Tuesday, September 24, 2013

William C. Dudley — Reflections on the Economic Outlook and the Implications for Monetary Policy

We have a chicken-egg problem. If the saving rate remains stable, then stronger consumption growth will require a pickup in income growth. But for income to rise, demand must increase. This suggests that there may need to be an impetus to growth from other sectors of the economy to generate a boost in consumer spending growth.
Reflections on the Economic Outlook and the Implications for Monetary Policy
Remarks at Fordham Wall Street Council, Fordham University Graduate School of Business, New York City, September 23, 2013, Remarks prepared for delivery
William C. Dudley, President and Chief Executive Officer
Federal Reserve Bank of New York

1 comment:

Ryan Harris said...

The important part of this article isn't the economic analysis but the nuts and bolts description of how the NY fed is going to be setting overnight rates in the repo/ money markets and also improving availability of treasury securities at month end for institutions that need to post collateral. A very high proportion of trades were failing to deliver under new banking regulations and in essence forcing everyone to fake month end reporting with window dressing trades that everyone knew would never clear once the ink dried on the accountant's reports. Also the Central Bank Borrowing from non-dealer, non-banks in the shadow banking industry is new and novel... These are fundamental changes in the operational reality of the system. The basic MMT story about excess reserves not being loaned out, the QE duration transformation explanation, etc changes slightly with this, it makes some claims more explicit and requires changes to other MMT descriptions. Fannie or Freddie or General Electric or an investment bank will be loaning cash DIRECTLY to the Fed in exchange for treasury securities... a more important detail is that this enables the Fed to set rates higher and also possibly manipulate the yield curve by selecting which duration of securities they make available as collateral?