President Trump criticizes his new Fed Chair Jerome Powell for accelerating the current interest rate hike.
Joseph Corr

2018-08-21 11:40:00 Tue ET

President Trump criticizes his new Fed Chair Jerome Powell for accelerating the current interest rate hike with greenback strength. This criticism overshadows the murky independence of the U.S. Federal Reserve System.

Monetary policy independence often contributes to the real effects of incremental interest rate adjustments on economic output, employment, and capital investment. This political independence is important with respect to the Lucas-Sargent-Wallace monetary invariance principle. This monetary invariance principle suggests that if only unpredictable money supply changes move real economic variates, monetary policy decisions that generate systematic or predictable variation in money supply would have no real impact on economic variates such as output, employment, and consumption. The subsequent relevant real business cycle (RBC) model variants play an important role in the key analysis of time inconsistency of optimal monetary policy conduct. Central bank independence and credibility thus become important institutional determinants of what constitutes effective monetary policy decisions.

A recent Oxford Economics research note by Alberto Alesina and Larry Summers affirms the empirical fact that most OECD countries experience high inflation (and maybe high unemployment) with subpar monetary policy independence. Several past examples of political influence over monetary policy decisions relate to the Nixon and Bush administrations.

For instance, President Nixon swapped out Former Fed Chair William McChesney Martin with his presidential pick Arthur Burns. The Nixon tapes revealed numerous conversations between Nixon and Burns where Nixon required the Fed chairman to keep low interest rates in order to maintain high employment in the 1970s. Nixon even indicated to his advisers that the administration could tolerate inflation but not high unemployment. As he tried to tilted the New Keynesian Phillips Curve (NKPC), Nixon's subsequent monetary policy stance proved to be disastrous as it ushered in a multi-year period of stagflation (i.e. high inflation, high unemployment, and low economic growth).

Later President George H.W. Bush often complained about the hawkish monetary policy decisions of his Fed chairman Alan Greenspan in the early-1990s. However, these complaints were less aggressive as Greenspan was able to assuage the dovish concern and suspicion that several senators shared back then.

At Jackson Hole, both Kansan City and Cleveland Fed CEOs Esther George and Loretta Mester point out that it is unlikely for the Trump administration to prevent subsequent interest rate hikes after mid-2018. Most monetary policy pundits and experts now predict one interest rate hike in September 2018 and another hike in December 2018. This prediction accords with the Wall Street consensus among top investment banks such as Goldman Sachs, JPMorgan Chase, Citigroup, UBS, and Bank of America.

 


If any of our AYA Analytica financial health memos (FHM), blog posts, ebooks, newsletters, and notifications etc, or any other form of online content curation, involves potential copyright concerns, please feel free to contact us at service@ayafintech.network so that we can remove relevant content in response to any such request within a reasonable time frame.

Blog+More
Zuckerberg announces his major changes in Facebook's newsfeed algorithm and user authentication.
Becky Berkman

2018-01-07 09:33:00 Sunday ET

Zuckerberg announces his major changes in Facebook's newsfeed algorithm and user authentication.

Zuckerberg announces his major changes in Facebook's newsfeed algorithm and user authentication. Facebook now has to change the newsfeed filter to prior

+See More
Capital market liberalization and globalization connect global financial markets to allow an ocean of money to flow through them.
Becky Berkman

2018-06-17 10:35:00 Sunday ET

Capital market liberalization and globalization connect global financial markets to allow an ocean of money to flow through them.

In the past decades, capital market liberalization and globalization have combined to connect global financial markets to allow an ocean of money to flow th

+See More
Sino-American trade talks make positive progress over 3 consecutive days.
Joseph Corr

2019-01-17 10:41:00 Thursday ET

Sino-American trade talks make positive progress over 3 consecutive days.

Sino-American trade talks make positive progress over 3 consecutive days as S&P 500 and global stock market indices post 3-day win streaks. Asian and Eu

+See More
Harvard financial economist Alberto Cavallo empirically shows the recent *Amazon effect* of faster retail price adjustments.
Amy Hamilton

2018-08-23 11:34:00 Thursday ET

Harvard financial economist Alberto Cavallo empirically shows the recent *Amazon effect* of faster retail price adjustments.

Harvard financial economist Alberto Cavallo empirically shows the recent *Amazon effect* that online retailers such as Amazon, Alibaba, and eBay etc use fas

+See More
Carl Icahn mulls over steps to shake up the board of SandRidge Energy after it adopts a counter poison pill.
Jacob Miramar

2017-11-29 07:42:00 Wednesday ET

Carl Icahn mulls over steps to shake up the board of SandRidge Energy after it adopts a counter poison pill.

The octogenarian billionaire and activist investor Carl Icahn mulls over steps to shake up the board of SandRidge Energy after the oil-and-gas company adopt

+See More
American state attorneys general begin bipartisan antitrust investigations into Apple, Amazon, Facebook, and Google.
Charlene Vos

2019-10-21 10:35:00 Monday ET

American state attorneys general begin bipartisan antitrust investigations into Apple, Amazon, Facebook, and Google.

American state attorneys general begin bipartisan antitrust investigations into the market power and corporate behavior of central tech titans such as Apple

+See More