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July 20, 2006
Back in the swing of things
I have not vanished from the blogosphere! I have, however, taken some much needed time to work on some research. I'm also working on a major change to my department's web pages. Hopefully those will be unveiled in a few weeks (the process is not quite done).
I'm working on a longer post about monetary policy and the Bernanke testimony. But I just thought I'd chime in with a quick word about what I've read. Tim Duy gets it about right when he says today that he finds tracking the Fed to be maddening. There is no doubt that Fedwatching was a little easier a year or two ago, but those days of easy predictions may have spoiled us a bit. This is the real deal. The answers are not clear. Well-intentioned people can disagree over the appropriate policy. This sort of situation (not the no-brainer decisions of late 2004) is why I've always been fascinated by the Fed. I think I find it a little less maddening because all signs have been pointing to this for the better part of 2006. Even though the Greenspan era will be long remembered for increased transparency, we saw at the end of Greenspan's term that too much transparency can talk you into a rhetorical corner. Bernanke has, I am glad to see, tried to avoid that. That's not a knock on Greenspan. Bernanke is standing on the shoulders of a giant, and I believe he can learn from some of the things that his predecessor may have learned too late.
So I'm not surprised that Bernanke was not specific about the possibility of future rate increases, nor am I surprised at the way that the market is interpreting his comments. Indeed, if he had been more specific, I would be complaining that it could make his job harder in the future.
At any rate, I've been leaning towards expecting another increase and then probably a pause--after that it's back to being data dependent for the rest of the year. I wouldn't rule anything out past October. And I'm not sure I would trust any prediction that does rule out any specific possibilities that far out. I am not ready to call it "one and done." I still think it's "one, pause, re-evaluate..."
So, even though Bernanke's testimony did move markets, it didn't change much in my assessment. Whether the markets overreacted or simply caught up to where they should be is for another day. I expect a lot of additional discussion as the August meeting approaches.
More to come. I need to attend to some other things this evening, but I will be resuming a more normal blogging schedule. Your patience is appreciated.
Posted by William Polley at July 20, 2006 5:33 PM
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Comments
Since it agrees with my analysis I have to say good analysis.
Posted by: spencer at July 21, 2006 7:58 AM
I'll second that...
Posted by: Joe Rotger at July 25, 2006 2:45 PM