Central Bank Watch 50 replies
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Disliked2) He will be as trigger happy as Greenspan
Dislikedi just typed up my notes on the book:
bernanke believes the central bank…
...has limited powers and can not steer inflation precisely.
...should have a single objective, as multiple objectives can conflict.
...needs to disinflate before it can start a targeting campaign.
...must have credibility with the public in order to be effective.
bernanke believes that inflation targeting should…
… have loose rules (ie half discretionary, half mechanical).
… have an extremely transparent interface with the public.
… have a single-point nominal anchor, like 2%, instead of a range like 1% - 3%.
… not scared to miss an inflation target
… un-reactive (goes back to limited bank powers)
… big on credibility
… sensitive to and interested in the public's expectations.
first, if i am right about bernanke, he will not do anything in his first meeting. no rate hike, no rate cut. i say this because that would be his style, to come in and check out the situation before making any moves. he doesnt even have that much confidence in the central bank's ability to control inflation, so he tends to lean toward doing nothing.
second, the last 14 rate hikes have been a setup. we are all being fooled! greenspan has been preparing the way for bernanke this whole time. notice my point above "needs to disinflate before it can start a targeting campaign." well that is just what greenspan has been doing over the past year. this book goes in depth about how economies need to be "setup right" (ie disinflated) before they can go into inflation targeting. there are so many similarities to our current situation that i have to believe we are in this "setup" phase already.Ignored
DislikedBoth banks have him as an inflation targeter, whereas you disagree I think.
To be honest I'm not sure what to think since your opinions seem to quite different to Danske & FXCM. Remember these banks have big research teams looking at all this data so surely they can't be all wrong!?Ignored
DislikedHe may also want to prove early on that he is a staunch inflation fighter.Ignored
Dislikedive heard this line before. and i dont believe it for one second. bernanke isnt the kind of guy that wants to "prove" something. he doesnt want people to think of him as a dove or a hawk. he is neutral, and i think he will prove that by not doing anything to rates in his first fed meeting.Ignored
Dislikedit'll be interesting to see how he sets his stall out with policy announcements, targets etc. once the initial media interest fizzles away lets keep an eye on his performance and see how well he does.
btw, are you gonna update the matrix for the new boy? could we improve upon it somehow?Ignored
DislikedIf you click on the "Carlson-Craig-Melick" link there's a paper that describes the estimation technique.Ignored
DislikedThis is from the "Fed Funds Reference Guide" from CBOT:
Fed Funds Futures and the Probability of a Fed Policy Shift
Perhaps no single interest rate is watched more intently than the fed funds target rate set by the Federal Open Market Committee (FOMC or, popularly, the Fed). Perhaps, too, no single financial policy decision carries more weight in all corners of the financial world than an FOMC decision concerning whether to raise, lower, or leave untouched the fed funds target. In the weeks immediately prior to a Fed meeting, the financial media will carry comments to the effect that fed funds futures prices indicate, for example, a 43% probability for a 25 basis point (bp) decrease in the fed funds target rate.
These people are working from simple probability math, and you can do the same thing. Consider the market situation on March 27, 2003. The next FOMC meeting was scheduled for May 6. Also, for some weeks, at least some commentators had been saying the Fed would be likely to lower its already low target rate from 1.25% to 1.00%. Of course, the March 18 meeting had come and gone with no change in the target.
On March 27, the May fed funds futures contract was trading at a price of 98.86 which implied a fed funds rate of 1.14% (100 – 98.86). Using a standard probability equation, you could have used that implied rate to estimate the probability that the Fed would either lower the target to 1.00% on May 6 or leave it unchanged at 1.25%.
1.25% * (6/31) + [1.00%p + 1.25%(1 - p)] * (25/31) = 1.14%
Here p is the probability the Fed will lower its target rate 25
bps, (1-p) is the probability the Fed will leave the target unchanged, (6/31) is the fraction of the month during which the target is known to be 1.25%, and (25/31) is the fraction of the
month during which the target is unknown.
Solving for p, you will discover that in this case p equals 0.5456. That is, this exercise predicts a 55% probability that, given the market situation on March 27, 2003, the Fed would lower its target rate 25 basis points at its May 6 FOMC meeting and a 45% probability that it would leave the target unchanged.