We Are All Epsilon Theorists Now

Jay Powell describing the current size of his credibility at Friday’s press con

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  1. Avatar for jz1 jz1 says:

    The december FOMC standup chair against Trump and wall street print a S&P 2400 PUT on his head on Friday. I do NOT know whether Powell designed this experiment to gauge the market and FED communication method OR he did NOT know what he was doing in FOMC and later on changed his mind. I totally lost respect for Powell. Let’s see when S&P break down below 2400 and Powell reveal his next PUT. It could be a long time.

  2. So how will the Weinstein moment of this particular Common Knowledge game play out?

  3. Interesting Points/Reads, this am on this matter which is pure comedy and kabuki theater:

    *The entire US economy today is about the quick buck. It’s about tomorrow morning only because nobody has the guts to look at 10 years from now. That makes Jay Powell and his whole Federistas staff worse than useless. It makes no difference if perhaps jobs are doing well; the pre-Powell Fed launched a bubble and that bubble will burst one day, a whole series of them will.

    The only good thing he can do is get out of the way and let the markets be the markets, to let them discover prices by letting people interact with people. But who exactly in the US has the power to make the Fed go away? —Illargi

    *Inflation & Output: The question is whether the slow pace of wage growth in the last year or two can be explained to any substantial degree by changes in the mix of workers, specifically lower paid younger workers taking the place of relatively higher paid workers who are retiring. When Unemployment decrease the rate of wage groupthink should increase, but that is not the case…which points to demographic changes slowing the rate, and a jump in energy prices. —Dean Baker

    *It’s entirely unrealistic to expect Fed officials to reflect the views of market monetarists—that’s now how our system works. Nor will they reflect the views of other obscure groups, like MMTers or fans of the fiscal theory of the price level. That’s why I favor NGDP level targeting, it’s a regime that will lead to pretty good results under almost any competent leadership.

    Instead, the Fed would give the New York open market desk the following instructions:

    1. A range for one year NGDP growth–say 3.5% to 4.5%.
    2. Instructions for the New York Fed to take unlimited short positions on NGDP futures contracts at 4.5% and unlimited long positions at 3.5%.
    3. Instructions to do open market purchases and sales (with Treasury securities) in such a way as to avoid losses in their trading of NGDP futures contracts.
      That’s all. Let the market set interest rates; they are much better able to determine the appropriate fed funds rate.
      OK Fed, you’ve got a landing. Now let’s make it “soft”.
      PS. As I contemplate the Fed’s current (flawed) policy regime, I feel sad and blue —The Money Illusion
  4. Dean Baker this am…
    I think we are seeing some modest inflationary pressure coming from wages, but it’s not there yet. In any case, it is likely a story of inflation rising to 2.5%, perhaps 3.0 percent, if the recovery contnues long enough. It is not a 1970s double-digit inflation story.

  5. Maybe it’s just pure hope on my part but it seems probable to me that Powell was getting so much pressure from within the Eccles building (think about the 300 Neo-Keynesian PhD’s as well as his colleagues at the FOMC, think about a true believer like Charlie Evans and former Goldmanite Kashkari) and outside influences ( the President and all the Wall Streeters)
    and he HAD to give them something.
    But he didn’t give them anything.
    He acknowledged that he did recognize that the market was signaling something. True he should, markets can send important signals
    And he said policy wasn’t written in stone.

    The market of course (after 3 decades of Fed Chairs caving to the Jim Cramer’s of the world) assumed this was

    I think there’s sufficient logic for my hopefulness that Powell isn’t going to cave so easily and he wants the Fed to get out of the market manipulation business.

  6. Regretably, I actually understand Equations (1) and (2) above, but I still haven’t a clue how the Fed and member banks interact with the UST and the open markets. I have yet to find a well written, succinct, and relatively jargonless (e.g. depository institutions, repo, discount window) summary and would very much appreciate any ET pack suggestions. Thx!

  7. Avatar for cbeirn cbeirn says:

    Still a man hears what he wants to hear
    And disregards the rest – Paul Simon

    Beware confirmation bias, Ben.

  8. It’s one thing to say that something doesn’t matter now but it’s going out on a limb to say that something will never matter again. Fundamental research will matter when people stop doing fundamental research. Early in this century the narrative was that home prices never go down.
    But as we learned in “The Big Short”, the people who did the basic, fundamental research on the subprime mortgages did quite well in the end. It took longer than they thought it would, but the fundamentals finally overcame a very powerful narrative.

    It reminds me of the Hans Christian Andersen story of “The Emperor’s New Clothes”.
    The narrative being that if you couldn’t see the emperor’s magnificent new garments then you were hopelessly stupid. And not a soul who watched the emperor parade down the street would admit to what their eyes told them. Until one little boy stated the fundamental fact that
    “He isn’t wearing anything at all”

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