The Federal Reserve Approaches the End of Its Tightening Cycle

Washington Wire looks inside the Federal Reserve:

Washington Wire: Sending Signals the Fed Way: All the votes on the Fed's interest rate actions this year have been unanimous, but there are hints of disagreement. On Thursday, the Federal Open Market Committee voted to raise the Federal funds rate target to 5.25% from 5%. But two of the Fed's 12 reserve banks didn't ask for a matching quarter-point increase in the discount rate to 6.25%.... Goldman Sachs called the absence of a request by the Kansas City and San Francisco Fed to raise the discount rate a "soft dissent."... Kansas City President Thomas Hoenig and San Francisco President Janet Yellen have been the most prominent FOMC members warning of the risks of "over-tightening."... Bank boards typically follow their president%u2019s recommendation on discount rate requests...

Comments

[im1dc]

Since you mentioned the FedRes here's a hillarious video on MyTube featuring Glenn Hubbard having a lot of fun at Chairman Bernanke's expense:

'Columbia Business School's Dean Glenn Hubbard sings about wanting Alan Greenspan's job that went instead to New Fed Chair Ben Bernanke.'

"Every Breath You Take"

Link: http://www.youtube.com/watch?v=3u2qRXb4xCU

[Jim S]

The Fed will not stop raising interest rates until well after they've succeeded in triggering a recession. One reason is that they still don't understand some of the real dynamics of the current economy. They hope to cause a drop in employment and thereby reduce or eliminate any pressure wages might put on inflation. If they would bother to examine current numbers they would realize that there are no wage pressures causing inflation. But they are, like most economists and financial professionals, forever stuck in the past.

[rkillings]

"Tightening cycle"? Why "cycle"?

I thought you couldn't have a (monetary policy) cycle without a tightening phase and a loosening phase.

[kharris]

I'm guessing that the reason there has been no dissent - other than care over Bernanke's reputation - is that dissent can be misinterpreted. If one person's dissent represents the views of many (as Olson's seemed to after Katrina), then an actual dissent is responsible, because it doesn't mislead the investing public. Saying "I disagree" very loudly during the meeting gets the job done, other than as a device to convey information to those outside the Fed.

Jim S.

What leads you to conclude that -

"they still don't understand some of the real dynamics of the current economy. They hope to cause a drop in employment and thereby reduce or eliminate any pressure wages might put on inflation" -?

Is there any evidence in their statements that this is true? In their behavior? Several of the folks at the Fed now (Yellen, for instance) were there for the experiment with "opportunistic disinflation" which was part of the larger growth experiment. What evidence is there that the pro-growth slant has evaporated? 'Cause unless you can back up your assertion, it reads like little more than a claim that you are smarter than them. And they are awfully smart.

[kharris]

I'm guessing that the reason there has been no dissent - other than care over Bernanke's reputation - is that dissent can be misinterpreted. If one person's dissent represents the views of many (as Olson's seemed to after Katrina), then an actual dissent is responsible, because it doesn't mislead the investing public. Saying "I disagree" very loudly during the meeting gets the job done, other than as a device to convey information to those outside the Fed.

Jim S.

What leads you to conclude that -

"they still don't understand some of the real dynamics of the current economy. They hope to cause a drop in employment and thereby reduce or eliminate any pressure wages might put on inflation" -?

Is there any evidence in their statements that this is true? In their behavior? Several of the folks at the Fed now (Yellen, for instance) were there for the experiment with "opportunistic disinflation" which was part of the larger growth experiment. What evidence is there that the pro-growth slant has evaporated? 'Cause unless you can back up your assertion, it reads like little more than a claim that you are smarter than them. And they are awfully smart.