Balancing Inflation and Growth Part 8 of 13
Balancing Inflation and Growth Part 8 of 13
Over the same period, the dollar has declined nearly 3 percent against the euro. We know that monetary policy acts with a lag of commodities trading systems, but even with my well-documented pessimism about the efficacy of lowering the fed funds rate to 3 percent, I had privately hoped, against the odds, that we might get a psychological pop out of the yield curve. Instead, we have heard more and more reports of inflationary concerns, and with them increases in longer-term rates and record low exchange rates for the dollar.
Mind you, all these signals could be aberrations-twitches in markets that have occasionally led me to wonder if they were afflicted with the financial equivalent of Tourettes syndrome. But they might also indicate that the markets are unnerved by the idea of further monetary accommodation in a world where commodity prices and commodity day trading inch upward almost on a daily basis and labor costs escalate in Chinese factories, among Indian programmers and all along global supply chains.
I am going to dwell on inflation for a few minutes because I consider it a critical issue. I spoke earlier of Churchills ship of purpose. As my FOMC colleague Governor Rick Mishkin argues so eloquently, it is essential that monetary policy firmly anchor inflation expectations. If the Federal Reserve has an overarching purpose, in my opinion, it is to make sure that anchor stays firmly in place.
Balancing Inflation and Growth Part 1 of 13
Balancing Inflation and Growth Part 1 of 13
It is an honor to speak here in London to the Society of Business Economists at the suggestion of my much-admired friend, Charlie Bean at the Bank of England. Charlie is on the advisory board of the Dallas Feds Globalization and Monetary Policy Institute, and we are most grateful for his platform trading insight and, not unimportantly, his wit.
I am on my way to a conference in Paris to learn commodity trading, where I have been invited by the Banque de France to comment on a paper by another of our institutes esteemed advisors, Harvard professor Ken Rogoff. I hope my French hosts will forgive me for bringing up my favorite of all of Shakespeares histories this evening, Henry V, as I recall one of the more pleasant moments during my tenure on the Federal Open Market Committee. During our last meeting with Alan Greenspan as chairman, some of us took advantage of the moment to ham it up and work a farewell salute into our otherwise somber interventions. I chose to adapt Henrys speech to the troops at Agincourt. Affecting my best Kenneth Branagh imitation, I mangled the words of the Bard: We few, we happy few, we band of bankers, and so on, concluding with the observation that other economists now abedit was morning when we metshall think themselves accursed they were not here, and hold their policy prescriptions cheap while any speaks that served in Alan Greenspans days.
Balancing Inflation and Growth Part 2 of 13
Balancing Inflation and Growth Part 2 of 13
When I finished, Alan looked down the table and said, President Fisher, was that Henry V? Yes, Mr. Chairman, I replied. I know Ive reached retirement age, said the ancient chairman. I went to high school with that guy.
Would that we could today enjoy commodity trading courses such levity from the days when SIVs, CDOs, ARS and SLARS and VRDOsor the R or the S words, as in recession and stagflation were not yet part of the polite lexicon of monetary circles. These are not the happiest of times. These are, to put it euphemistically, challenging times for central bankers. We are confronted with the twin evils of slower growth and higher inflation, while also having to fight a banging hangover that resulted from allowing financial intermediaries to party on too hard for too long.
The monetary policy and regulatory frameworks that commodity future trading system appeared to serve us so well in past decades are being stress-tested in ways that few dared imagine during that bucolic period when many were lulled into assuming things would be forever NICE, as Mervyn King so memorably put it. We know now that a Non-Inflationary Consistent Expansion is not the steady state of nature. Neither is the Great Moderation of both the economy and financial market volatility.
Balancing Inflation and Growth Part 5 of 13
Balancing Inflation and Growth Part 5 of 13
Some argue it is the slowing economy. Even if you foresee the most likely U.S. scenario as a period of flat growth for a few quarters, followed later in the year by a return to potential growth of about 3 percent, one cannot help but worry about whether the so-called tail risk commodity trading companies the odds of the worst-case scenario on the growth distribution curve unfoldingis getting fatter as the inventory of unsold homes continues to swell, consumers sense of wealth and businesses confidence erodes, and the solicitous bankers that used to court them become more coy.
Yet, the worst-case scenario remains very much a tail risk. As Chairman Bernanke noted in testimony before Congress last week, the nonfinancial sector has held up reasonably well and continues to expand. Employment growth is weakening and consumer confidence is sagging, but inventories and other indicators remain constructive. You can see evidence of this in the fourth quarters corporate performance. Thomson Financial reported last week that own 22 percent for the 462 S&P 500 companies that have so far released their numbers for the quarter. But strip out the financial institutions, and earnings were up 12 percent, and 62 percent of those 462 companies reported earnings that topped analysts expectations. In all, that is not bad when you consider the beating the financials have taken and how stocks of housing and housing-related companies have been pummeled.
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