Tim Duy: I understand the temptation to compare the current US situation to that ...

Tim Duy assesses the Fed's next moves in light of recent speeches by members of the FOMC and new data on the state of the economy:

Fear Not Plosser, by Tim Duy: Philadelphia Fed President Charles Plosser delivered a sobering speech today, including a reference to the 1970’s:

Unfortunately, I expect ...

In today’s Journal Damian Paletta looks at Fed Chairman Ben Bernanke’s date book for 2007 and January 2008, noting meetings with some high-profile figures as concerns about the economy continued to grow. “It’s ...

Two adjustments will continue to be needed to help work down the large number of unsold homes: further cuts in construction and declines in housing prices. I ...

Charles Plosser, president of the Federal Reserve Bank of Philadelphia, resumed a hawkish tone today after the central bank’s aggressive rate cuts last month. In a speech to the Birmingham Rotary Club in Alabama, Mr. Plosser said he expects a weak economy in the first half of this ...

Michael Mandel thinks so.

Here’s a thought…maybe part of the reason the credit markets are in such bad shape because the Fed raised rates too fast and too high. Think about it—they started raising rates in June, 2004. It was a quarter point increase, from 1 to 1.25. Two years ...

Kicking off the first round of Fed speeches since last month’s steep rate cuts, Richmond Fed President Jeffrey Lacker said further easing “ultimately may be warranted.” Mr. Lacker said he expects “lethargic” job growth and “sluggish” overall economic activity — raising the prospect of a mild recession. ...

Tim Duy looks at the state of the economy and how the Fed is likely to respond:

Still Looking at More Easing, But…, by Tim Duy: Last week was, to say the least, interesting from a data and policy perspective. On average, incoming information points to additional easing in March – ...

Willem Buiter of the LSE requests--satirically--that the Fed pursue its recent policy more directly:

It is now clear beyond a reasonable doubt that the Fed wants to prevent sudden sharp drops in the stock market.� It has not, however, drawn the logical conclusion from this endogenous widening of its ...

As the Fed drops interest rates, I've been trying to sort out all the channels that monetary policy will affect output, and which ones are likely to be short circuited this time around.

The Journal’s Greg Ip discussed how the Federal Reserve under Ben Bernanke communicates in a speech to the Money Marketeers of New York University on Jan. 16. Ip said: “Much of what we’ve experienced has little to do with Bernanke per se or even communications, but the ...

So it was to be 50bp after all: Ben Bernanke has proved himself capable of following through in the two-step rate cut he initiated a week ago, even in the knowledge that cutting 125bp over the course of little more than a week might seem a little panicky.

Bernanake ...

Today the Federal Reserve announced a further 50-basis-point cut in its target for the fed funds interest rate, bringing it down to 3.0% for a total reduction in January of 125 basis points. How long should it take before this has an effect on the economy?

As always, let's lead off with the statement itself. From the Federal Reserve website (which was noticeably slow due to heavy traffic around the time the statement came out):

The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to ...

The latest fad in monetary policy: Dissenting on the Federal Open Market Committee. Today’s Federal Reserve decision marked the fourth straight meeting in which a Fed official has voted against his colleagues, an unprecedented willingness among FOMC members to object so openly to Fed decisions.

Economists and others weigh in on the the Fed’s half-percentage-point reduction in interest rates.

We anticipate that Bernanke and his FOMC will continue with an aggressive course of rate cutting in order to boost economic growth. It’s looking less certain, however, that Fed action will be able to help the ...

Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

That is the question that reporters covering the latest rate reduction should be asking. When the Fed announced its 0.5 percentage point rate cut this afternoon, something very interesting happened: long-term interest rates rose. The 10-year treasury rate jumped by about 5 basis point when the Fed announced its rate ...

Here's the press release:

For immediate release

The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 3 percent.

Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates ...

The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 3 percent.

Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a ...

On Tuesday, House Financial Services Committee Chairman Barney Frank told Reuters a Democratic president might want to appoint a Federal Reserve chairman in 2010 “more in tune with Democratic views,” implying ...

Former Fed Chairman Alan Greenspan said central banks and governments probably can’t keep the U.S. out of recession even with the right policies. “Global forces can now override most anything that monetary and fiscal policy can do,” he said in an interview with Germany’s Die Ziet, published today. ...

Last Tuesday, January 22, 2008, the US central bank lowered its federal funds rate target by a hefty 0.75% to 3.5%. The panicky decision to lower the fed funds rate target was made ahead of the Fed's meeting at the end of this month. Last Tuesday's cut by ...

The news that over a million homes went into foreclosure in the US in 2007, affecting about 1 per cent of all households or around 3 million people, supports the view that foreclosure has taken over from bankruptcy as the primary mode of financial catastrophe.

As with bankruptcy, ...

