10 years ago today -- 3/18/2008 FOMC [Fed policymaking] meeting
comes days after Bear Stearns rescue but real news --> Fed staff thinks America is in a recession
Fed cuts from 3% to 2.25% but 2 hawks - Plosser and Fisher - dissent
transcript: federalreserve.gov/monetarypolicy…
THREAD
comes days after Bear Stearns rescue but real news --> Fed staff thinks America is in a recession
Fed cuts from 3% to 2.25% but 2 hawks - Plosser and Fisher - dissent
transcript: federalreserve.gov/monetarypolicy…
THREAD
Fed staff: we are in a recession but it will probably be a mild one -- unemployment will rise only 1.25% to 5.75%
Bernanke: I'm more pessimistic. I don't see where the recovery comes from
Bernanke: I'm more pessimistic. I don't see where the recovery comes from
Lot of talk (from St. Louis, Kansas City, Dallas, Philadelphia, Richmond) about rising inflation at this meeting . Fed staff predict core PCE rising to 2.3% by the end of 2008.
Tom Hoenig, President of @KansasCityFed:
"I am increasingly concerned that, in our need to respond to signs of economic weakness, we risk losing our hard-won credibility on inflation"
"I am increasingly concerned that, in our need to respond to signs of economic weakness, we risk losing our hard-won credibility on inflation"
Jeff Lacker, @RichmondFed President:
"I believe inflation expectations no longer qualify as well anchored. Moreover, they no longer seem consistent with the credibility of even a 2 percent inflation objective."
"I believe inflation expectations no longer qualify as well anchored. Moreover, they no longer seem consistent with the credibility of even a 2 percent inflation objective."
.@CharlesPlosser of @philadelphiafed:
"I’m just less comfortable with the inflation outlook...I wish we had the luxury of waiting for unambiguous evidence that expectations have lost their anchor. But if we wait until then, it will be too late."
"I’m just less comfortable with the inflation outlook...I wish we had the luxury of waiting for unambiguous evidence that expectations have lost their anchor. But if we wait until then, it will be too late."
Plosser goes on:
"I’m also concerned that the public seems to perceive that the Fed
has effectively set aside one part of its mandate, price stability, in our all-out efforts to promote economic growth."
"I’m also concerned that the public seems to perceive that the Fed
has effectively set aside one part of its mandate, price stability, in our all-out efforts to promote economic growth."
Richard Fisher, President of the @DallasFed dissented in January and in a recent speech had said that tolerating an economic downturn was price worth paying for price stability
At this meeting says there is no way he will vote for more cuts
At this meeting says there is no way he will vote for more cuts
Kevin Warsh, Fed governor:
"market participants may not yet believe that we are as concerned as we ought to be about inflation risks and about risks with respect to the path of the exchange value of the dollar."
Later he would excoriate the Fed for talking about value of the $
"market participants may not yet believe that we are as concerned as we ought to be about inflation risks and about risks with respect to the path of the exchange value of the dollar."
Later he would excoriate the Fed for talking about value of the $
Rick Mishkin, Fed governor, pushed back. As close to a fistfight as you get at a Fed meeting:
"I just really can’t not react to the comments that you made, President Fisher...This was the statement that I think you made, and I think it is just plain wrong."
"I just really can’t not react to the comments that you made, President Fisher...This was the statement that I think you made, and I think it is just plain wrong."
Fisher responds to Mishkin: I know Japan and the US of A is nothing like Japan (this is also a dig at Bernanke who talks a lot about Japan) so "I think it's a very poor analogy."
Bernanke always tries to be nice to the hawks but he also takes a shot at their inflation hysteria:
"Ninety-five percent of the inflation that we’re seeing is either the direct or the indirect effect of globally traded commodity prices—food, energy, and other commodities."
"Ninety-five percent of the inflation that we’re seeing is either the direct or the indirect effect of globally traded commodity prices—food, energy, and other commodities."
What about Janet Yellen, then the @sffed President:
The economy is REALLY bad, the inflation risks are completely manageable, and there is a case for us to cut rates even more than 75 basis points as insurance against a very bad outcome.
The economy is REALLY bad, the inflation risks are completely manageable, and there is a case for us to cut rates even more than 75 basis points as insurance against a very bad outcome.
On this she seems to agree with many market participants who, according to Fed staff, are expecting 100 basis point cut at this meeting
Hoenig is really worked up about 75 basis point cut:
"Mr. Chairman, I think this is a mistake"
"Mr. Chairman, I think this is a mistake"
Lacker:
"We cannot prevent this recession, and it’s doubtful to me that we could have or should have even if we had had perfect foresight...We can control inflation, and we can limit the extent to which uncertainty about our inflation intentions adds to market volatility.
"We cannot prevent this recession, and it’s doubtful to me that we could have or should have even if we had had perfect foresight...We can control inflation, and we can limit the extent to which uncertainty about our inflation intentions adds to market volatility.
.@CharlesPlosser forget about Yellen's notion of taking insurance out against a bad recession. Take insurance out against inflation!
"I believe the time has come to buy some insurance against our waning credibility about restraining inflation."
"I believe the time has come to buy some insurance against our waning credibility about restraining inflation."
Charlie Evans, @ChicagoFed President, tells the hawks - you really misunderstand the Volcker disinflation. It wasn't about restraining money growth but rather it was about a really bad recession. And this recession will also tame any inflation concerns.
Also of interest from the two people who were supposed to be closest to the financial sector --
Warsh: US financial institutions will come out of this period stronger than ever
Geithner: Banking system is not undercapitalized and everyone stop talking about insolvency
Warsh: US financial institutions will come out of this period stronger than ever
Geithner: Banking system is not undercapitalized and everyone stop talking about insolvency
What is the lesson besides that for 10 years Janet Yellen was right and the hawks were wrong?
That's it. That's the lesson. Promote policymakers who have demonstrated good judgment and get better outcomes. Keep people who were wrong far way from power.
That's it. That's the lesson. Promote policymakers who have demonstrated good judgment and get better outcomes. Keep people who were wrong far way from power.
Oh 1 more lesson. @NewYorkFed, if you are wondering why everyone is so worked up about your President search, read this thread and remember that Lacker, Plosser, Fisher, etc were all appointed by private boards with no democratic oversight.
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Interesting to read the press reaction to this meeting, lest anyone think the hawkishness was irrelevant
ft.com/content/a2110d…
ft.com/content/a2110d…
and @greg_ip noted this was "the first meeting with two dissents since 2002" wsj.com/articles/SB120…
