Et tu, Charles Evans

In that intellectual bubble known as the “economics profession” people still talk (and write papers) as if monetary policy is ineffective at the zero bound.  Meanwhile in the real world:

LONDON (Reuters) – Signs the U.S. Federal Reserve might trim its stimulus program as soon as next month sparked a broad selloff in world share markets on Wednesday, as Britain’s central bank prepared to clarify its stance on future policy.

“We’re going to get tapering, it’s really a question of when and not if and that’s why we’ve seen a decline in (equity) markets,” said Michael Hewson, market analyst at CMC Markets.

Dovish Fed policymaker Charles Evans said on Tuesday the central bank will probably scale back bond buying later this year and, depending on data, could do so next month.

I guess traders need to take a course in macroeconomics, so they can learn that the Fed is powerless once rates hit the zero bound.

PS.  Unlike a few months ago, this bout of tapering talk did not raise interest rates. One more piece of evidence that interest rates are an unreliable indicator of the stance of monetary policy.  On both occasions stock prices fell on the news, that’s where you want to look for market reactions to Fed news.  However you should never reason backwards, never assume that stock movements tell you something is happening to monetary policy, as lots of other factors also move stock prices.

PPS.  Anyone else use WordPress?  My “spell check” stopped working weeks ago–don’t know why.

Tags:

This entry was posted on August 07th, 2013 and is filed under Monetary Theory. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or Trackback from your own site.