• CFR Research Claims Inflation Could Return Faster Than Fed Thinks Link
    WSJ Central Banks Sat 19 Sep 2020 23:50

    Federal Reserve forecasts released Wednesday show officials have no worry inflation will take off at any point over the next few years despite hoping price pressures will rise from low levels. But new research from the Council on Foreign Relations warns that data on bank reserves points to higher inflation. “We know that when our balance-sheet-to-reserves gap measure began rising in 2010 it took eight months for inflation to rise 1 percentage point from the time it subsequently bottomed out,” Benn Steil and Benjamin Della Rocca write. “If inflation should rebound at the same pace now, we are looking at 2% Core PCE inflation,...

  • Neel Kashkari says the problem with the Fed’s new guidance is that it still holds onto the importance of a basically unknowable variable, maximum sustainable job level. Link
    WSJ Central Banks Sat 19 Sep 2020 22:25

    New Federal Reserve guidance over the future path of interest rates fell short of what was needed, Minneapolis Fed leader Neel Kashkari said Friday.

    “I strongly support” the new guidance, Mr. Kashkari said explaining his vote. But he also said, “while I believe the statement is a positive step forward…I would have preferred the Committee make a stronger commitment to not raising rates until we were certain to have achieved our dual mandate objectives.”

    The central banker was one of two regional bank presidents who voted against the outcome of the rate-setting Federal Open Market Committee on Wednesday. Then, officials held their short-term rate target steady and said that they would keep their short-term target rate very low until the job market had reached its maximum sustainable level, and inflation had risen to 2% and was on a path to moderately overshoot that goal.

    The FOMC statement said Mr. Kashkari instead would have preferred for the Fed to...

  • Fed to release detailed stress test results for each bank by year’s end Link
    WSJ Central Banks Sat 19 Sep 2020 21:20

    WASHINGTON—The Federal Reserve will analyze large banks’ ability to withstand two coronavirus-related recession scenarios as part of a second round of stress tests later this year, the central bank said Thursday.

    Unlike an earlier round of stress tests this year, the Fed will release the results of the tests for each bank, rather than providing aggregate results for the group. That means investors and the public will have a better understanding of the health of each of the 33 lenders when it comes to lending through the downturn.

    ...
  • Timiraos’s Take: New Forward Guidance Avoids Potential Communications Pitfall Link
    WSJ Central Banks Sat 19 Sep 2020 20:15

    By delivering new forward guidance when Federal Reserve officials were also marking up their near-term growth outlook, the central bank avoided a potential communications mishap on Wednesday.

    In 2011 and 2012, the Fed strengthened its forward guidance regarding the path of interest rates at times when its economic outlook was also growing darker. This carried the risk of communicating that the economic outlook had grown so awful that the Fed was being forced to provide more stimulus, something that could hinder rather than...

  • Michael Strine, the New York Fed’s second-in-command, is leaving at the end of his five-year term in February Link
    WSJ Central Banks Sat 19 Sep 2020 19:10

    The Federal Reserve Bank of New York said its second-in-command, Michael Strine, will retire early next year, capping a period of change in the bank’s leadership.

    Mr. Strine, 54 years old, is the New York Fed’s chief operating officer and first vice president and serves as an alternate member of the interest-rate-setting Federal Open Market Committee. The bank said he would step down Feb. 28, at the end of his five-year term. The bank also said he would stop day-to-day work at the bank in early November to facilitate a smooth...

  • Dissenting voices from the Dallas and Minneapolis Fed leaders point to a possibly murky future for its forward guidance regime Link
    WSJ Central Banks Sat 19 Sep 2020 18:00

    Federal Reserve Chairman Jerome Powell said Wednesday the central bank’s new way of conveying guidance about the future of interest rate policy is powerful.

    But right out of the gate, two of his colleagues were somewhat at odds with how the central bank consensus thinks about the matter.

    On Wednesday, the rate-setting Federal Open Market...

  • St. Louis Fed President James Bullard said the economy could grow 30% in the third quarter from its second-quarter depths, and inflation could soon pick up Link
    WSJ Central Banks Sat 19 Sep 2020 16:55

    Federal Reserve Bank of St. Louis leader James Bullard said higher inflation is coming to the U.S. economy, but didn’t indicate that would be a worrisome development.

    The veteran central bank official said a host of forces were joining to put upward pressure on today’s weak price growth, in a virtual appearance Friday. He didn’t say how high he expects inflation to go and whether the shift would require a monetary policy response to keep the increase contained.

    ...
  • The Federal Reserve had never bought ETFs or corporate bonds before. BlackRock helped it fill the void and grew its business along the way. Link
    WSJ Central Banks Sat 19 Sep 2020 15:50

    The Federal Reserve’s March commitment to deploy billions of dollars to prop up the economy was a boon for the company the Fed hired to help execute its plan: BlackRock Inc., the world’s largest asset manager.

    In response to the pandemic-induced market collapse, the Fed promised to buy corporate bonds and exchange-traded funds that invest in collections of corporate debt.

    The...

