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Influencing Inflation Expectations
Monday, June 12, 2006
Wow! The folks at the Federal Reserve will be making lots of speeches this week. All this jaw-boning in an attempt to influence "inflation expectations" is starting to look a lot like the White House's occasional media saturation for what appears to be an ultimately failed attempt to influence "Iraq expectations".
On several occasions in recent years, the entire White House staff, much of the Cabinet, and some of the kitchen help have fanned out across the country to talk about how "unwelcome" certain developments were - how we must be "vigilant" in Iraq because our future prosperity rides on keeping that part of the world "well-contained".
Well, the White House didn't really use those words - but they could have. Those are the words of the Fed when talking about rising prices - something that people see all around them now, many realizing for the first time in recent months that something has gone awry in their idyllic world of high asset prices and low consumer prices.
As evidenced by this week's schedule of speeches shown below, courtesy of Econoday, it looks like the Federal Reserve is putting the "tough talk on inflation" public relations campaign into high gear.
Fed Chairman Ben Bernanke will speak three times this week, each with a Question and Answer session expected to follow, and Dallas Federal Reserve Bank President Richard "ninth inning" Fisher will speak twice.
7:30 PM ET: Federal Reserve Chairman Ben Bernanke to speak about risk management to Stonier Graduate School of Banking students, at Georgetown University, in Washington. Audience Q&A expected .
9:15 AM ET: Cleveland Federal Reserve Bank President Sandra Pianalto to speak about the U.S. economy & monetary policy, at a conference, in Orlando, Florida. Audience Q&A expected.
10:30 AM ET: Dallas Federal Reserve Bank President Richard Fisher to speak about global relations at the University of Texas, in Austin, Texas. Audience Q&A expected.
12:15 PM ET: Federal Reserve Governor Mark Olson to speak about regulatory compliance, at a bankers conference, in Lake Buena Vista, Florida. Audience Q&A expected.
3:00 PM ET: Federal Reserve Governor Susan Schmidt Bies to speak about enterprise risk management at the Financial Women's Association conference, in Washington. Audience Q&A expected.
11:00 AM ET: Federal Reserve Chairman Ben Bernanke to speak about consumer issues at a leaders conference, in Washington. Audience Q&A expected .
11:30 AM ET: Federal Reserve Governor Susan Schmidt Bies to speak about real estate at the Mortgage Bankers Association conference in Half Moon Bay, California. Audience Q&A expected.
1:00 PM ET: Dallas Federal Reserve Bank President Richard Fisher to speak about the U.S. economy, at a luncheon in Corpus Christi, Texas.
2:00 PM ET: Federal Reserve Chairman Ben Bernanke to speak about energy to the Economic Club of Chicago. Audience Q&A expected .
1:00 PM ET: Federal Reserve Governor Randall Kroszner to address International Bankers meeting on the subject of international capital markets, in New York. Audience Q&A expected.
5:00 AM ET: St. Louis Federal Reserve Bank President William Poole to speak at a conference, in Seoul, South Korea.
11:00 AM ET: Federal Reserve Governor Donald Kohn participates in a panel discussion on policy recommendations at the Boston Federal Reserve Bank's conference on global imbaances in Chatham, Mass. Audience Q&A expected .
1:15 PM ET: Federal Reserve Governor Randall Kroszner to speak about international capital markets to the Institute of International Bankers, in New York. Audience Q&A expected.
[In fairness to Richard Fisher, when he predicted the end of interest rate hikes in June just over a year ago, he never did specify the year, so his prediction may ultimately prove to be accurate if this month's rate hike is followed by a pause.]
Do they really think that they can make people believe that prices will not rise too much in the future because they keep talking about how vigilant they're going to be? Apparently so. You see, inflation expectations are something that, like expectations for the outcome in Iraq, need to be managed - otherwise they may become self-fulfilling.
People can not be left to formulate their own expectations - they must be helped along.
Like watching reports from Iraq on the evening news week after week, the weekly dose of pain at the pump has been like Chinese water torture to the pocket books of Americans for much of the last year.
Like the violence in Iraq, it seems there is little anyone in Washington can do about high energy costs, save for trying to influence public opinion about how things might be in the future.
In both cases, better policy would have lessened the need to influence expectations.
4 comments:
startin' to get a little political here, eh? yesterday it was those bad suppy siders and today iraq?
Another interview with Jim Rogers:
Ben Bernanke And the “Failing” Fed
Mark Skousen: The Fed, as we know, is determined to raise rates. Do you look at Fed policy? Is it important?
Jim Rogers: A little bit. The Fed is overrated as far as I’m concerned. We’ve had two central banks in America that have failed. This one will fail, too, and Bernanke will probably be its death knell. Between Greenspan and Bernanke, I’m sure the Fed is coming to an end. It’s going to fail.
Mark Skousen: Wow. That’s quite a prediction.
Jim Rogers: I’m bullish on commodities because of supply and demand. War is icing on the cake. Likewise, printing money is icing on the cake. And [the Fed] will print money, if you ask me. Now, perhaps they’re slowing down the printing press. But Bernanke has said he’s not going to slow down at all. If things get bad, he’ll get in helicopters and fly around and drop his money, as you well know.
If you read back to his writings… he’s always said the Fed has to print money to save [this type of] situation. We could have saved the Depression if we’d printed money.
He misses a few things. He misses the fact that the U.S. is now the largest debtor nation in the history of the world. When they start printing money, the dollar is going to collapse.
Your question is really about a potential slow down. We’re probably going to have a recession in the next year or so in the U.S. We’re overdue for one. I would expect one. Is that going to be the end of the bull market in commodities? No. In the 1970s, we had huge economic problems around the world, and we had one of history’s greatest bull markets in commodities, despite lots of the economic problems.
One of the five largest economies in the world went bankrupt in the 1970s – the U.K. had to be bailed out by the IMF. We still had a huge bull market. One of the five largest economies in the world may go bankrupt in this big commodities bull market. It’s not going to end the bull market. It will cause consolidations… We’ve talked before about gold going down 50% in the 1970s. That’s the way markets work.
And remember, back then, we didn’t have 3 billion people in Asia opening up into a global economy.
Rogers' arguments are sound but he forgets or neglects to point out that supply and demand for commodoties are out of whack due to money printing and central planning. It is why more money printing by Bernanke will not prevent anything.
dlp, thanks for that link! Great reading.
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