David Leonhardt has a thoughtful analysis of Bernanke's first two years as Fed chairman today. However, at one point he comments that presidential candidates usually refuse to talk about the Fed to show that they realize it is an independent body.

While this may accurately describe the efforts of presidents ...

Where we differ is the point at which monetary policy loses its effectiveness - I think that happens way before i-rates hit zero.

Tomorrow the Federal Reserve will announce its target for the federal funds rate. Futures markets were pricing in a better than 76% chance of a half-percentage point cut to 3% from the current 3.5% rate. Most economists are expecting a half-point reduction, while some argue that the ...

As the government moves closer to finalizing a fiscal stimulus package, the Federal Reserve must decide what influence, if any, the legislation should have on policy. Two former Fed economists, Douglas Elmendorf of the Brookings Institution and Vincent Reinhart of the American Enterprise Institute, argue that fiscal stimulus shouldn’t stop ...

Willem Buiter:

A helpful suggestion for the Fed, by Willem Buiter: It is now clear beyond a reasonable doubt that the Fed wants to prevent sudden sharp drops in the stock market. ... I propose that the Fed put its money where its heart ...

The Federal Reserve’s new loan auctions — designed to ease banks’ worries — are getting trickier to navigate as policymakers weigh substantial cuts in interest rates. That could translate into one of the lowest participation rates since the Fed started the auctions last month, says Ray Stone ...

A roundup of economic news from around the Web.

Beyond Stimulus: In the Financial Times, Lawrence Summers says more is needed beyond fiscal stimulus to repair the economy. “Along with macro-economic stimulus in the U.S., there is the need for further policy development in three other areas — repair of ...

There is now, as the British say, clear blue water, between us Europeans, and the Americans. To me, it seems, that the Americans are panicking. The 75bp rate cut was a sign of panic. It was an unnecessary overreaction, as will be the likely 50bp cut that follows this ...

Within minutes of last week’s rate cut by the Federal Reserve , market analysts predicted that the European Central Bank would have to do the same. When the US sneezes – you know the rest.

It is not ...

Tim Duy tries to figure out what the Fed and the economy will do next. All I can say is good luck:

Sometimes It Is the Path, Not the Destination, by Tim Duy: I spent much time this weekend – as is often the case – considering the path of economic ...

Fed Chairman Ben Bernanke’s newfound urgency in addressing the risk of recession can be traced in part to the insights he gleaned from his pioneering research on the financial system and the Great Depression.

Last ...

In this week’s Capital column, David Wessel notes that the Federal Reserve didn’t expect the economy to be as bad as it’s turning out to be. They — like most of Wall Street — got it wrong. That isn’t a communication problem; it’s a forecasting ...

Fed Chairman Ben Bernanke will present his semiannual monetary report to Congress on Feb. 27 and Feb. 28, congressional sources said.

The dates, chosen to follow a congressional recess, are unusually late: The testimony usually occurs by around the 15th. The dates could change though the sources said that was unlikely.

The ...

Oberlin economist Ken Kuttner notes that one of the findings in the 2004 paper he co-wrote with Fed Chairman Ben Bernanke on the market reactions to surprise Fed rate moves was that stocks rose following cuts — unlike Tuesday’s action.

“Strictly speaking, this will not line up ...

Tuesday’s 0.75 percentage point rate cut was “not done in response to the drop in world stock markets,” says University of Richmond economist Dean Croushore. “It was done mainly to facilitate credit flows,” he says. “Bernanke’s research shows that when credit stops, the economy flops.”

Fed Chairman Ben ...

My blog entry about the surprise rate cut yesterday was very much a gut reaction, put out very quickly as my gate was being called at Heathrow. But it's received a lot of attention in the blogosphere, and with 24 hours' hindsight (and a bit of embarrassment about ...

The main news in all the economic press in Europe and elsewhere is the 75bp rate cut by the Fed. The impact on markets were surprising muted, as markets could not make up their mind about whether or not the Fed is in panic. Another rate ...

The International Monetary Fund said Tuesday a “significant” slowing in the global expansion appears inevitable, but applauded the Federal Reserve Board’s interest rate cuts as the right medicine.

“The process of restoring financial market stability will be complex and protracted,” Masood Ahmed, Director of External Relations at the International ...

Some eyebrows were raised on Wall Street that the members of the Federal Open Market Committee voting in favor of Tuesday’s rate cut were the same as those that voted at the Dec. 11 meeting.

Normally, four of the 12 voting members rotate each year. Thus, the presidents of the ...

The decision of the US Federal Reserve to cut interest rates by 0.75 per cent is as clear a sign of panic on the part of the monetary authorities as we’ve seen since the 1987 stock market crash. It’s not entirely coincidental that it followed a dreadful week on Wall ...

I can't say I expected this to happen today. So far so good, stock markets are recovering, at least for the moment, but the 75 basis point cut is aggressive and makes me wonder if there are things the Fed knows that we don't. In that sense, I hope this ...