Who said anything about changing the mandate?
Not I. Here’s a question at Bernanke’s press conference, as reported by the WSJ:
- 2:28 pm
- by Sudeep Reddy
Will the Fed pursue nominal GDP targeting? Essentially, no. The Fed discussed it, but will make “no radical change” in its mandate.
I was quite upset when I read this, as I see NGDP targeting as a way of fulfilling the mandate, not changing it. Another approach would be the Taylor Rule. If the Fed wanted to abandon the dual mandate it might adopt something like inflation targeting, and ignore unemployment/growth.
They I looked at the actual interview, and was reassured to discover that Bernanke had been misquoted. He said they had a very “interesting” discussion of NGDP yesterday, and that there was some interest in adding this variable to the Fed’s list of important indicators, or something to that effect. That’s not the NGDP targeting that I would like to see, but as positive a statement as could be expected at this early stage of consideration.
What Bernanke actually said was that the Fed already had a framework for addressing the dual mandate, and thought it relatively effective. Therefore it didn’t see a need for another framework (by implication another framework for addressing the dual mandate.) What else could he say at this point? Our framework sucks, and we’re going to replace the FOMC with 12 market monetarists?
Of course Bernanke also said:
1. Inflation is likely to be at or below Fed objectives.
2. Unemployment is likely to be well above Fed objectives.
3. Current policy is appropriate.
Bernanke’s no idiot, I have to assume he privately favors more stimulus, and is considering options for December or January. And I think he’s counting down the days until the new crop of regional Fed presidents comes on to the FOMC, and wondering why Obama left 2 Board seats empty.
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2. November 2011 at 14:38
The harder he tries the worse it becomes, communications wise. All sorts of interpretations float around. Journalists have a hard time telling a coherent story.!
http://thefaintofheart.wordpress.com/2011/11/02/shout-in-anger-or-cry-in-desperation/
2. November 2011 at 14:52
Clearly, Bernanke does not believe the SRAS curve is upward sloping.
2. November 2011 at 14:54
I agree totally with Scott Sumner. The Fed is actively looking at NGDP–yes, not good enough, but way, way ahead of where Market Monetarists were just six months ago. The Fed is looking at NGDP!
Bernanke is a circumspect and cautious academic type. Unfortunately, he is not a Volcker-type. He needs groundwork, permission, a comfort zone.
With the left- and right-wing bashing NGDP targeting, Bernanke may feel compelled to move slowly. Very slowly. Like glacial.
Turn up the heat, my fellow Market Monetarists!!!!
2. November 2011 at 14:58
Long and variable lags.
Growth rate focus.
2. November 2011 at 15:18
On video I just watched Bernanke say (semi-quoting up to the verbatim quote-marks quote):
~~~~
I am disastisfied with the state of the economy, as we all are. We underestimated the strength of the recovery. The long-term outlook for the economy is getting worse. We are reducing our projection for growth to only 2.7% for 2012, not enough to significantly reduce unemployment. But, no, we are not out of ammunition. “We’ve already taken quite a bit of action. We have the tools to do more and are prepared to do it, if that becomes appropriate“.
~~~~
And the audience of journalists just took it and let it pass. Does nobody listen to what he says?
2. November 2011 at 15:47
Those questioners make Kelly Evans look like Einstein. The former Chair of Obama’s CEA pens an open letter to Bernanke calling for NGDP targeting. Krugman endorses the idea and DeLong also chimes in. But no one asks Bernanke about it?
2. November 2011 at 15:48
What did we do, in the days before the Internet, when we couldn’t go to the original interview or transcript if something was misquoted?
It’s easier to spread lies and misunderstanding, sure, but it’s also easier to look at original sources.
2. November 2011 at 16:10
http://oldprof.typepad.com/a_dash_of_insight/2011/11/fomc-preview-bernankes-third-press-conference.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+typepad%2FWuQQ+%28A+Dash+of+Insight%29
A plurality of economics bloggers favor NGDP targeting. We really are making progress here.
2. November 2011 at 16:17
Mankiw wrote a paper a few years ago entitled “The Economist as Scientist and Engineer,” in which he basically quotes former Governor Laurence Meyer as saying that despite advances in research and theory on monetary policy, the Fed just keeps doing what it has been doing since the 1960s. Same FRBUS model, same framework of thinking about the world. I always think back on it when we keep expecting different results from the Bernanke Fed.
2. November 2011 at 16:18
Mankiw wrote a paper a few years ago entitled “The Economist as Scientist and Engineer,” in which he basically quotes former Governor Laurence Meyer as saying that despite advances in research and theory on monetary policy, the Fed just keeps doing what it has been doing since the 1960s. Same FRBUS model, same framework of thinking about the world. I always think back on it when we keep expecting different results from the Bernanke Fed.
2. November 2011 at 16:23
It pains me to say it, but in practice (whatever Ben’s personal opinions are) the Fed sure seems to be following a policy of “opportunistic disinflation” — if the economy gets weak so inflation declines, let it. The weakness (as long as it doesn’t result from an interest rate hike) provides political cover, protecting the Fed from being blamed.
I heard stories years ago about the Fed intending to do this, but never imagined they’d do it in an economy this weak for this long. And I’m sure if anyone asked Ben and the rest if this is what they are doing, they’s swear up and down they aren’t.
But what else does one call a policy when (1) if actual deflation rears its head, the Fed reacts dramatically; but (2) under any other circumstance, any significant action is stymied by “risk of increasing inflation”, no matter how weak the economy and how low the projected inflation rate may be? When 9% unemployment, an economy admittedly performing below the Fed’s expectations, and projected economic performance falling, does not make it “appropriate” for the Fed to use any of the ammunition it says it has?
