Conditional Inflation Targeting in Effect

Nearly a year ago, Jeffry Frieden and I called for Conditional Inflation Targeting. Today, policy seems to have turned toward that direction. From today’s statement from the FOMC: …the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal […]

If QE Causes Commodity Price Inflation…

If QE causes commodity price inflation, what caused commodity prices to rise before QE?  It never ceases to amaze me that critics of quantitative easing fail to remember that commodity prices were rising well before the Federal Reserve engaged in quantitative easing: If anything, commodity prices have been moving generally sideways since the Fed began […]

Ten Observations as the Week Winds Down

The US dollar is going into month and quarter end on a soft note.  The greenback had been generally firm against most of the major foreign currencies, but the Japanese yen, since around mid-month, but the news stream appears to have turned against it.  Yesterday the euro traded in both sides of Wednesday’s range and […]

Time for International Monetary Coordination

Many observers of the European Sovereign debt saga had long realized that the ECB was the only European institution up to the task of avoiding a breakup of the Euro, as all newly forged institutions, the ESFS/ESM, were at the same time ill designed (1) and inadequately funded. However, by indulging in sharp criticism of […]

Now We Wait

The Federal Reserve followed through largely as expected last week, adopting a very new policy regime: To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at […]

What a Difference a Central Banker Makes

The excellent book Lords of Finance shows very clearly what happened with the major Central Bankers of the world during the Great Depression. In other words, for many different reasons – but mainly because of the fear of inflation or hyperinflation – the behavior of monetary aggregates and interest rates in the period 1929-1933 was entirely inconsistent with the dramatic declines of real economic activity. Only after Milton Friedman and Anna Schwarz wrote their classical monetary analysis of the Great Depression it became clear that there were major failures in the monetary policy responses to the economic crisis of the thirties.

The Fed in Hot Water

The Fed has finally came clean. It now admits it bailed out Bear Stearns – taking on tens of billions of dollars of the bank’s bad loans – in order to smooth Bear Stearns’ takeover by JPMorgan Chase. The secret Fed bailout came months before Congress authorized the government to spend up to $700 billion of taxpayer dollars bailing out the banks, even months before Lehman Brothers collapsed. The Fed also took on billions of dollars worth of AIG securities, also before the official government-sanctioned bailout. 

The End of Gradualism?

Back in 2004, on the heels of the Fed’s tightening cycle, Ben Bernanke gave a speech in defense of “gradualism”—the idea that, under normal circumstances, economies are better served when central banks adjust their policy rates gradually, moving in a series of moderate steps in the same direction.


With monetary authorities around the world preparing for their exit, there are fears in some circles that a new Armageddon is in sight. Volatility could shoot up, it is argued, as investors try to figure out the impact of a synchronous global tightening on their respective asset classes—let alone the difference between, say, the effective fed funds rate and the interest on excess reserves!

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