Invisible Inflation

While the economy is improving, inflation is MIA. Wages adjusted for inflation were up just 0.3% in 2012 after falling 1% in 2011. Meanwhile, the CPI and core CPI (excluding food and energy) were up 1.7% and 1.9% respectively in 2012. Similarly, the producer price index (PPI) and core PPI were up just 1.3% and…

Read More

Inflation to the Rescue

Rather than more quantitative easing, the Fed should stop targeting inflation and instead aim for a consistent level of nominal (unadjusted for inflation) GDP (NGDP) growth over the cycle. With this approach, the Fed would goose NGDP growth when times are bad (like now), by allowing more inflation, but restrain inflation when times are good.…

Read More

Money for Nothing

On 7/5/12 the ECB reduced to zero the rate it pays banks that park excess reserves with it. The Fed is now considering following suit. There are $1.5 trillion of excess reserves at the Fed which if loaned, would help the economy. But the Fed won’t, as it will not increase lending much and would…

Read More

Money, Money, Money

Given weak job numbers, a slowing world economy, and escalating financial stresses from Europe, the Fed will probably act. Since it can’t buy more long-term Treasuries (it nearly owns them all) or increase the size of its balance sheet (Republicans get angry) it’ll renew Operation Twist, which ends in June. The Fed will sell short…

Read More

Money for Nothing

The Federal Reserve transferred all $76.9 billion of its profit to the Treasury in ’11 down from the record $79.3 billion in ’10. The Fed is profitable because rather than borrowing money, it simply creates what it needs. Thus all interest earned, is profit. The $76.9 billion paid to the Treasury was 3.3% of all…

Read More