FT: Bair on Volcker and the Fed

Today, the Financial Times published Sheila Bair’s Opinion piece “The Fed must emulate the tactics of Volcker’s fight against inflation.” Sheila notes that:

  • US Federal Reserve chair Jay Powell has expressed deep admiration for the legendary Paul Volcker, yet Powell is deviating from Volcker’s methods.
  • Volcker fought inflation by restraining growth in money supply to keep monetary policy tight through two recessions to finally beat inflation.
  • For many years, the Fed has unwisely paid little attention to the huge volume of money its accommodative polices have created. It now needs to follow Volcker’s example and attack excess money supply head-on.

We look forward to any comments you might have.

To view the full article:
https://www.ft.com/content/b82082c9-d26a-47a5-8b1a-34121f572645

Sheila Bair is a former chair of the US Federal Deposit Insurance Corporation and a senior fellow and Advisory Board member at the Center for Financial Stability.

Barnett on “Why were the Fed’s inflation forecasts so wrong?”

Professor William A. Barnett – CFS director of Advances in Financial and Monetary Measurement (AMFM) – questions “Why were the Fed’s inflation forecasts so wrong?”

He then addresses limitations in the modeling approach at the Federal Reserve and – more importantly – offers ideas for the future.

To view Bill’s opinion piece…
https://www.kansascity.com/opinion/readers-opinion/guest-commentary/article260903877.html

Brace Yourself: Mass Inflation Warning

CFS Chairman of the Advisor Board William R. Rhodes was interviewed by Trish Regan of American Consequences. They discussed the dangers of inflation, and the need to tackle it rapidly so it doesn’t turn into a more serious problem of stagflation or hyperinflation as the US experienced in the late 70s and early 80s. Bill also points out that the inflation problem is not unique to the US; it is also a problem for the UK, continental Europe and other countries as well. He states that the time for action on reducing inflation and rising prices is now, before it becomes embedded in the expectation levels of the population.

Listen to the Interview Here.

FRB Governor Randal Quarles Offers Parting Thoughts

Commentary by Steven Lofchie

Former Vice Chair for Supervision Randal K. Quarles covered a broad range of topics in his farewell remarks. He celebrated the overall strength of the banking system and suggested areas where there is latitude for regulatory change or recalibration.

“But I did at the time, and still do, have concerns about the possible precedents that have been created by the novel [credit] facilities that we [the Federal Reserve] created [as a reaction to the pandemic].”

Federal Reserve Board Vice Chair for Supervision Randal K. Quarles

Read his remarks, Between the Hither and the Farther Shore: Thoughts on Unfinished Business.

Fed Gov Waller Discussion

The Center for Financial Stability (CFS) hosted remarks and a discussion with Federal Reserve Board Governor Christopher J. Waller on the economic and monetary outlook on Friday, November 19.

Remarks and the discussion are available at:
https://youtu.be/hQIA4bVFKXw

Thanks also to Howard Marks, John Ryding, Michelle Caruso-Cabrera, Colin Teichholtz, Nick Sargen, Colby Smith, Nick Silitch, Lisa Lee, Bruce Tuckman, and Jeff Young for excellent questions.

Discussion with Fed Gov Waller on Economic and Monetary Outlook

The Center for Financial Stability (CFS) will host remarks and a discussion with Federal Reserve Board Governor Christopher J. Waller.  Governor Waller will focus on the economic and monetary outlook.

Prior to his appointment at the Board, Chris served as executive vice president and director of research at the Federal Reserve Bank of St. Louis since 2009.  In addition to his experience in the Federal Reserve System, he served as a professor and the Gilbert F. Schaefer Chair of Economics at the University of Notre Dame.

Date:  Friday, November 19, 2021
Time:  Program begins promptly at 10:45 a.m. and ends at 12:00 p.m.

Remarks and discussion will be live streamed and can be viewed later at: https://youtu.be/hQIA4bVFKXw

Today’s WSJ: “How the Fed Rigs the Bond Market”

Today, The Wall Street Journal published my op-ed titled “How the Fed Rigs the Bond Market.”  Themes include:

High inflation should no longer be surprising, nor should it be labeled “transitory.” Its existence should prompt serious reflection on policy decisions and spur action to avoid a financial crisis.

The big issue is financial stability.

– The U.S. Treasury bond market has been rigged and manipulated since the Federal Reserve’s second quantitative-easing program began in 2010. The consequence of this blurred line between Fed and Treasury responsibilities—”monetizing the debt”—is inflation.

– Sales by the infamous “bond vigilantes” used to serve as a warning of inflationary policies. The signal has been muted.

The op-ed offers specific actions for Congress, Treasury, and the Fed to defuse imbalances and gradually restore market dynamics to the determination of bond yields.

We look forward to any comments you might have.

To view the full article:
https://www.wsj.com/articles/how-the-fed-rigs-the-bond-market-inflation-yields-financial-crisis-treasury-11637165868

Thoughts on inflation

This morning, Bloomberg’s John Authors said it well “We have October’s inflation numbers, and they were bad. Indeed, they were worse than the worst fears, with U.S. CPI exceeding the highest estimates provided by economists to Bloomberg. When you go below the surface, they’re even more troubling than they look.”

Macro and financial market analysis often includes a bit of guesswork. However, there are certain mathematical forces of nature in markets, economics, and debt management that are frequently ignored. Money, the government’s budget constraint, and the resulting seigniorage tax are among them.

Under the leadership of Professor William A. Barnett, the Center for Financial Stability (CFS) has provided many tools for investors and officials to reduce the probability of errors in making meaningful decisions.

Here are a few to help frame the new debate around what John Authors suggests is “how long it will last.”

Two Measures for the Fed and Investors
https://centerforfinancialstability.org/research/Measures_Fed_110221.pdf
Inflation Fears Offers the Fed a Chance to Modernize with Money
https://centerforfinancialstability.org/research/Modernize_Money_042621.pdf
Post-Pandemic Economic Risks
https://centerforfinancialstability.org/research/Post_Pandemic_Economic_Risks_050521.pdf
Advances in Monetary and Financial Measurement (AMFM)
https://centerforfinancialstability.org/amfm_data.php

We look forward to any comments you might have.

Barnett Keynote on BREXIT at UK Conference on Uncertainty, Risk Measurement and COVID-19 Challenges

CFS Director of Advances in Monetary and Financial Measurement (AMFM) Professor William A. Barnett delivered the keynote lecture “Is the BREXIT Bifurcation Causing Chaos in the United Kingdom?”

Bill’s remarks explore:

  • Why is Brexit changing economic risk without a source of external shocks?
  • Mathematical properties of chaos with relevance to BREXIT and U.S. monetary policy.
  • Why chaos is not necessarily bad. It is normal in nature (weather, climate, etc.) and is relevant to science and economics. Chaos contains useful information.
  • The United Kingdom and United States economies have undergone significant structural and policy changes in the past decades rendering chaotic dynamics more relevant.
  • Meaningful policy implications stem from the existence of Shilnikov Chaos.
  • Shilnikov chaos, produced by interest rate feedback policy with sticky prices, explains the downward drift of interest rates over the past 20 years.
  • Interest rate feedback policy rules need to be augmented by simultaneous use of a second policy instrument focused on the long run to avoid unintentional downward drift of interest rates to their lower bound.

For the slide deck…
http://www.CenterforFinancialStability.org/speeches/UK_bifurcation_Barnett.pdf
For the lecture…
https://www.youtube.com/watch?v=W2URCxL5owU&ab_channel=KUDepartmentofEconomics%20