Wednesday, January 18, 2017

Janet Yellen — The Goals of Monetary Policy and How We Pursue Them

Board of Governors of the Federal Reserve System

Chair Janet L. Yellen

At the Commonwealth Club, San Francisco, California

January 18, 2017


Postkey said...

"That said, as of last month, I and most of my colleagues--the other members of the Fed Board in Washington and the presidents of the 12 regional Federal Reserve Banks--were expecting to increase our federal funds rate target a few times a year until, by the end of 2019, it is close to our estimate of its longer-run neutral rate of 3 percent.

The term "neutral rate" requires some explaining. It is the rate that, once the economy has reached our objectives, will keep the economy on an even keel. It is neither pressing on the gas pedal to make the car go faster nor easing off so much that the car slows down."

"There are other significant ‘anomalies’ that have challenged the old as well as the new mainstream approaches. While theories place great store by the role of interest rates as the pivotal variable that has significant causal force, empirically they seem far less powerful in explaining business cycles or developments in the economy than theory would have it. In empirical work, interest rate variables often lack explanatory power, significance or the ‘right’ sign. When a correlation between interest rates and economic growth is found, it is not more likely to be negative than positive. 6 Interest rates have also not been able to explain major asset price movements (on Japanese land prices, see Asako, 1991; on Japanese stock prices, see French and Poterba, 1991; on the US real estate market see Dokko et al., 1990), nor capital flows (Ueda, 1990; Werner, 1994) – phenomena that in theory should be explicable largely through the price of money (interest rates). Furthermore, in terms of timing, interest rates appear as likely to follow economic activity as to lead it."
Towards a New Research Programme on
‘Banking and the Economy’ –
Implications of the Quantity Theory of Credit for the
Prevention and Resolution of Banking and Debt Crises

Postkey said...

"Firstly, if interest rate reductions are so important and so useful, why have the many reductions to currently unprecedentedly low rates, unseen in world history, not stimulated the economy significantly? Secondly, it is an empirical fact that interest rates do not stimulate growth, but they follow growth, and are positively correlated. They are thus not a policy tool to manage growth, and if they were causally responsible for growth, due to their positive correlation central banks would have to raise rates to stimulate growth!"

Footsoldier said...

It's unbelievable when you think about it.

The interest rate hike weakend the $ and gold soared. So what did the zombies do today on the back of the CPI figure. They sold gold and bought the $.

They learn nothing they are like a bunch of religious fundamentalist sheep.

Matt Franko said...

Ain't it great to be us!?!?!

Penguin pop said...

Footsoldier, they are what Mike would call the Mousey Boys and the Cockroaches. Good name too for them.

Footsoldier said...

For sure.

What a great way to manipulate your currency roll out stooges on Bloomberg and Rueters and tell the sheep your not dipping them today they are going to be sheared instead.