If the Fed’s policy setters — especially the open dissenters against any further action — aren’t effectively setting a policy of opportunistic disinflation, what else can we call it?
The thing is, it’s working!
Because in the popular mind the slump was caused by the housing bubble or corrupt bankers or AIG or whatever, not by the Fed, Ben slides through a press conference like this saying that while there is plenty the Fed *could* do to improve the economy, it won’t do anything until it becomes “appropriate”. After which everybody nods, “Yup. Makes sense. OK”. And the doors of the Fed aren’t blockaded by tractors and marchers like Volcker had to deal with.
2. November 2011 at 16:35
The former Chair of Obama’s CEA pens an open letter to Bernanke calling for NGDP targeting. Krugman endorses the idea and DeLong also chimes in. But no one asks Bernanke about it?
At Ben’s next press conference why don’t some people who know what they are talking about and who are willing to ask some tough question — Scott Sumner, Krugman — get themselves some press credentials and show up to ask the questions?
Krugman seems like he could get into a press conference, considering where he works (and he’s not particularly sensitive to other peoples’ feelings). Heck, *I’ve* had press credentials to ask questions of high-ranking people in DC. It’s not so difficult.
2. November 2011 at 17:25
i want to scream.
what is frustrating is that:
1. the feds own forecast says inflation is under target and UE over target. Those forecasts presumably include the expected effects of the current policy.
2. the fed chairman is dissapointed with the state of the recovery
3. the fed acknowledges significant downside risk
4. The Feds forecasts have significantly, consistently, overestimated the recovery.
5. the fed is doing nothing additional, even though (1) is a tacit admission that the current policy is suboptimal.
mind boggling. ahhhhh. If the current forecasts, which include the effect of the current policy, are clearly suboptimal (by the Fed’s own admission) the FED SHOULD BE DOING MORE. I would argue in light of 2 and 3, the Fed should be adopting a policy that overshoots the target making it likely to actually hit (aka “leading the target:” you don’t aim where the duck is, you aim where it will be when the shot arrives at the duck). aaaaahhhh. FIRE BERNANKE-SAN
2. November 2011 at 18:13
Marcus, My feelings exactly.
David, Actually, in answers to other questions he made it quite clear he does believe that. But that’s no surprise as he’s believed in upward sloping SRAS for his entire career.
Ben, Yes, more pressure.
Bill, Yes, those are two mistakes.
Jim Glass, Yes, I forgot to mention that it’s not the Fed’s job to change its forecast, it’s their job to change their policy.
Patrick, Reporters seem reluctant to ask tough questions, but the real problem is that it’s hard to follow up. I couldn’t do much with just one question.
John, Misquotes occur far more often than most reporters realize, because many are unintentional (including this one, which is subtle.)
Thanks JimP. I’ll do a post.
JTapp, That’s too pessimistic. They now know how to prevent 10% inflation.
Jim Glass, Yes, last year I did several posts on opportunistic disinflation.
2. November 2011 at 18:22
Noise.
One question explains it: Would Ben consider ending Davis-Bacon stimulative?
Yes.
Saying the the Fed is “ok” with 9.1% unemployment is pretending we are “ok” with Dais Bacon, public employee unions, and minimum wage.
We aren’t.
Mandate shmandate.
High unemployment is OBVIOUS proof that wages increased too much because money was too loose under a 5% level target from 1999, so until the dirty public employee losers have all their gains torn from their fat fingers, and they are back in their 1998 box, the Fed is perfectly understandable.
Want your kid to have a job? Fire the Post Man.
They should have only increased wages in sectors that saw productivity gains.
Bupkis for the public sector.
Baumol is a joke told by those desperate to keep us from letting the Internet replace teachers, and forcing students to study JOB / INCOME driven coursework.
Baumol disappears – no one teaches painting now, and soon no one will teach anthropology.
2. November 2011 at 18:36
Yes, last year I did several posts on opportunistic disinflation.
Ah, I look and see. A good read. (“Having cancer creates the opportunity to lose weight”.) With an impressive quotation by the president of the Philly Fed endorsing the concept.
The thing is, they’re still doing it. But it’s not 1989 anymore. How many years must go by for the time for a bad idea to pass?
2. November 2011 at 19:43
I continue to believe that you are too optimistic Scott, which is understandable given how much attention your idea has finally received.
Anyway, what I heard from him was a call out for fiscal stimulus. He definitely said that he wished that he had some more help from Congress.
The positive I took away from this is that Nominal GDP has finally broken through the seal of institutional orthodoxy and is now in discussion. Also, Bernanke has not ruled out further stimulus, which I think to the market rules out another financial armageddon aka late 2008.
3. November 2011 at 08:03
Morgan, Davis-bacon? That’s not the problem right now.
Jim Glass, Thanks for digging that one up for me.
Liberal Roman. Those are plausible arguments.
3. November 2011 at 08:05
What I heard in the answer to the question was that he rejected NGDP targeting – certainly in the short run, and almost certainly in the long run.
So did Krugman, apparently:
“What got me was Ben Bernanke’s response to a question about whether the Fed might adopt nominal GDP targeting, or more broadly change its policy framework in some way that might help us escape the Lesser Depression. And his answer was no …”.
4. November 2011 at 18:11
JKH, He gave the most positive spin he could, without undercutting his colleagues at the Fed. If he says “maybe” that’s a huge policy change, and markets go nuts. The others wouldn’t appreciate that.