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ChartSource: NYT

Category: Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

9 Responses to “An Inflation Policy That Worked”

  1. So the next thing to fix is the issue arising as a combination of treasury yields and debt levels?

  2. RW says:

    Inflation is still well below the putative 2% target and unemployment is still well above target; i.e, the dual mandate remains at fail even though this cannot be entirely placed at the Fed’s doorstep given congressional derpitude and the complete failure to establish appropriate fiscal policy.

    Direct bond purchase was never enough of the market to make a sufficient difference in long interest rates, only the indirect impact of Fed communication could get over the hump; ‘taper talk’ will be seen as a blunder of 1937 magnitude before all this is done I think.

    We are now five years into this debacle and, with below-trend economic economic growth now seemingly baked into the cake, it really does look like it is going to stay that way for another five. Pity.

    • RW says:

      NB: There is normally a lag in substantive bond market response to Fed policy: the knew-jerk response to any given announcement won’t stick unless there is a real change in aggregate perception of Fed intent; the announcement that Twist would no longer be dated as originally articulated but rather targeted instead — ISTR that happened 3rd or 4th Q 2012, possibly 1Q 2013 — took awhile to sink in but the trend change before Bernanke’s garbled communication was clearly getting some legs which Bernanke’s announcement, spasm aside, did not seem to badly affect overall, at least at first.

      Now, I am not confident at all and would not be surprised to see that small drop at the end of the chart persist w/ inflation expectations moving downward again. Folks in a hurry to dump bonds could get (another) surprise.

      As always, we shall see, but after five years of household agony you’d think someone in power would get more serious about bucking vested interests to give underwater homeowners and the unemployed a better brand of help.

  3. DeDude says:

    Calculated risk has a table suggesting that increased rates do not induce a fall in housing prices.

    http://www.calculatedriskblog.com/2013/07/house-prices-and-mortgage-rates.html

    I seriously doubt that rates will reduce prices this time either. If anything the increased rates combined with the clear increase in house prices will help nudge people to get off the fence and purchase a house now rather than later. I would not be surprised to see a substantial increase (above current trend) in both volume and prices. Remember, the usual rules don’t always apply in unusual circumstances.

  4. b_thunder says:

    “An Inflation Policy That Worked” Really? 2.5 years and 2.5 trillion dollars later the 10yr is exactly where it was before QE2 started, just on a slight chance that the Fed balance sheet rate of growth will be slower. Imagine the level of long-term rates when Fed completely stops the QE? (Do NOT attempt to envision what would happen if the Fed was forced to sell treasuries, unless there’s an emergency defibrillator on stand by.) As we’ve seen in last 3 weeks they will be higher than they should be, i.e. “reverting to the mean” and canceling out the artificially low rates in 2012 and 1H 2013.

    In my view this is another clear demonstration that there’s no free lunch and any demand “pulled” forward (often very inefficiently, benefiting friends, cronies and political contributors) will result in approximately equal future demand destruction.

    • I must hasten to point out the error of your analyses:

      You are ignoring the COUNTER-FACTUAL — where would the economy be if the Fed was not doing ZIRP/QE.

      • DrSandman says:

        Properly called COUNTER-OPINIONAL — That is no better than a creationist saying that fervent prayer resulted the loss of only ONE foot to diabetes instead of two. Maybe a different course of action would have resulted in keeping both feet… I expect better thought from you, BR.

      • flakester says:

        And where would we be with a bailout of Main St. instead of Wall St?

  5. gman says:

    The policy worked..as far as they took it..I thought 2% was the target not 1.3%?

    The Fed is tapering short of their target even in a contractionary fiscal environment!

    Beatings will continue until moral improves.