Jason Henderson Vice President and Branch Executive Federal Reserve Bank of Kansas City Omaha Branch March 2, 2012

Transcription

1 Jason Henderson Vice President and Branch Executive March 2, 2012 The views expressed are those of the author and do not necessarily reflect the opinions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.

2 U.S. Real Personal Consumption Growth Annualized percent change Actual Blue Chip Forecast What is the Risk? Source: Census Bureau and Blue Chip Economic Indicators, February 2012

3 Index (2005= 100) U.S. Real Private Fixed Investment Non-residential Structures Residential Investment Non-residential Equipment and Software Source: Bureau of Economic Analysis

4 Index (2005= 100) Federal Defense State and Local Federal Non-Defense U.S. Government Spending Source: Bureau of Economic Analysis

5 U.S. Real Net Exports of Goods and Services and Value of the Dollar Billion dollars (2005 constant dollars) Index Real Net Exports (left axis) Broad Dollar Index (right axis) Blue Chip Forecast Feb Source: Bureau of Economic Analysis, Federal Reserve Board of Governors, Blue Chip Economic Indicators

6 Economic Projections of Federal Open Market Committee Members, Central Tendency, June 2011 Longer Run Real GDP Growth 2.3 to to to to 4.0 Nov proj. 2.4 to to to to 3.9 Unemployment Rate 5.2 to to to to 7.6 Nov proj. 5.2 to to to to 7.7 PCE Inflation to to to 2.0 Nov proj. 1.7 to to to to 2.0 Source: Federal Reserve Board of Governors

7 Billion Dollars Fed Agency Debt MBS Purchases Liquidity to Key Credit Markets Lending to Financial Institutions Long Term Treasury Purchases Traditional Security Holdings Source: Federal Reserve Bank of Cleveland

8 Overview of Federal Open Market Committee (FOMC) Participants Assessments of Appropriate Monetary Policy (Appropriate Timing of Policy Firming) Number of Participants Source: Federal Reserve Board of Governors

9 If Economists Use the Same Data and are Taught the Same Theory, Why Do they Come Up with Different Answers?

10 Fed Funds Rate = Equilibrium Real Interest Rate + Inflation Rate Deviation + of Inflation + from Target Output Gap What Can Economists Debate in the Taylor Rule? Equilibrium real interest rate Inflation rate measure Inflation target Potential GDP Weights on inflation and output gap George A. Kahn Taylor Rule Deviations and Financial Imbalances Economic Review, Federal Reserve Bank of Kansas City, Second Quarter

11 There are many different specification. (House rules) Was the FOMC following a rule after 1999? Taylor Rule Prescriptions George A. Kahn Taylor Rule Deviations and Financial Imbalances Economic Review, Federal Reserve Bank of Kansas City, Second Quarter

12 Sustainable Economic Growth Price Stability Foundation based on the Phillips Curve

13 Percent Consumer Price Inflation - Less Food and Energy Unemployment Rate

14 Personal Income Gains Unemployment Rate Seriously Delinquent Mortgage Loans (percent of all mortgage loans serviced, Q3 2011) More than 8 % 5 % to 8 % 0 to 5 % Source: Mortgage Bankers Association

15 Federal Reserve Chairman Ben Bernanke Research on the Great Depression Former FRBKC President Thomas Hoenig Closed Banks in the 1980s Dissented 8 times in 2010

16 Non-irrigated Cropland Values (Percent change 2010:Q3 to 2011:Q3) Source: Agricultural Finance Databook, FRBKC

17 Billion dollars (2005 constant dollars) Index (2005=100) Exports Double Between 2006 and 2011 Exports Double In 1970s Exports Double During WWI Exports More than Double During WWII Source: Henderson, Gloy, and Boehlje (2011) Agriculture s Boom-Bust Cycles: Is This Time Different Economic Review, Federal Reserve Bank of Kansas City.

18 Doesn t the Federal Reserve s large balance sheet mean inflation is coming?

19 Quantity Theory of Money Price = Money * Velocity Quantity Definition of Inflation: Too much money chasing too few goods M V Q

20 Growth in Monetary Aggregates Index (Jan 2000=100) M2 Monetary Base Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Source: Federal Reserve Board of Governors

21 Trillion dollars Source: Federal Reserve Board of Governors Excess Reserves in Depository Institutions When will inflation start? Banks start lending Consumers start spending Businesses start investing In short, if excess reserves fall before the Fed balance sheet 0 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12

22 Economic activity is expected to improve, Inflation is expected to remain well-anchored, the unemployment rate could remain high. Monetary policy is art, not science. In economics, assumptions matter.