Robert Kahn

Macro and Markets

Robert Kahn analyzes economic policies for an integrated world.

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Showing posts for "Unemployment"

The Fed: No Taper and Little Clarity

by Robert Kahn
U.S. Federal Reserve Board Chairman Ben Bernanke holds a news conference following the Fed's two-day Federal Open Market Committee (FOMC) meeting in Washington September 18, 2013. (Gary Cameron/Courtesy Reuters)

The first move is the hardest.

The Federal Reserve defied expectations and did not reduce, or taper, its purchases of Treasury and MBS securities today, leaving them at $85 billion per month.  The economic projections accompanying the statement suggest a significant divergence of views about the prospects for recovery and the outlook for interest rates.  It suggests little concern about a rapidly increasing balance sheet.  What comes next depends on the data, a message the Fed has been sending for some time.  Markets reacted sharply, with stocks and commodities spiking, while bond yields and the dollar fell on the news that policy would remain easy for longer.  Good for U.S. financial conditions, but if you were looking for clarity, today probably didn’t provide it.

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The Shrinking U.S. Labor Force and Fed Policy

by Robert Kahn

Does the large drop in the U.S. labor force participation rate justify a monetary policy that is easier, for longer, than suggested by our models or the Fed’s current description of its policy?  Chris Erceg and Andy Levin, two senior researchers at the Fed now on leave at the IMF, argue yes.  Their analysis will provide fuel to the monetary policy doves who argue the Fed is failing to meet its employment mandate, and points to a battle ahead.  But it doesn’t really settle questions about whether monetary policy is an effective tool for bringing these workers back into the work force, or whether it can be done without creating inflationary pressure (which speaks to other leg of the Fed’s mandate). Still, their paper is an important read.

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