Fed lately always bringing up what they call their dual mandate in the FRA of “maximum employment with stable prices” (Powell a lawyer so ofc always looking at the law) while AT THE SAME TIME planning for a 55% reduction in equity prices....
I got news for these Art Degree people; a 55% reduction in price ain’t stable... hate to break the news to you...
Fed worst case test scenario includes a 55pc drop in equities ... AFR
— Trading Floor Audio (@TradeFloorAudio) February 14, 2021
In wake of Global Financial Crisis, Federal Reserve has run annual stress tests on America’s banks and the 2021 tests will include a scenario in which US equities plunge 55 per cent.https://t.co/3hv7zdAysD
12 comments:
I quite agree with Matt’s jaundiced view of “arts degree” people.
Re the ever popular “dual mandate”, the whole idea is BS. Reason is thus. Under the single mandate, a central bank targets just inflation, i.e. it aims to keep demand up to the level where the result is 2% inflation or whatever the target is. But that necessarily involves maximising employment in as far as that is consistent with not exceeding the inflation target. So a single mandate inevitably involves a dual mandate: targeting both inflation and unemployment. Unfortunately that point will be way beyond the comprehension of the art degree folk.
Well Ralph it would be like an aerospace scientist being told to design a stable air frame (where it would be subject to perhaps 1/2 of a G acceleration) and then planning on the airframe having to survive a 3G acceleration (which would kill all the occupants)
iow (to me) it’s like they are actually planning to fail...
The only way we'll see a 55% reduction in equity prices is if we have fiscal contraction, and that's not going to happen.
Doesn't the mandate(s) fall with your Congress?
I thought the Fed's existence was just an excuse for rich white guys to get together once a month for cigars and drinks.
"The only way we'll see a 55% reduction in equity prices is if we have fiscal contraction, and that's not going to happen."
Mike, no podcast this week?
Is it this coming week that you will be skydiving over the Grand Canyon?
"quite agree with Matt’s jaundiced view of “arts degree” people."
Ralph, Matt's just kidding about "arts degree" people. The same way he kids when he blithely writes here about nuking this place or that. Just kidding :)
“ if we have fiscal contraction, and that's not going to happen.”
I’d say it’s a coin flip ... Dems want more stimmy but the Chamber of Commerce wants everyone motivated to get back to work...
“ Matt's just kidding about "arts degree" people.”
We have them out of position Greek...
OTOH if the Fed gets their 55% equity price reduction then they are all going to shit their pants and likely hood of more stimmy increases...
Chimps pulling levers.
“ Doesn't the mandate(s) fall with your Congress?”
Greek they wrote the law (Federal Reserve Act) so ultimately they have the responsibility... but FRS has been given this mandate in the law... under direction of Treasury Secretary...
So iow they are supposed to be fomenting stable prices...
So they are regulating capital and letting the prices adjust (potentially 55% here) ... instead of stabilizing prices and adjusting capital. e.g.
If you want to stabilize price you don’t make price the process controlled variable and then arrange the system to allow a 55% variation in the same variable.... that is the variable you are (allegedly) seeking to stabilize...
So this is hard to understand how these people’s brains work...
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