The Fed Is Losing Control Over Core Inflation

Written by Steven Hansen The Federal Reserve FOMC meets next week to review the economy and argue monetary policy.  For those who see economic policy as black or white, I have a bridge to sell you. Low interest rates are economically stimulative – or at least should be.  Yet many years into the Fed’s ZIRP …

Out of the Garden of Europe and into the World Economy

by Macrotides Monetary policy is a bit like watering a garden. Its nourishment is intended to foster growth and jobs, and when in full bloom, a rising standard of living for the majority of people in society. A functioning spigot (central bank) and nozzle at the end of the hose (banking system) are needed for …

Is Decoupling Possible in a Global Economy?

by Macrotides An improvement in U.S. economic data in the fourth quarter has convinced many investment strategists that the U.S. will continue to grow 2% to 3% in 2012, absent a Lehman Brothers type of crisis in Europe.  After all, U.S. GDP growth likely exceeded 3% in the fourth quarter, while Europe was slipping into …

More Unwise Trade Intervention Likely

by Michael Pettis Last week’s Senate bill on Chinese currency intervention predictably enough brought out all the same old arguments about international trade, and just as predictably has hardened the opposing positions in the debate. Unfortunately the difference between a good outcome, intelligently negotiated, and a bad outcome, is pretty large, but with each side …

Nominal GDP Targeting

by Dirk Ehnst

Paul Krugman has embraced nominal GDP targeting. And we are back at the old QE discussion. It is Richard Koo in the red corner, vs Paul Krugman in the blue corner. One is left with the impression that the whole case for a nominal GDP target is based on dubious assumptions and mixed evidence at best. The case for fiscal policy is much more clear-cut. Targeting nominal GDP is OK with me, as Paul Krugman says, why exclude the fiscal side? As it stands, it is a lender’s strike. Investors want to see aggregate demand rise, and not expect that it rises. Only then you get back to talking about credibility and confidence and all those things. Since we are in a situation which resembles the Great Depression, I am not aware that any country escaped from that event by changing expectations. Two things did it: exiting the gold standard (which gave you control over the interest rate and money supply), and ramping up fiscal policy. I wish there were another way.