From Tim Duy:
Pencil in somewhat stronger growth in 2014. Pencil in a steady reduction in the pace of asset purchases until the program winds down at the end of the year. Pencil in an extended period of low rates. But also recognize that the tide of monetary policy is now receding– albeit ever so slightly– with the Fed’s first step of ending the asset purchase program.
And from the invaluable Bill McBride: Ten questions for 2014.
David Kocieniewski of the New York Times is guilty of some outrageously bad journalism in the form of a groundless ad hominem attack on the reputation of two professors for the sole purpose of reinforcing the prejudices of his misinformed readers.
After a wild ride in 2011-2012, interest rates have settled down on European sovereign debt. For now.
The U.S. Energy Information Administration last week issued an early release of its Annual Energy Outlook 2014, which shows substantially more optimism about near-term U.S. crude oil production compared to the AEO 2013 assessment completed just eight months ago.
Quick links to a few items I found interesting.
Once upon a time, U.S. monetary policy was conducted with its primary target defined in terms of the fed funds rate, which is the interest rate on an overnight loan of Federal Reserve deposits between private banks or other institutions that hold accounts with the Fed. A bank that ended the day with more deposits in its account with the Fed than needed to meet its required balances could lend those funds to another bank that found itself short. The interest rate on these loans was very sensitive to the total level of excess reserves in the system. The Fed’s direct control of available reserves gave it near control of the interest rate on loans of fed funds, which was what made the fed funds rate a credible target for implementation of the FOMC’s policy directives.
The economy is slowly improving.
An interesting new research paper by Princeton Professors Alan Blinder and Mark Watson examines differences in performance of the economy under Democratic versus Republican presidents. The paper begins:
The superiority of economic performance under Democrats rather than Republicans is nearly
ubiquitous; it holds almost regardless of how you define success. By many measures, the
performance gap is startlingly large–so large, in fact, that it strains credulity, given how little
influence over the economy most economists (or the Constitution, for that matter) assign to the
President of the United States.
The Federal Reserve has been trying hard to communicate that it intends to keep short-term interest rates low for quite some time. The market seems to have embraced the message.
“U.S. gasoline prices have fallen to their lowest level in nearly 33 months amid a boom in domestic oil drilling”, the Wall Street Journal declared last week. That’s a true statement, but there’s more to the story.