QE3+; Bernanke and NGDP

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    Sep 13, 2012 9:17 PM GMT
    No more one-shot quantitative easing...and the market loves it.
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    http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/09/13/qe3-reactions-to-the-feds-big-stimulus-move/On Thursday, the Federal Reserve announced yet another round of quantitative easing to boost the economy. What’s new about QE3, as we explained in our primer, is that this round will be open-ended — the Fed will keep injecting money into the economy until growth picks up and unemployment starts dropping significantly. Essentially, Ben Bernanke is trying to shift expectations about the future course of the economy.
    ...
    — Mark Thoma says that Bernanke was probably influenced by a paper released by Michael Woodford of Columbia University in early September: Woodford “delivered a paper showing that the Fed has the most impact on the economy when it credibly commits to future actions. Thus, according to Woodford, it is not the quantitative easing itself that helps the economy (i.e. how many assets the Fed holds), but rather it’s the commitment to continue purchasing assets until the unemployment rate improves substantially that matters.”
    — Justin Wolfers, meanwhile, argued that if Bernanke was trying to help out Obama, he had a funny way of showing it: “There’s no sense in which the Fed’s move today was political. If they wanted to help Obama, they would have done this months ago.”
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    Sep 14, 2012 12:05 PM GMT
    I'm really surprised nobody has commented on the Fed's QE action, since it's going to impact the US much more than the current situation in the Middle East.
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    Sep 14, 2012 12:07 PM GMT
    q1w2e3 saidI'm really surprised nobody has commented on the Fed's QE action, since it's going to impact the US much more than the current situation in the Middle East.


    Only in the short term. Yay for inflation though.
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    Sep 14, 2012 12:11 PM GMT
    http://www.bloomberg.com/news/2012-09-14/bernanke-s-battle-for-jobs-eclipses-inflation-concerns.htmlThe 58-year-old former Princeton University professor has kept interest rates near zero since December 2008 and expanded the Fed’s balance sheet to a record of almost $3 trillion with large-scale asset purchases.

    The second round, announced in November 2010 and dubbed QE2, unleashed the harshest political criticism of the U.S. central bank in three decades, with Republicans warning the measure risked inflation and weakening the U.S. dollar.

    Surging inflation hasn’t materialized. Since then, the personal consumption expenditures price index has climbed at an average rate of about 2.2 percent, close to the Fed’s target of 2 percent. The index rose 1.3 percent in July from a year earlier.

    “With the huge slack in the economy that now seems to prevail, inflation will likely remain quiet for some time,” said Nathan Sheets, global head of international economics at Citigroup Inc. in New York who was director of the Fed’s international finance division until last year. “This gives them scope to be very aggressive in pursuing the employment leg of their mandate, where they are missing by a wide margin.”
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    Sep 14, 2012 12:11 PM GMT
    q1w2e3 said
    http://www.bloomberg.com/news/2012-09-14/bernanke-s-battle-for-jobs-eclipses-inflation-concerns.htmlThe 58-year-old former Princeton University professor has kept interest rates near zero since December 2008 and expanded the Fed’s balance sheet to a record of almost $3 trillion with large-scale asset purchases.

    The second round, announced in November 2010 and dubbed QE2, unleashed the harshest political criticism of the U.S. central bank in three decades, with Republicans warning the measure risked inflation and weakening the U.S. dollar.

    Surging inflation hasn’t materialized. Since then, the personal consumption expenditures price index has climbed at an average rate of about 2.2 percent, close to the Fed’s target of 2 percent. The index rose 1.3 percent in July from a year earlier.

    “With the huge slack in the economy that now seems to prevail, inflation will likely remain quiet for some time,” said Nathan Sheets, global head of international economics at Citigroup Inc. in New York who was director of the Fed’s international finance division until last year. “This gives them scope to be very aggressive in pursuing the employment leg of their mandate, where they are missing by a wide margin.”


    And yet, inflation has materialized - unless you've missed the fact energy and food prices have surged...
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    Sep 14, 2012 12:17 PM GMT

    http://www.businessinsider.com/the-inflation-that-concerns-the-fed-does-not-first-affect-food-and-energy-prices-2012-9Actually, inflation in food and gas prices are of the least concern to the Fed because they are largely out of its control. The price of food and gas are determined in international markets. When these prices have risen it has been primarily because of rapid growth in demand in developing countries like China and India, or reductions in supply due to political disruptions or weather. (In many cases the price rises were amplified by speculation.)

    The Fed's actions will do little to affect worldwide demand for these products and therefore will have little effect on the price of food and gas. This is why the Fed generally looks at the core inflation rate, which excludes food and energy prices, in designing policy. The non-core components are both much more volatile and outside of the Fed's control.

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    Sep 14, 2012 12:19 PM GMT
    q1w2e3 said
    http://www.businessinsider.com/the-inflation-that-concerns-the-fed-does-not-first-affect-food-and-energy-prices-2012-9Actually, inflation in food and gas prices are of the least concern to the Fed because they are largely out of its control. The price of food and gas are determined in international markets. When these prices have risen it has been primarily because of rapid growth in demand in developing countries like China and India, or reductions in supply due to political disruptions or weather. (In many cases the price rises were amplified by speculation.)

    The Fed's actions will do little to affect worldwide demand for these products and therefore will have little effect on the price of food and gas. This is why the Fed generally looks at the core inflation rate, which excludes food and energy prices, in designing policy. The non-core components are both much more volatile and outside of the Fed's control.