  • The Fed issued new guidance to banks in a bid to improve access to new loans for small and midsized businesses through its $600 billion Main Street lending program Link
    WSJ Central Banks Sat 19 Sep 2020 14:45

    The Federal Reserve issued new guidance to banks Friday in an effort to improve access to new business loans through its $600 billion Main Street Lending Program.

    The central bank is relying on banks to underwrite loans to qualified small and midsize businesses under the novel effort to reach firms that aren’t large enough to access corporate funding markets, which the central bank has also backstopped.

    The...

  • Jobless rates remained particularly high, on average, in the Northeast and West, and clocked in above 10% in 10 states in the U.S. Link
    WSJ Central Banks Sat 19 Sep 2020 13:15

    Large states in the Northeast and West logged some of the highest unemployment rates in the nation in August, while many of their Southern and Midwestern neighbors saw lower rates of joblessness despite significant coronavirus outbreaks over the summer.

    The jobless rate in more than half of states was below the national average of 8.4% in August, according to a Labor Department report that provides details on the job market in all 50 states. Many of those states—including Arizona, South Carolina and Texas—recorded a surge...

  • The Federal Reserve had never bought ETFs or corporate bonds before. BlackRock helped it fill the void and grew its business along the way Link
    WSJ Central Banks Fri 18 Sep 2020 18:24
  • St. Louis Fed President James Bullard said the economy could grow 30% in the third quarter from its second-quarter depths, and inflation could soon pick up Link
    WSJ Central Banks Fri 18 Sep 2020 17:54

    Federal Reserve Bank of St. Louis leader James Bullard said higher inflation is coming to the U.S. economy, but didn’t indicate that would be a worrisome development.

    The veteran central bank official said a host of forces were joining to put upward pressure on today’s weak price growth, in a virtual appearance Friday. He didn’t say how high he expects inflation to go and whether the shift would require a monetary policy response to keep the increase contained.

    ...
  • The Fed issued new guidance to banks in a bid to improve access to new loans for small and midsized businesses through its $600 billion Main Street lending program Link
    WSJ Central Banks Fri 18 Sep 2020 17:29

    The Federal Reserve issued new guidance to banks Friday in an effort to improve access to new business loans through its $600 billion Main Street Lending Program.

    The Fed is relying on banks to underwrite loans to qualified small and midsize businesses under the novel effort to reach firms that aren’t large enough to access corporate funding markets, which the central bank has also backstopped.

    The...

  • Jobless rates remained particularly high, on average, in the Northeast and West, and clocked in above 10% in 10 states in the U.S. Link
    WSJ Central Banks Fri 18 Sep 2020 17:09

    Large states in the Northeast and West logged some of the highest unemployment rates in the nation in August, while many of their Southern and Midwestern neighbors saw lower rates of joblessness despite significant coronavirus outbreaks over the summer.

    The jobless rate in more than half of states was below the national average of 8.4% in August, according to a Labor Department report that provides details on the job market in all 50 states. Many of those states—including Arizona, South Carolina and Texas—recorded a surge...

  • Fed’s Bostic Hopeful Economics Can Make Progress on Racial Issues Link
    WSJ Central Banks Fri 18 Sep 2020 16:44

    Atlanta Fed leader Raphael Bostic said Friday he’s optimistic that the economics profession can do better in addressing racial inequality.

    With persistent and large wealth gaps between white and black households, Mr. Bostic said the economics profession must change so that it can better understand why these disparities exist and how they can be remedied.

    “The...

  • “This very strong forward guidance, very powerful forward guidance that we have announced today will provide strong support for the economy,” Federal Reserve Chairman Jerome Powell told reporters. Link
    WSJ Central Banks Fri 18 Sep 2020 16:39

    Can words take the place of actions? The Federal Reserve hopes so. On Wednesday it issued a policy statement promising to get inflation above 2%. In their accompanying projections, officials indicated that would mean keeping interest rates near zero at least until 2024 and until unemployment falls to 4%.

    “This very strong forward guidance, very powerful forward guidance that we have announced today will provide strong support for the economy,” Chairman Jerome Powell told reporters. To drive the point home, he used the word “powerful” 10 times in the press conference.

    This forward guidance was a logical consequence of the central bank’s announcement last month that it was now targeting average inflation of 2%. Since inflation is now below 2%, that will mean getting it above 2% and keeping it there for some time to come.

    For forward guidance—words, as opposed to policy actions—to work, it has to persuade investors that the Fed will keep interest rates at...

  • Fed officials projected no plans to raise interest rates for at least three years and signaled a commitment to provide more support for an economy facing an uneven recovery from the pandemic Link
    WSJ Central Banks Fri 18 Sep 2020 15:34

    WASHINGTON—The Federal Reserve pledged to support the economic recovery by setting a higher bar to raise interest rates and by signaling it expected to hold rates near zero for at least three more years.

    In new projections released Wednesday after a two-day policy meeting, all 17 officials who participated said they expect to keep rates near zero at least through next year, and 13 projected rates would stay there through 2023.

    The...

