At the Cato Institute Monetary Policy Conference, Part 3

Photo Credit: joiseyshowaa

Photo Credit: joiseyshowaa

Press conference w/Bullard: embargoed until end of talk.  [everything is a paraphrase here, and I can’t get everything down, as with everything at this conference]

Neo-Fisherian ideas are interesting and worthy of further talking about, but don’t take them too seriously.

The longer you are at a zero bound — the neo-Fisherian effects get larger.

Q: new monetary consensus of a low nominal world.  Won’t the abnormal become normal?

B: ECB and Japan still doing QE.  We are now trying to normalize.

Q: Balance sheet. edging up rates?

B: liftoff, then review the balance sheet.  Gradualism will be the normal policy, more shallow than 1994 or 2006.  Won’t have credibility on gradualism until the second move.  More on gradualism — not a constant slope, but state-dependent.

Q: [Bloomberg]  Why go gradually?

B: He has higher dots.  Forecasts lower unemployment.  Need to see how things evolve.

Q: Wan’t it difficult for the Fed to veer from prior policy moves?

B: You have to retain your options, and move accordingly.  Labor markets could tighten considerably.

Q: [Dow Jones] Any concern that you will have unanticipated effects on the ECB and World?

B: No. Those are priced in anyway.

Q: keeping the markets calm?

B: we won’t give a total roadmap, we can’t.  It won’t be like 1994.  We will communicate more.

Q: Chorus of criticism from the GOP?

B: Fed has been in the middle of the action since the crisis.  Adds to a healthy debate on priorities for monetary policy.  What should we have has targets…

Q: Is the FOMC shifting its official inflation measure?  Dallas Fed Trimmed Mean?

B: Trimmed mean is better statistically.  Target should be overall inflation.

Now it is time for Lacker

Jury is still out on how we handled on 2008-9.  Not surprised on the political furor.

Q: What will happen when FOMC raises rates?

L: should be smooth.  News will be in the announcement.  Shouldn’t be a surprise.

Q: ??

L: My dots are above median. Should be a flatter cycle.

Q: Regarding his paper, if the price level is all that matters, why not have the 2% more prominent?

L: Can’t reject the possibility that chance is keeping inflation low, and a slow-moving component.  Communications are pretty clear now.

Q [marketwatch] FOMC behind curve?

L: We might be, we might not.

Q: Possible that Fed won’t be gradual?

L: Possible.  Consider inflation 2003-2004 to 2007, we got behind on inflation.


Q: any reform ideas you might support?

L: IOER given to Board, should go to the FOMC.

Q: should a Taylor rule be mandated?

L: wouldn’t mandate it, we even consider them, and maybe we should discuss why we differ from them.

Q: your view on the balance sheet?

L wind down quickly, if possible.

Q: my question on whether globalization and technology affecting the  labor share and thus monetary policy?

L: models could take account of that if they wanted to — depends what you think the goals of policy are.  If inflation only, a focus on employment might have an effect, or we could end up pursuing pushing for unemployment that we can’t achieve.