Must-Read: I know that Ben Bernanke is depressed and unhappy at his consistent overoptimism while Fed Chair about the likely pace of recovery. But what I do not know is what steps the Federal Reserve has taken to rejigger its model to cure it of what is by now nearly a decade of overoptimism. I hope there has been a deep rethink, rather than just the ascription of bad performance to a whole bunch of negative residuals in sequence:
A dirty dozen decisions deferred: "Forward guidance under Ben Bernanke and then Janet Yellen has been...:
...changeable, notes David Kelly, chief strategist for JP Morgan Asset Management, who shares a reminder of the shifting timescale. Here’s the Federal Reserve on when it would be appropriate to raise the target range for the federal funds rate: January 2009 — not ‘for some time’. March 2009 — not ‘for an extended period’. The US would have exceptionally low rates…: August 2011 — ‘at least through mid-2013″. January 2012 — ‘at least through late 2014″. September 2012 — ‘at least through mid-2015″. December 2012 — ‘at least as long as the unemployment rate remains above 6-1/2 per cent, inflation between one and two years ahead is projected to be no more than half a percentage point above the committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.’
Actually, it would be appropriate to maintain the target range of rates at 0 to 25 basis points until...: December 2013 — ‘well past the time that the unemployment rate declines below 6-1/2 per cent, especially if projected inflation continues to run below the Committee’s 2 per cent longer-run goal.’ March 2014 — ‘for a considerable time after the asset purchase programme ends’. Still waiting? January 2015 — ‘the Committee judges that it can be patient in beginning to normalise the stance of monetary policy.’ The Fed thinks it will be appropriate to raise rates…: March 2015 — ‘when it has seen further improvement in the labour market and is reasonably confident that inflation will move back to its 2 per cent objective over the medium term.’ July 2015 — ‘when it has seen some further improvement in the labour market and is reasonably confident that inflation will move back to its 2 per cent objective over the medium term.’ Yeah, so about that…: September 2015 — ‘The Committee continues to see the risks to the outlook for economic activity and the labour market as nearly balanced but is monitoring developments abroad.’ The futures market now implies a 45 per cent probability of a first rate hike by December, and 54 per cent for January. Or will it be 13 times a charm?