This is a pretty nice infographic. Despite all that we've talked about, a little review on the Fed's organization and history is helpful.
http://dailyinfographic.com/how-the-federal-reserve-system-really-works-infographic
Has anybody been paying attention to Yellen's recent comments? This second article is a bit longer, but it summarizes what she said on Monday -
http://www.nytimes.com/2014/04/17/business/economy/yellen-speech-federal-reserve.html?partner=rss&emc=rss
I liked the infographic. It's really informative and it's not too long.
ReplyDeleteWith respect to Yellen's comments, I would tend to agree agree with her view that policy decisions must be based on economic performance rather than a having a predetermined time in which the fed would raise interest rates. I wonder, however, whether this kind of "forward guidance" is contributing to economic uncertainty because you don't know when rates will go up and by how much. If this is the case, maybe it would make sense to make an educated guess about when to raise interest rates and then mechanically follow through on that. In either case, getting the timing down will be very difficult.
I would agree in part with Hikaru's comments (beside the infographic). I do think that the fed should be linking policy decision to economic performance. However, there has been too much focus (I think) on targeting interest rates, which has for some time been kept at next to nothing.
ReplyDeleteThere is also a fallacious connection between inflation, interest, and unemployment that leads policy makers to bow their heads and pray to Milton Friedman that, indeed, "monetary policy should be government's primary means of affecting the economy because the Phillips curve reflects reality". Yet, this is what the Phillips curve really looks like:
http://upload.wikimedia.org/wikipedia/en/7/7e/U.S._Phillips_Curve_2000_to_2013.png