The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.
- 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
- Back to the '80s, Courtesy of the Wage Growth Tracker
- Introducing the Atlanta Fed's Taylor Rule Utility
- Payroll Employment Growth: Strong Enough?
- Forecasting Loan Losses for Stress Tests
- Men at Work: Are We Seeing a Turnaround in Male Labor Force Participation?
- What’s Moving the Market’s Views on the Path of Short-Term Rates?
- Lockhart Casts a Line into the Murky Waters of Uncertainty
- How Will Employers Respond to New Overtime Regulations?
- How Good Is The Employment Trend? Decide for Yourself
- Is the Labor Market Tossing a Fair Coin?
- September 2016
- August 2016
- July 2016
- June 2016
- May 2016
- April 2016
- March 2016
- February 2016
- January 2016
- November 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