Tuesday , May 17 2022
Home / Tag Archives: Monetary Policy

Tag Archives: Monetary Policy

Weekly Market Pulse: What Yield Curve Inversion

Well that didn’t last long. I wrote last week about the inversion of the 10 year/2 year term spread as the yield of the 2 year Treasury note rose above the yield of the 10 year Treasury note. Using end of day data, the curve inverted on Friday, April 1st and stayed that way until….Monday April 4th. The spread closed last Friday, April 8th at 19 basis points. Hmm. The inversion happened on April Fool’s day, huh? Sorry, I couldn’t resist poking a little fun at all the...

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Weekly Market Pulse: What Now?

The yield curve inverted last week. Well, the part everyone watches, the 10-year/2-year Treasury yield spread, inverted, closing the week a solid 7 basis points in the negative. The difference between the 10-year and 2-year Treasury yields is not the yield curve though. The 10/2 spread is one point on the Treasury yield curve which is positively sloped from 1 month to 3 years, negatively sloped from 3 years to 10 years and positively sloped again from 10 out to 30 years: So, yes, parts of...

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Inflation, Interest Rates and the Fed: A Dissent

Last week, my Roosevelt colleague Mike Konczal said on twitter that he endorsed the Fed’s decision to raise the federal funds rate, and the larger goal of using higher interest rates to weaken demand and slow growth. Mike is a very sharp guy, and I generally agree with him on almost everything. But in this case I disagree.  The disagreement may partly be about the current state of the economy. I personally don’t think the inflation we’re seeing reflects any general “overheating.” I don’t...

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Weekly Market Pulse: All Clear?

Why did stocks sell off in recent months? Was it the emergence of the Omicron variant? That was a popular narrative right after Thanksgiving but that lasted less than a month before stocks decided to look past COVID make a new high right after the new year. Was the correction due to fears of the Fed raising interest rates and stopping QE? Was it the run up to and eventual start of the Ukraine war? Or was it just that stocks got too expensive and no one wanted to buy at nosebleed levels? The...

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Today’s Inflation Won’t be Solved by the Fed

(This post originally ran as an opinion piece in Barron’s.) The U.S. today is experiencing inflation. This is not controversial. But what exactly does it mean? In the textbook, inflation is a rise in all prices together, caused by an excessive increase in the money supply. But when we measure it, inflation is just a rise in the average price of goods and services. That average might reflect a uniform rise in prices due to excessive money creation. Or, as today, it might instead be the...

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Wars are equity bullish, but there’s a catch…

Four weeks ago, I suggested that investors buy to the sound of cannons. Now that the cannons have sounded, is that still a good idea?  Yes, but there’s a catch. A detailed list of past crises from Ed Clissold of Ned Davis Research reveals that stock prices usually rebound strongly after sudden shocks such as war. On average, the DJIA is up 4.2% after a month and 15.3% a year later. Here’s the catch. Consider the following: Jeremy Siegel observed that stocks return about 7% real per...

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Inflation: Looking Ahead To The Rest Of 2022

#CKStrong A reasonably informative video below, especially regarding inflation. Not much mention of the growth of money driving excess demand, however. M2 (thanks to the great Ed Yardeni for the charts) is still growing over 10 percent, both in the U.S. and globally. This monetary aggregate is a feeble measure of “money,” which is now almost impossible to define in our age of rapid technological change. We question, shouldn’t a brokerage account, where you can lever up...

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No Maestros: Further Thoughts

One of the things we see in the questions of monetary policy transmission discussed in my Barron’s piece is the real cost of an orthodox economics education. If your vision of the economy is shaped by mainstream theory, it is impossible to think about what central banks actually do. The models taught in graduate economics classes feature an “interest rate” that is the price of goods today in terms of identical goods in the future. Agents in these models are assumed to be able to freely...

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At Barron’s: There Are No Maestros

(A week ago, I had an opinion piece in Barron’s, which I am belatedly posting here. I talk a bit more about this topic in the following post.) In today’s often acrimonious economic debates, one of the few common grounds is reverence for the Fed. Consider Jay Powell: First nominated to the Fed’s board of governors by President Obama, he was elevated to FOMC chair by Trump and renominated by Biden His predecessors Bernanke, Greenspan and Volcker were similarly first appointed by a president...

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Central Bank Fest

Next week is the last big week of the year, and what a week it will be:  Five major central banks meet and at least nine from emerging market countries.  Norway's Norges Bank is the most likely major central bank to hike its key (deposit) rate (December 16).  It would be the second hike of the year.  The economy is enjoying a solid recovery, and headline inflation rose to 4.6% in November, its fastest pace since 2008.  The underlying rate, which Norway adjusts for tax changes and excludes...

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