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All "Rules-based" Economists Agree: Fed Policy Is Too Easy

Tyler Durden's picture




 

This week's data marked a crucial turning point in US monetary policy. For all those "rules-following" economists out there with their various adaptions of the infamous Taylor Rule (a model that stipulates how much the central bank should change the nominal interest rate in response to changes in inflation, output, or other economic conditions), this week marked the point at which ALL models suggest that Fed interest rate policy is simply too easy. This explains why the Fed has shifted to a qualitative forward guidance (reminding us of porn - we'll know when to tighten when we see it) as Rick Santelli so eloquently the fact that the Fed claims to be data-dependent "is a twilight zone" and as John Taylor himself notes, the Fed's QE policy "has not worked with few if any signs of success," and now, even as they taper, their rate policy is far too easy. Simply put, they're making it up as they go along (and it's never been more obvious).

 

We leave it to Santelli and Taylor to destroy the myth that the Fed has a clue...

 

And here are the various "rules-based" approaches all flashing "tighten" signals...

The Classic Taylor Rule Model...

 

The "aggressive" Taylor Rule Model...

 

The "Rudebusch" Taylor Model...

 

The "Mankiw" Taylor Model...

 

The "Stone & McCarthy" Taylor Rule Model...

 

The "Deutchse Bank" Taylor Rule Model...

 

 

But of course - The Fed knows best - so we leave it to Rick Santelli to slam the Fed apologists...who defend their wavy-hands non-rules-based approach...

Charles Evans made the following statement not long ago: "for me, there is a problem with simplistic approaches. simple tailor rules failed to express policy, intentions clearly"

 

[ZH: Yeah - because youy fucking nailed this:

 

 

Professor, where i come from, kiss is the rule of the day. keep it simple, or stupid, i'll say, keep it simple. what is wrong with simple where every player in the marketplace can tinker with your formula and nowhere fed funds ought to be. isn't that a better way?

 

Isn't a rule-based fed policy preferable? absolutely.

In other words... "they're making it up as they go along..." (forward to 1:46 for the punchline)

 

 

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Sat, 05/03/2014 - 14:27 | 4724138 q99x2
q99x2's picture

The deep bank is in oligarch protection mode and selling out the West while buying positions within the Russian and Chinese Elite Classes.

It is over rover unless the West's military takes a stand against them.

Sat, 05/03/2014 - 15:00 | 4724202 AldousHuxley
AldousHuxley's picture

You are focusing on the wrong things.....

 

Compare delta in 2014 versus delta pre 2008.

 

If you think 2014 is "too easy" then WHAT THE HECK WAS FED DOING IN 2006 ?????

Sat, 05/03/2014 - 15:42 | 4724291 knukles
knukles's picture

Good. 
Article gives excellent clarification to fact that idotaltory like Krugman have no rules.
Just random gibberish

Sat, 05/03/2014 - 16:24 | 4724371 sessinpo
sessinpo's picture

AldousHuxley        If you think 2014 is "too easy" then WHAT THE HECK WAS FED DOING IN 2006 ?????

---

The FRB is to easy no matter what year because they shouldn't exist.

Sat, 05/03/2014 - 14:31 | 4724145 Yancey Ward
Yancey Ward's picture

This is the new rule for policy- to always be easy.  We call it the permanent bubble policy.

Sat, 05/03/2014 - 15:03 | 4724206 AldousHuxley
AldousHuxley's picture

Secret in getting wealthy is how well do you time your bets to front run the fed.....which essentially is LUCK. the luck of timing.

 

Everything else is secondary.

 

Elites don't want you to know this and they justify their power over you using how they made it via hard work.

 

That's why capitalism fails. merit is secondary to timing.

Sat, 05/03/2014 - 15:40 | 4724219 NihilistZero
NihilistZero's picture

Secret in getting wealthy is how well do you time your bets to front run the fed.....which essentially is getting insider information. 

FIFY :-)

Sat, 05/03/2014 - 16:27 | 4724382 sessinpo
sessinpo's picture

AldousHuxley    Secret in getting wealthy is how well do you time your bets to front run the fed.....which essentially is LUCK. the luck of timing.

Everything else is secondary.

Elites don't want you to know this and they justify their power over you using how they made it via hard work.

 That's why capitalism fails. merit is secondary to timing.

-----

No, lots of people know this, but they aren't able to capitalize on that fact because it isn't a free market. It is facsism. Merit is secondary to connections from Wall Street to Government to the FRB.

Sat, 05/03/2014 - 14:39 | 4724159 seek
seek's picture

Reminds me of when not_Jim_Cramer put in current fed funds rate into the federal reserve chairman simulator on the SF Fed's website and ends up getting fired for a 27% inflation rate.

