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Hatzius: Taper yes, but policy ease also coming

  • The Fed may be about to taper in December or March, but Goldman's Jan Hatzius thinks Janet Yellen might cushion the blow by announcing a simultaneous easing - lowering the unemployment threshold for a rate hike to 6% from 6.5%.
  • Hatzius has talked about this for awhile, but now feels strongly enough about the chance to raise it from just a possibility to his "base case." Of note are two studies from influential Fed economists arguing for a reduction in the 6.5% threshold (they're set to be presented this week at the IMF's annual research conference). "It's hard to overstate [their] importance," says Hatzius.
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Comments (18)
  • That would be totally meaningless. Nice toolbox FED.
    5 Nov 2013, 01:21 PM Reply Like
  • Why not lower it to 0%. that is what everyone wants......free money forever.
    5 Nov 2013, 01:33 PM Reply Like
  • People are forgetting that the Fed is concerned with the size of it's B/S. According to it's own research, going over 4T is where they believe things become unmanageable. I am also of the opinion that our unemployment issues are more structural than they are cyclical and will need to be addressed in ways other than QE. I think we can all say that QE has reached its diminishing returns point.
    5 Nov 2013, 01:40 PM Reply Like
  • I agree...no longer perhaps that useful. What is now needed is to direct that money to infrastructure investment...so many good jobs were offshored and outsourced in 90s and early 200x years. We need more than minimum wage consumers. Businesses are sitting on tons of $. We need to incent them to invest rather than sit on it and use for M&A. But our current Congress seems unwilling to do this. It can be done via various projects, jump started by Congress, and using private investment and employees.
    5 Nov 2013, 01:59 PM Reply Like
  • I think it is already unmanageable. QE is worthless at this point. The only thing it helped was improving company balance sheets by refinancing in stupid low rates. With no interest rates, there is no reason to pursue any leverage to add value to a company. Move the rate back to 4-5% and get on with it.
    5 Nov 2013, 02:07 PM Reply Like
  • Indeed. Two or three trillion of infrastructure spending should get the economy roaring back and my hard assets soaring.
    5 Nov 2013, 06:13 PM Reply Like
  • York, can you link me to this Fed research about the size of its own balance sheet and manageability? Would love to read
    5 Nov 2013, 11:42 PM Reply Like
  • I think they will lower the threshold and use that as further excuse not to taper until after March. Not that much excuse will be needed. We already had the political deadlock in October that has effectively delayed the next decision until January earliest (and more likely March), so if we have a rerun in Jan/Feb as expected that will push the Fed's window back even further, to April or June. I'm not an economist but that seems simple logic based on previous experience of the same situation happening again.
    5 Nov 2013, 03:51 PM Reply Like
  • Are these the same analysts that were "100% certain" that the Fed was going to taper in September? How did that turn out? Boneheads!

     

    Let's face it --- nobody knows nothing until it actually gets announced. And that is the ONLY certainty.
    5 Nov 2013, 04:58 PM Reply Like
  • The Fed's mandate needs to be changed - and soon. These are a bunch of out of control academics who enjoy the power and prestige that come with pretending to be able to manage our economy. It should be becoming increasingly clear that they dont know how to do this.
    The Fed's role should be reduced to regulating the banks - and providing temporary liquidity during times of panic/bank-runs etc. period.
    5 Nov 2013, 06:58 PM Reply Like
  • And let Congress run the countries monetary policy???

     

    NO THANKS !!!

     

    I wouldn't let those guys balance my checkbook. There is a reason the system is setup the way that it is and changing it to let those fools run things is a disaster waiting to happen.
    5 Nov 2013, 08:15 PM Reply Like
  • better idea - we should merge the Fed and the FDIC and mandate them to regulate the banks and deal with bank failures. Push them out of the limelight , into a dusty room where their job will be to focus on bank only. And they should be simply evaluated on the number of bank failures in each year. Nice simple job, nice simple $50K/yr pay for that.
    5 Nov 2013, 07:01 PM Reply Like
  • QE has been worthless for the economy as a whole. It was designed from a top down model that has done nothing but sure up banks balance sheets and inflate stock prices. Remember, Publicly traded companies do not hire because they earned extra profits for their stock holders. They hire to keep up with production or increase market share which happens when people have jobs that pay a living wage and they are buying goods and services. The economy is like the oil system in your car, If the oil pump breaks down it doesn't matter how much oil you pour into the oil pan because if it isn't flowing through the system the system still breaks down. This is all that QE is doing is adding money to the balance sheets at the top and it is sitting there doing nothing to improve the economy as a whole.
    5 Nov 2013, 07:15 PM Reply Like
  • Your comment shows a lack of understanding for what QE is suppose to accomplish.

     

    QE was and is designed to prevent DEFLATION and spur employment. Using those measures as a benchmark, it has prevented the first and failed at the second. There is certainly and argument to be made that the diminishing returns of further QE now seem to warrant tapering to begin. However, with the political system unable to stop sending jolts to the economy (as what happened in October), the Federal Reserve has to consider outside influences which only makes tapering more problematic.
    5 Nov 2013, 08:22 PM Reply Like
  • QE roughly matched the budget deficit in the past year. However, going forward, if QE continues at a $85Bn/mo pace it will exceed the budget deficit by about $300 Bn over the next year.
    QE is drying up the market for mortgages and longer duration Treasuries. That will the real reason to taper.
    5 Nov 2013, 09:13 PM Reply Like
  • Bottom line is still the same. QE has done nothing to help the economy as a whole. Yes, it may have helped to prevent deflation but that again has only helped the top because real wages have gone down for most of the working class and the inflation caused by QE that is not really being reported has hurt the working class whose income has not kept pace. So in both regards it is a program that is designed to help a minority of the economy while hurting the rest of it.
    No new jobs created and prices still going up even though wages aren't. How exactly is that good for the average person?
    6 Nov 2013, 01:43 PM Reply Like
  • Very gradual taper with a lower threshold before raising Fed funds rate would be greatly appreciated. This would maintain or improve the spread and is a pretty darn good situation for my mREIT holdings.
    5 Nov 2013, 08:12 PM Reply Like
  • Having the cake and eating it too?
    6 Nov 2013, 02:36 AM Reply Like
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