    Where do you suppose commodity prices are decided? And how they're decided - this is depreciating the US dollar which is also the effect of inflation. To say that these are beyond the control of the fed are like also saying inflation is out of the control of the fed given how both are happening.
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    Sep 14, 2012 12:27 PM GMT
    Savers, better go buy something now. icon_lol.gif
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    Sep 14, 2012 3:19 PM GMT
    riddler78 said
    q1w2e3 said
    http://www.businessinsider.com/the-inflation-that-concerns-the-fed-does-not-first-affect-food-and-energy-prices-2012-9Actually, inflation in food and gas prices are of the least concern to the Fed because they are largely out of its control. The price of food and gas are determined in international markets. When these prices have risen it has been primarily because of rapid growth in demand in developing countries like China and India, or reductions in supply due to political disruptions or weather. (In many cases the price rises were amplified by speculation.)

    The Fed's actions will do little to affect worldwide demand for these products and therefore will have little effect on the price of food and gas. This is why the Fed generally looks at the core inflation rate, which excludes food and energy prices, in designing policy. The non-core components are both much more volatile and outside of the Fed's control.



    Where do you suppose commodity prices are decided? And how they're decided - this is depreciating the US dollar which is also the effect of inflation. To say that these are beyond the control of the fed are like also saying inflation is out of the control of the fed given how both are happening.

    CPILFESL_Max_630_378.png
    MEXCPICORQINMEI_Max_630_378.png

    Does anybody see a big jump in inflation recently?
    http://inflationdata.com/articles/2008/02/24/what-is-core-inflation-and-why-doesnt-it-include-food-and-energy/
    http://econfix.wordpress.com/2011/02/10/core-vs-headline-inflation/
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    Sep 14, 2012 3:20 PM GMT
    q1w2e3 said
    riddler78 said
    q1w2e3 said
    http://www.businessinsider.com/the-inflation-that-concerns-the-fed-does-not-first-affect-food-and-energy-prices-2012-9Actually, inflation in food and gas prices are of the least concern to the Fed because they are largely out of its control. The price of food and gas are determined in international markets. When these prices have risen it has been primarily because of rapid growth in demand in developing countries like China and India, or reductions in supply due to political disruptions or weather. (In many cases the price rises were amplified by speculation.)

    The Fed's actions will do little to affect worldwide demand for these products and therefore will have little effect on the price of food and gas. This is why the Fed generally looks at the core inflation rate, which excludes food and energy prices, in designing policy. The non-core components are both much more volatile and outside of the Fed's control.



    Where do you suppose commodity prices are decided? And how they're decided - this is depreciating the US dollar which is also the effect of inflation. To say that these are beyond the control of the fed are like also saying inflation is out of the control of the fed given how both are happening.

    CPILFESL_Max_630_378.png
    MEXCPICORQINMEI_Max_630_378.png

    Does anybody see a big jump in inflation recently?
    http://inflationdata.com/articles/2008/02/24/what-is-core-inflation-and-why-doesnt-it-include-food-and-energy/
    http://econfix.wordpress.com/2011/02/10/core-vs-headline-inflation/


    Yes because who cares about food and energy? icon_rolleyes.gif
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    Sep 14, 2012 4:37 PM GMT
    So are you saying the Fed should change interest rates to target food and energy inflation every time a hurricane disrupts gas production or causes flooding and agricultural damage? Or every time a dictator gets thrown out in the Middle East?

    Please, it's well accepted that calculations of core CPI exclude food and energy (in fact, the BLS specifically separately provides CPI data without food an energy).
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    Sep 14, 2012 4:47 PM GMT
    q1w2e3 saidSo are you saying the Fed should change interest rates to target food and energy inflation every time a hurricane disrupts gas production or causes flooding and agricultural damage? Or every time a dictator gets thrown out in the Middle East?

    Please, it's well accepted that calculations of core CPI exclude food and energy (in fact, the BLS specifically separately provides CPI data without food an energy).


    There's a difference between spikes caused by natural events and what has happened now. Why do you suppose gold has soared? When there's inflation or fear of a devaluation, people rush to buy things that have a more objective value - and that's what's happened in the case of all commodities.

    It is well accepted that these measures are excluded because they have been more dynamic - the problem is that these two measures now increasingly eat into the incomes of Americans resulting in a lower standard of living and fall in wealth. Further, this doesn't address the underlying problems of fiscal spending or the asset hangover that hasn't been dealt with since the financial crisis.

    This is more than the Fed can handle or does, but this doesn't make it any less important nor does it not mean that the Fed isn't trying to cover up one problem with another - ie inflation and printing money.
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    Sep 14, 2012 7:54 PM GMT
    Something about US dollar depreciation...it isn't terribly out of whack despite QE1 and QE2. And Bush certainly didn't mind the depreciation.

    TWEXB_Max_630_378.png

    BTW, US dollar depreciation also helps our exports, and Mitt Romney certainly agrees.

    http://www.theatlantic.com/business/archive/2012/07/mitt-romneys-big-polish-idea-lets-debase-the-dollar/260550/
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    Sep 14, 2012 8:27 PM GMT
    The way these fools keep printing and spending our money, soon my whole 401(k) will be enough for a week's groceries. So much for retiring early...
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    Sep 15, 2012 5:31 AM GMT
    Blakes7 saidThe way these fools keep printing and spending our money, soon my whole 401(k) will be enough for a week's groceries. So much for retiring early...


    Why don't you bet for inflation in the market? That'll protect your 401(k). icon_lol.gif

    20120914-inflation_right.jpg