Fed too easy? The 0.01% return on starving old people's savings accounts wasn't a clue?

Sat, 05/03/2014 - 14:40 | 4724164 machineh
machineh's picture

As Warren Zevon said, "I'd like to meet his Taylor."

Sat, 05/03/2014 - 14:41 | 4724165 machineh
machineh's picture

(dup)

Sat, 05/03/2014 - 14:54 | 4724197 Wait What
Wait What's picture

this strikes me as one of those 'thank you, captain obvious' kind of posts. as if the migration from QE for xx period, to Operation Twist, to QE until data targets are met, to open ended QE until some vague goals are met (but we won't tell you what they are) doesn't give away the cluelessness of the Fed. The Keystone cops had a better idea of what they were doing than these clowns.

Sat, 05/03/2014 - 14:55 | 4724198 I Write Code
I Write Code's picture

"Janet is too easy", write it on the toilet walls.

Sat, 05/03/2014 - 15:12 | 4724220 ebworthen
ebworthen's picture

All by design.

The purpose of the FED is to enrich Wall Street and impoverish Main Street.

So of course they are making it up as they go along and not following any rules.

Sat, 05/03/2014 - 15:21 | 4724230 Caviar Emptor
Caviar Emptor's picture

Fed policy too easy.
Biflationary theory says this: Fed is both too easy and too tight. Hence the paradoxes in the economy.
-Too easy has inflated bubbles, enriched those closest to the money spigot and inflated the cost of living, working, and doing business.
-Too tight has given us structural unemployment (latest job report: lowest labor force participation rate for males Ever Recorded (69%), low velocity of money, low wage growth, low aggregate demand and very poor access to credit for those not close to the money spigot (credit card interest 18%, plummeting mortgage origination).
The built in paradoxes spell death to the middle class through erosion of buying power and give us the Shrodinger economy of endless paradoxes and net near zero growth (negative in real terms)

Sat, 05/03/2014 - 16:14 | 4724354 CrashisOptimistic
CrashisOptimistic's picture

Oh for God's sake, quit ranting.

The Fed is tapering QE.  There won't be any in a few months.

Rates are low.  What exactly good is supposed to happen if rates are high?  Will that make people more willing to borrow to expand business?  How could higher rates make people want to borrow more?

Face it.  The Fed is reacting to inexorable forces that they can't control.  They are doing whatever they can to buy time.

There is nothing else they can do.

 

Sat, 05/03/2014 - 16:32 | 4724398 sessinpo
sessinpo's picture

CrashisOptimistic       hat exactly good is supposed to happen if rates are high?  Will that make people more willing to borrow to expand business?  How could higher rates make people want to borrow more?

---

I am not disagreeing with you. But just to let you know, there has always been the economic theory that if trend of rising interest rates is expected, then businesses would then borrow now to lock in the lower interest rates instead of pyaing the higher rates later.

But I digress. This is a different situation in my opinion. Businesses aren't expanding and needing to borrow because or dire future prospects.

Sat, 05/03/2014 - 16:16 | 4724360 Handful of Dust
Handful of Dust's picture

QE is nothing more then a Fat Handout to the bankers and top 1%.  Very little has trickled down to the average Schmoe and the zero yield on savings has crippled The Frugal.  Worse yet, prices of food, energy and RE taxes are soaring to pay for the Fed's handouts to bankers. Additionally, wages for the Middle Class have gone nowhere.

I notice my Uncle's RE taxes on his new $650K house are a whopping 3.6%...that's a Whopping $23,400 in property tax alone for a retired person.

Won't last. Things are going to get worse ... much worse imho.

Sat, 05/03/2014 - 16:47 | 4724419 AGoldhamster
AGoldhamster's picture

That's truely beyond insane ...

But it's similar insane that these type of governments are still ... re-elected.
Again and again and again. Sheeple seem as dumb as the nights are dark.

In fact sheeple get exactly what they (re)elect.
There's absolutely no excuse.

BTW this is the way Rome fell. Taxing poeple to death. And still the still as dumb as the night is dark sheeple elect the same type of tyranns.

Though there are still choices left. For those still able - and willing - to move. 99.999% though prefer to stay - dumb.

Sat, 05/03/2014 - 17:44 | 4724545 Quinvarius
Quinvarius's picture

Derivatives are essentially banks printing and loaning money to each other infinitely with no collateral.  When that went bad we let them print their way out of it using the Fed.  We told the banks they could print as much money as they wanted for themselves with no check on quantity at all.  They are not going to stop.  This is not about the economy.

Sun, 05/04/2014 - 09:09 | 4725584 ThisIsBob
ThisIsBob's picture

The Fed has been serving well it's constituency, a club (to quote Carlin) you ain't in.

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