Federal Reserve Speech Roundup

Lots of jawboning out of the Fed these days.

Instead of joining the list of pundits giving you their spin. Instead of joining that parade, I’d rather send you to the horses collective mouths.

These are the 3 most important Fed speeches and commentaries of the past month:

•   Reflections on the Yield Curve and Monetary Policy
Remarks by Chairman Ben S. Bernanke Before the Economic Club of New York, NY, March 20, 2006
(This one was well publicized and will be taken apart)

•  Comments to New England Realtors Conference
Cathy E. Minehan, President and Chief Executive Officer, Federal Reserve Bank of Boston, March 20, 2006
(Non-voting member tells New England Realtors Conference she is concerned about the impact on the economy of declining construction and a drop in household wealth)

•  Remarks at the Japan Society Corporate Luncheon in New York City
Timothy F. Geithner, President and Chief Executive Officer, NY Federal Reserve, March 9, 2006
(Permanent voting member, warns of the "the risk that monetary policy would be too accommodative")


The last 2 in particular fits my thesis:  A Real Estate driven economy that has robust inflationary pressures everywhere — except in wages . . . 

What's been said:

Discussions found on the web:
  1. Clayton Bigsby commented on Mar 21

    by the way, i really enjoy your blog. you do a great job and post some great info.

  2. thecynic commented on Mar 21

    Bernanke said consumer finances appear healthy, and the increase in mortgage debt from the housing surge of the last five years “may not be a particularly serious problem” because families have replaced higher rate consumer debt with home loans. “Wealth has grown,” Bernanke said. “Families have made a lot of progress in restructuring their liabilities.”

    so if i cash-out refi my equity, pay off my credit cards and go buy a flat screen tv and a range rover and my monthly payment is lower i’m in better shape?

    that’s some crazy logic. my payment is lower but i’ve doubled the cost of my credit card debt and goods purchased. and what happens when i sell my house at a loss and my loan is upside down?

    this debt binge is extracting spending from the future and if asset values decline and remove the “wealth affect” the consumer will be puking on themselves.

    i actually had some respect for Bernanke having heard him speak before, but now i’m concerned he is just as delusional as Greenspan

  3. trader75 commented on Mar 21

    I would love to see an intelligent debate over how much control the Fed Chairman actually has, if any. This piece by John Hussman is a good place to start:


    My humble opinion: in the fullness of time, to borrow a Paul McCulley phrase, ‘all roads to lead to inflation’ for Bernanke. Furthermore, I think he knows this full well. His “inflation fighting credentials” –or lack of them– matter not a whit. The path of the Fed is predestined by the path of congress and the American consumer… what they have done, what they are doing now, and what they will continue to do.

    Greenspan cultivated the illusion of a man, or better yet a wizard, in full control of things… methinks the Fed Chairman’s role is closer to CFO of a crooked company, one who’s job is not to ‘control’ anything except the perceptions of the public and the press, playing shell games as the company’s finances slide into debt-racked oblivion.

  4. todd commented on Mar 21

    >>>so if i cash-out refi my equity, pay off my credit cards and go buy a flat screen tv and a range rover and my monthly payment is lower i’m in better shape?

    Let’s not get too negative… if you can pay off credit cards, buy a sweet TV and pay a lower monthly mortgage payment you most certainly are in better shape!!!

    A huge housing crash is probably a little overblown too. Homeowners will probably lose most of the value in their homes by prices not keeping up with inflation. If your house stays at the same price for the next 5 years and inflation maintains a 4% annual rate, your house will lose 20% of its value over that time period. However, since the actual selling price didn’t decrease, it will be hard for most people to notice.

    The REAL problem is the slowing of equity extraction. As real estate cools there will be less opportunity to refinance and buy that sweet flat screen TV. Would you buy a $2000 television if you actually had to work for that money?! I think not! LOL

  5. Going Private commented on Mar 21

    Exeunt omnes

    The always excellent The Big Picture today leads with a column tagged Lots of jawboning out of the Fed these days. I find this both interesting, and alarming. The issue of central bank transparency is not even remotely new,

  6. GRL commented on Mar 21

    This type of posting is very useful, and it would be great if you could point out every month the most important of the various speeches the fed governors give.

    Let’s not forget Kohn’s speech of March 16, where he talks about the advantages and disadvantages of the “conventional strategy” vs. the “extra action” approach to asset bubbles and speculation.


    Aside from the theoretical aspects of the speech, which are worth understanding in their own right, I note with particular interest the following discussion of house prices:

    Perhaps housing markets differ from equity and bond markets. For example, homeowners, who may have a less sophisticated understanding of the economy than professional investors, might mistakenly view a one-time rise in home prices–resulting, say, from a decline in interest rates–as evidence of a more persistent upward trend. If so, a monetary easing directed at stabilizing output and inflation might, conceivably, drive up real estate values by more than fundamentals alone would merit. Still, you would expect any mis-pricing from these sources to be reversed over time as interest rates returned to normal. In any event, empirical evidence on this issue is scanty. More broadly, further research into the causal connections, if any, between monetary policy and bubbles would seem to be needed before we would know enough to be able to act on such linkages with much confidence.

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