Hilsensrath: Don’t Worry About The Federal Reserve’s Hawks, QE Is Still Possible


  • The Wall Street Journal – Jon Hilsenrath: Fed Hawks Speak Out Against QE3
    The Federal Reserve’s “hawks” are speaking out against additional action by the central bank to spur the economy. The Fed has moved despite this group’s opposition before. Thus, the comments now don’t represent a signal from the central bank that it is backing away from its statement earlier this month that it might act. But the remarks do highlight the complicated decision Fed policy makers face as they consider whether to launch a new bond-buying program, known as quantitative easing, at their meeting next month. Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said in an interview Wednesday with The Wall Street Journal that additional action by the Fed would be of minimal long-term benefit to the economy. Moreover, he said, the Fed could do little on its own to address problems out of its control which are holding back growth, including public uncertainty about government budgets in Europe and the U.S. “I’m very dubious. There are diminishing returns to these actions,” Mr. Plosser said. “The evidence is not strong that somehow more (bond purchases) are going to help the unemployment rate move faster to where we’d like it to be. I don’t see that there’s much benefit.” He cited research by Johns Hopkins economist Jonathan Wright which shows the effects of Fed bond-buying, though initially stimulative, tend to wane within just a few months.


Jon “Fed Wire” Hilsenrath spoke again yesterday.  We believe the highlighted part above is the most important passage of the story.  Statements by the hawks like Fisher and Plosser do not represent a change in Federal Reserve policy. So, treat them like the crazy uncles at the family get-together and understand the rest of the family (FOMC) is still on board for more QE.

Hilsenrath publishes two types of stories.  One type is the general news story about the economy or an explanation of FOMC policy.  The other type typically carries a message directly from the Federal Reserve.  The highlighted passage above suggests this is the latter.  We do not believe Hilsenrath has gone rogue and writing this without Bernanke’s knowledge.  We believe he was prompted to write this story after a conversation with someone at the Federal Reserve.

Hilsenrath has published 6 to 8 stories since March promising more QE is on the table. At some point the Federal Reserve has to stop making promises and actually take action.

  • MarketWatch – Fed hawks attack idea of more bond buys
    The hawks on the Federal Reserve are flapping their wings — or more precisely, gums — and they aren’t happy.
    In various interviews and appearances around the country, most of the bank presidents have gone out of their way to get one point across: more quantitative easing won’t work. “Is there anyone not borrowing today or purchasing a house because interest rates aren’t low enough?” asked Kansas City Fed President Esther George during an appearance at a business event in Kansas City. “Do we expect that businesses will hire if their long-term rates are lower?” she said, according to an account of her remarks in the Kansas City Star.
  • Bloomberg.com – Kocherlakota Says FOMC Goes Too Far With 2014 Rate Pledge
    Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said he believes the Federal Open Market Committee has gone too far by pledging to hold the main interest rate near zero at least through late 2014. “I would not have chosen to put that date as far out as the committee has chosen,” Kocherlakota said in response to an audience question after a speech today in Williston, North Dakota. The policy-setting FOMC repeated on Aug. 1 that it expects economic conditions to warrant unusually low interest rates, while saying it’s prepared if necessary to increase stimulus to reduce unemployment. Policy makers are next scheduled to meet Sept. 12-13.



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Max Konzelman

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