The Atlanta Fed's macroblog provides commentary on economic topics including monetary policy, macroeconomic developments, financial issues and Southeast regional trends.
- BLS Handbook of Methods
- Bureau of Economic Analysis
- Bureau of Labor Statistics
- Congressional Budget Office
- Economic Data - FRED® II, St. Louis Fed
- Office of Management and Budget
- Statistics: Releases and Historical Data, Board of Governors
- U.S. Census Bureau Economic Programs
- White House Economic Statistics Briefing Room
October 07, 2005
Central Bankers Talking Tough
Mark Thoma and William Polley have been doing a fine job of documenting the hawkish sentiments coming from Federal Reserve officials in the past week: from Dallas president Richard Fisher (here and here), from Philadelphia president Anthony Santomero (here), from Kansas City president Thomas Hoenig (here), from St. Louis president William Poole and President Fisher again (here, here, and here). In today's Wall street Journal (page A1 of the print edition), E.S. Browning takes notice of the "whiff of inflation" in the air prompting these comments from the Fed and raising expectations that the Federal Open Market Committee will "try to cool the economy by pushing interest rates higher, raising borrowing costs for businesses and consumers alike."
It's not just the Fed talking tough, though. From Reuters:'
European Central Bank President Jean-Claude Trichet toughened his anti-inflation warnings on Thursday, saying strong vigilance is essential and the ECB stands ready to raise interest rates should problems worsen.
The Governing Council did discuss raising ECB interest rates but decided that the current 2 percent level "still remains appropriate."
"At the same time, strong vigilance with regard to upside risks to price stability is warranted. It is essential that the increase in the current inflation rate does not translate into higher underlying inflationary pressures," Trichet said.
Financial markets viewed the shift to strong vigilance from particular vigilance a month earlier as confirmation of its recent position that the ECB will start tightening interest rates in the first half of next year.
Here's an interesting question: How comparable are the current positions of ECB and the Federal Reserve? Does it matter that the policy rate in the eurozone is 175 basis points lower than the federal funds rate?
Maybe. Here, courtesy of the Erasmus School of Economics in Rotterdam, is a graph of the euro policy rate, along with various benchmark Taylor rule prescriptions:
This contrasts pretty clearly with what a similar (though not identical) calculation implies for the U.S. Here is a picture of the federal funds rate (just prior to the last rate hike in September) and some Taylor rule benchmarks from the last edition of the Cleveland Fed's Economic Trends:
Despite some differences in details, both sets of Taylor rule calculations tell a pretty consistent story: An inflation target somewhere in the neighborhood of 1.5% to 2% implies a policy rate somewhere in the neighborhood of 4%.
You may not want to take these benchmarks for more than what they are -- useful guideposts among the many other pieces of information that help guide monetary policy decisions. But they do raise two obvious questions: How long can the ECB hold firm on rates, and how far does the Fed have to go?
UPDATE: The Prudent Investor notes the Hoenig and Fisher comments, and adds the Bank of England's announcement that it is standing pat for now to his report on the ECB rate decision. The Skeptical Speculator notes that both the BoE and ECB decisions were taken in the context of some fairly weak forecasts for near-term economic growth.
TrackBack URL for this entry:
Listed below are links to blogs that reference Central Bankers Talking Tough:
» Fed talks tough on inflation from New Economist
The Federal Reserve raised rates in September, and will do so again at its next meeting on 1 November. I set out my reasons for expecting the FOMC to keep raising rates some time ago. Add to that the hawkish comments from Fed officials that Mark Thoma ... [Read More]
Tracked on Oct 10, 2005 2:31:37 AM
- Introducing the Refined Labor Market Spider Chart
- Shrinking Labor Market Opportunities for the Disabled?
- Are Long-Term Inflation Expectations Declining? Not So Fast, Says Atlanta Fed
- What Occupational Projections Say about Entry-Level Skill Demand
- A Closer Look at Changes in the Labor Market
- Should We Be Concerned about Declines in Labor Force Growth?
- Labor Report Silver Lining? ZPOP Ratio Continued to Rise in September
- The ZPOP Ratio: A Simple Take on a Complicated Labor Market
- What Do U.S. Businesses Know that New Zealand Businesses Don't? A Lot (Apparently).
- 5-Year Deflation Probability Moves Off Zero
- February 2016
- January 2016
- November 2015
- October 2015
- September 2015
- August 2015
- July 2015
- June 2015
- May 2015
- April 2015
- Business Cycles
- Business Inflation Expectations
- Capital and Investment
- Capital Markets
- Data Releases
- Economic conditions
- Economic Growth and Development
- Exchange Rates and the Dollar
- Fed Funds Futures
- Federal Debt and Deficits
- Federal Reserve and Monetary Policy
- Financial System
- Fiscal Policy
- Health Care
- Inflation Expectations
- Interest Rates
- Labor Markets
- Latin America/South America
- Monetary Policy
- Money Markets
- Real Estate
- Saving, Capital, and Investment
- Small Business
- Social Security
- This, That, and the Other
- Trade Deficit
- Wage Growth