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Business
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Title: As Fed nears rate hikes, policymakers plan for 'brave new world'
Source: yahoo! news
URL Source: https://ca.news.yahoo.com/fed-nears ... world-005117150--business.html
Published: Aug 27, 2016
Author: Jason Lange and Ann Saphir
Post Date: 2016-08-28 10:57:18 by cranky
Keywords: None
Views: 399
Comments: 6

Federal Reserve Board Chair Janet Yellen testifies before the Senate Banking Committee at Capitol Hill in Washington, U.S., June 21, 2016.

Federal Reserve policymakers are signaling they could raise U.S. interest rates soon but they are already weighing new tools they may need to fight the next recession.

A solid U.S. labor market "has strengthened" the case for the first rate increase since last December, Fed Chair Janet Yellen told a central banking conference in Jackson Hole, Wyoming. Several of her colleagues said the increase could come as soon as next month if the economy does well.

Further rate hikes are expected to be few and far between as the U.S. central bank tries to balance a desire to fuel growth against worries it could overheat the economy.

But Fed officials at three-day conference that ended Saturday also said they need to consider new policy tools for use down the road, such as raising the inflation target or even Fed purchases of non-government-backed assets like corporate debt.

Such ideas would test the limits of political feasibility and some would need congressional approval. The view within the Fed is that it could take effort to win over a public already skeptical of the unconventional policies the Fed undertook during the last crisis.

Policymakers think new tools might be needed in an era of slower economic growth and a potentially giant and long-lasting trove of assets held by the Fed. And they are convinced the time to vet them is now, while rates look to be heading up.

"Central banking is in a brave new world," Atlanta Fed President Dennis Lockhart said in an interview on the sidelines of the conference.

At the center of the Fed's discussions is its $4.5 trillion balance sheet, built up by bond-buying sprees to combat the 2007-09 recession but which has been criticized by many lawmakers.

While policymakers have maintained the Fed should eventually reduce its bond holdings, Lockhart said some officials were closer to accepting that they needed to learn to live with them.

"I suspect there are colleagues who are contemplating at least maybe a statically large balance sheet is just going to be a fact of life and be central to the toolkit," he said.

Officials have said they will slowly let the balance sheet shrink, a process that would take years and would not begin until interest rate increases are well underway. Substantial progress could be made only in a very long-lived economic expansion.

"I am sure everyone in the audience would be happy if this were the reality. I certainly would be," Simon Potter, the New York Fed's markets chief, said during the conference.

Yellen, in her speech on Friday, said balance sheets would likely swell again in future recessions as the Fed snaps up assets to stimulate the economy.

The conference, attended by all but two of the Fed's 17 policymakers as well as central bankers from around the world, also presented a menu of more exotic proposals. This included a Fed takeover of short-term debt markets and abolishing cash in order to charge negative interest rates.

Many of the more radical proposals, including one to abandon monetary policy altogether and focus on urging runaway deficit-spending, were seen as ivory tower musings.

Most policymakers, including Yellen, said it was likely the tools the Fed used to fight the last crisis, including rate cuts, bond purchases and jawboning on rate expectations, will be adequate.

Still, she said, "future policymakers might choose to consider some additional tools that have been employed by other central banks," including buying a wider range of assets or raising the inflation target. She also cited the possibility of targeting the average level of prices in the economy rather than their rate of change.

Notably, her laundry list of possible tools did not include negative rates, an idea that has been nearly universally panned by Fed officials. She said the Fed is not actively considering additional policy tools but participants at the conference suggested the process is already well underway.

"You are seeing an exploration of how are we going to operate in a quite different world than before the crisis," Lockhart said. (1 image)

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#1. To: cranky (#0)

" Federal Reserve policymakers are signaling they could raise U.S. interest rates soon but they are already weighing new tools they may need to fight the next recession. "

How about we abolish the Fed !

Si vis pacem, para bellum

Those who beat their swords into plowshares will plow for those who don't

Rebellion to tyrants is obedience to God.

if you look around, we have gone so far down the the rat hole, the almighty is going to have to apologize to Sodom and Gomorrah, if we don't have a judgement come down on us.

President Obama is the greatest hoax ever perpetrated on the American people. --Clint Eastwood

"I am concerned for the security of our great nation; not so much because of any threat from without, but because of the insidious forces working from within." -- General Douglas MacArthur

Stoner  posted on  2016-08-28   12:00:19 ET  Reply   Trace   Private Reply  


#2. To: Stoner (#1)

How about we abolish the Fed !

It's a privately held corporation and there's no way in the world it can possibly make good on 2.8 trillion dollars of federal debt, imho.

cranky  posted on  2016-08-28   12:47:03 ET  Reply   Trace   Private Reply  


#3. To: cranky (#2)

" How about we abolish the Fed !

It's a privately held corporation and there's no way in the world it can possibly make good on 2.8 trillion dollars of federal debt, imho. "

Well, they were given the power to issue / print money.

Si vis pacem, para bellum

Those who beat their swords into plowshares will plow for those who don't

Rebellion to tyrants is obedience to God.

if you look around, we have gone so far down the the rat hole, the almighty is going to have to apologize to Sodom and Gomorrah, if we don't have a judgement come down on us.

President Obama is the greatest hoax ever perpetrated on the American people. --Clint Eastwood

"I am concerned for the security of our great nation; not so much because of any threat from without, but because of the insidious forces working from within." -- General Douglas MacArthur

Stoner  posted on  2016-08-28   12:59:52 ET  Reply   Trace   Private Reply  


#4. To: cranky (#0)

Yellen fails to understand that the fed is but a minute functional operator in the economy.

rlk  posted on  2016-08-28   13:14:26 ET  Reply   Trace   Private Reply  


#5. To: Stoner (#3) (Edited)

Well, they were given the power to issue / print money.

The fed can run through the streets flinging money up in the air. Doing that will create a short term celebration and illusion of prosperity. But if the economy and culture doesn't produce anything in the way of essential services, the celebration won't last long.

What the hell, if the celebration lasts long enough to win an election and keep a host of bureauocrats in position, it's worth it.

rlk  posted on  2016-08-28   13:27:44 ET  Reply   Trace   Private Reply  


#6. To: rlk (#5)

" if the celebration lasts long enough to win an election and keep a host of bureauocrats in position, it's worth it. "

It's only beneficial to them, not us.

Si vis pacem, para bellum

Those who beat their swords into plowshares will plow for those who don't

Rebellion to tyrants is obedience to God.

if you look around, we have gone so far down the the rat hole, the almighty is going to have to apologize to Sodom and Gomorrah, if we don't have a judgement come down on us.

President Obama is the greatest hoax ever perpetrated on the American people. --Clint Eastwood

"I am concerned for the security of our great nation; not so much because of any threat from without, but because of the insidious forces working from within." -- General Douglas MacArthur

Stoner  posted on  2016-08-28   21:16:15 ET  Reply   Trace   Private Reply  


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