Each quarter we survey old friends at the Fed (those still with the living!) and some new, and then gather it all together. Contact is at the district banks. That exercise was completed last week.
There is nothing official about our “survey” nor is it necessarily statistically significant but the exercise is fun, and, we sometimes come up with an item or two which prove to be useful. A bit we share in this blog (see our Q4/2012 edition, Nov/22).
We noted in November that most at the Fed felt the power lifting was to be done by Congress, some comparing Fed policy to cheerleading. For example, many felt that “twist” represented nothing more than a change in the makeup of the Fed’s portfolio.
Similarly, many felt then that mopping up some mortgage debt would make little difference to the economy as a whole, and that Bernanke was making the equivalent of fiscal policy in the fear that Washington would not. But then again, most felt that none of this could hurt. This leads us to the Q1 exercise.
One focus was naturally the discussion of “the reversal”; that is, how best to finesse the ship up to the dock, without tearing up the whole works. Most agree with staffers’ recent research that it can be done without much damage. That may be. The surprise, the key change in focus this go around however was the fear of bubble creation. Some staffers cited the Mar/5/13 testimony of John Taylor, Allan Meltzer and David Malpass before the monetary subcommittee of the US House Committee of Financial Services. All three warned of the potentially disastrous results of arbitrary policy making, where money is printed and then channeled into favored sectors of the economy, thus bypassing market-based capital allocation. “By replacing large decentralized markets with centralized control by a few government officials, the Fed is distorting incentives and interfering with price discovery with unintended consequences throughout the economy,” warned Taylor.
Many staffers agree, fearing their employer may be in the process of authoring a bubble (housing / gov’t debt mkt / equity). This concern among staffers is new, at least from what we can determine; we did not detect a major concern along these lines, Q4. And of course these folk are not alone. Others have voiced similar concerns. The difference is that now these concerns appear to be widespread, backstage. If we are right, this will accelerate policy change.
Robert Craven
There is nothing official about our “survey” nor is it necessarily statistically significant but the exercise is fun, and, we sometimes come up with an item or two which prove to be useful. A bit we share in this blog (see our Q4/2012 edition, Nov/22).
We noted in November that most at the Fed felt the power lifting was to be done by Congress, some comparing Fed policy to cheerleading. For example, many felt that “twist” represented nothing more than a change in the makeup of the Fed’s portfolio.
Similarly, many felt then that mopping up some mortgage debt would make little difference to the economy as a whole, and that Bernanke was making the equivalent of fiscal policy in the fear that Washington would not. But then again, most felt that none of this could hurt. This leads us to the Q1 exercise.
One focus was naturally the discussion of “the reversal”; that is, how best to finesse the ship up to the dock, without tearing up the whole works. Most agree with staffers’ recent research that it can be done without much damage. That may be. The surprise, the key change in focus this go around however was the fear of bubble creation. Some staffers cited the Mar/5/13 testimony of John Taylor, Allan Meltzer and David Malpass before the monetary subcommittee of the US House Committee of Financial Services. All three warned of the potentially disastrous results of arbitrary policy making, where money is printed and then channeled into favored sectors of the economy, thus bypassing market-based capital allocation. “By replacing large decentralized markets with centralized control by a few government officials, the Fed is distorting incentives and interfering with price discovery with unintended consequences throughout the economy,” warned Taylor.
Many staffers agree, fearing their employer may be in the process of authoring a bubble (housing / gov’t debt mkt / equity). This concern among staffers is new, at least from what we can determine; we did not detect a major concern along these lines, Q4. And of course these folk are not alone. Others have voiced similar concerns. The difference is that now these concerns appear to be widespread, backstage. If we are right, this will accelerate policy change.
Robert Craven
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