  • See exactly how the statement from Fed policy makers changed in September Link
    WSJ Central Banks Fri 18 Sep 2020 14:29

    The Federal Reserve releases a statement at the conclusion of each of its policy-setting meetings, outlining the central bank’s economic outlook and the actions it plans to take. Fed watchers closely parse changes between statements to see how the Fed’s views are evolving. This tool compares the latest statement with its immediate predecessor and highlights […]

  • Neel Kashkari says the problem with the Fed’s new guidance is that it still holds onto the importance of a basically unknowable variable, maximum sustainable job level. Link
    WSJ Central Banks Fri 18 Sep 2020 13:29

    New Federal Reserve guidance over the future path of rates fell short of what was needed, Minneapolis Fed leader Neel Kashkari said Friday.

    “I strongly support” the new guidance, Mr. Kashkari said explaining his vote. But he also said, “while I believe the statement is a positive step forward...I would have preferred the Committee make a stronger commitment to not raising rates until we were certain to have achieved our dual mandate objectives.”

    The central banker was one of two regional bank presidents who voted against the outcome of the rate-setting Federal Open Market Committee on Wednesday. Then, officials held their short-term rate target steady and said that they would keep their short-term target rate very low until the job market had reached its maximum sustainable level, and inflation had risen to 2% and was on a path to moderately overshoot that goal.

    The FOMC statement said Mr. Kashkari instead preferred that the Fed would pledge to hold...

  • Fed to release detailed stress test results for each bank by year’s end Link
    WSJ Central Banks Fri 18 Sep 2020 13:04

    WASHINGTON—The Federal Reserve will analyze large banks’ ability to withstand two coronavirus-related recession scenarios as part of a second round of stress tests later this year, the central bank said Thursday.

    Unlike an earlier round of stress tests this year, the Fed will release the results of the tests for each bank, rather than providing aggregate results for the group. That means investors and the public will have a better understanding of the health of each of the 33 lenders when it comes to lending through the downturn.

    ...
  • Michael Strine, the New York Fed’s second-in-command, is leaving at the end of his five-year term in February Link
    WSJ Central Banks Fri 18 Sep 2020 12:09

    The Federal Reserve Bank of New York said its second-in-command, Michael Strine, will retire early next year, capping a period of change in the bank’s leadership.

    Mr. Strine, 54 years old, is the New York Fed’s chief operating officer and first vice president and serves as an alternate member of the interest-rate-setting Federal Open Market Committee. The bank said he would step down Feb. 28, at the end of his five-year term. The bank also said he would stop day-to-day work at the bank in early November to facilitate a smooth...

  • ?? Newsletter: Lawmakers Debate Fed’s Muni-Market Role; Fed Details Stress Tests; BOE, BOJ Stand Pat; New York Fed No. 2 to Step Down Link
    WSJ Central Banks Fri 18 Sep 2020 11:39

    Good day. Lawmakers clashed at a congressional hearing over whether the Federal Reserve has done enough to backstop municipal finances as state and local governments face historic budget shortfalls. Meanwhile, the Fed revealed details of a second round of stress tests for banks to be held later this year, while the New York Fed said its second-in-command, Michael Strine, will leave next year when his term ends. Elsewhere, the Bank of Japan and the Bank of England were among several institutions that held monetary policy steady yesterday. 

     Now on to today’s news and analysis.

  • Timiraos’s Take: New Forward Guidance Avoids Potential Communications Pitfall Link
    WSJ Central Banks Fri 18 Sep 2020 11:09

    By delivering new forward guidance when Federal Reserve officials were also marking up their near-term growth outlook, the central bank avoided a potential communications mishap on Wednesday.

    In 2011 and 2012, the Fed strengthened its forward guidance regarding the path of interest rates at times when its economic outlook was also growing darker. This carried the risk of communicating that the economic outlook had grown so awful that the Fed was being forced to provide more stimulus, something that could hinder rather than...

  • CFR Research Claims Inflation Could Return Faster Than Fed Thinks Link
    WSJ Central Banks Thu 17 Sep 2020 19:38

    Federal Reserve forecasts released Wednesday show officials have no worry inflation will take off at any point over the next few years despite hoping price pressures will rise from low levels. But new research from the Council on Foreign Relations warns that data on bank reserves points to higher inflation. “We know that when our balance-sheet-to-reserves gap measure began rising in 2010 it took eight months for inflation to rise 1 percentage point from the time it subsequently bottomed out,” Benn Steil and Benjamin Della Rocca write. “If inflation should rebound at the same pace now, we are looking at 2% Core PCE inflation,...

  • Carolyn Wilkins will leave her position as the Bank of Canada’s second-in-command when her seven-year term expires next spring Link
    WSJ Central Banks Thu 17 Sep 2020 19:13

    Bank of Canada Senior Deputy Gov. Carolyn Wilkins will leave her position as the central bank’s second-in-command when her seven-year term expires next spring, the bank’s board of directors said Thursday.

    The board said it would launch a search process to select the next senior deputy governor after Ms. Wilkins informed it that she doesn’t intend to seek a second term. Ms. Wilkins, 56 years old, has been in the role since May 2014, appearing alongside former governor Stephen Poloz and, more recently, Gov. Tiff Macklem, to...

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