Eagle Eye


The Fed is effectively in watch-and-wait mode. The reduction in the bond program was widely expected by investors before the meeting and represents a continuation of the policy strategy laid out by Fed Chairwoman Janet Yellen and former Chairman Ben Bernanke in the past few months.

The Fed also stuck to its guidance on short-term interest rates, saying they would remain near zero long after the bond program ends later this year. Many investors don’t expect the Fed to start raising interest rates until well into next year.

It seems the Fed has the eyes of an eagle (note: The eagle eye is among the strongest in the animal kingdom, with eyesight estimated at 4 to 8 times stronger than that of the average human.):

Eagle eyes

Still, officials nodded to signs of improvement in economic activity in March and April, suggesting they aren’t too worried about the winter slowdown.

Elsewhere, John Makin writes:

Of course, overall growth is made up of the growth of its components—consumption, investment, and net imports. It is also important to remember that the subpar growth over the last five years has occurred at the same time that unprecedented monetary and fiscal stimulus has been applied to support the economy. However, since the end of last year, both fiscal and monetary stimulus is being withdrawn. Notwithstanding optimistic forecasts of 3 percent growth starting at the middle of this year, it remains to be seen how robust growth can be without the help of the extraordinary monetary(!) and fiscal stimulus that has characterized the last half-decade.

How come there has been “extraordinary monetary stimulus” if nominal spending is so far below trend and it´s growth anemic?

Also elsewhere:

Many economists believe the first-quarter pullback was a temporary speed bump. They expect demand that slowed in the winter to accelerate later in the year.

Not to worry. General Winter won this battle but Colonel Fed has the strategy to win the war. Maybe that strategy will be better known in three weeks when they publish the Minutes:

With reductions in the bond-buying program on course, Fed officials appear to be focusing on longer-run issues that they need to resolve this year, in advance of any shifts on interest rates down the line.

That includes making decisions about whether to continue to target an overnight interbank lending rate called the federal funds rate. The Federal Reserve Bank of New York has been experimenting with a program that could lead to a new short-term interest rate target called a reverse repo rate that could be easier to manage. Moreover, officials need to update an easy-money exit strategy they laid out three years ago that many officials see as out of date.

When will they give up targeting interest rates?

3 thoughts on “Eagle Eye

  1. Off topic, regarding CATO’s NGDP sorta recommendation. From their handbook:

    -CATO wants something like NGDP targeting
    -CATO’s skeptical of Central Bank forecasts
    -CATO supports drawing forecast insights from forward looking asset markets
    (we’re good so far, right!?)
    -CATO specifically thinks the Gold price (!) and exchange rates are informative.

    CATO in short: Target NGDP by gauging NGDP growth by the Gold price and exchange rates!

    I wonder how much money US Fed would’ve needed to destroy to keep $/gold steady since 2001.

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