Win Monroe

Alan Greenspan has died at 100. During his 18½ years leading the Fed, he reached rock-star heights and shaped the U.S. economy under presidents of both parties. Milton Friedman called him the greatest of all time. 2008 recast his legacy.

"I think financial markets perform best when they react to incoming data. I think the financial markets work less efficiently when they ask a question, 'How will the Federal Reserve react to that incoming information?'" - Warsh

A few thoughts on Warsh yesterday, after sleeping on it. First, one of the longest-running & classic debates in monetary policy is rules vs discretion. Traditionally, hawks & conservatives have tended to prefer more rules based monetary policy rather than discretionary.

There's a difference between not telling markets your next move and not telling them how you make decisions at all. Kevin Warsh, at his first meeting as Fed chair, did both. Warsh got high marks for planting a flag on the Fed's 2% inflation target and for shearing the policy statement of jargon that had become a recitation of the obvious. But he also stretched his objection to forward guidance into something broader, using it to sidestep questions about how the committee reasons toward a decision. "It matters to have some sense of how this committee is thinking about how it goes about conducting this business," said JPMorgan's Michael Feroli.

I still have no idea what Kevin Warsh thinks about monetary policy. Maybe we need a task force for that! Saying you will deliver on price stability without explaining how you might do it is empty words.

A few thoughts on Warsh yesterday, after sleeping on it. First, one of the longest-running & classic debates in monetary policy is rules vs discretion. Traditionally, hawks & conservatives have tended to prefer more rules based monetary policy rather than discretionary.

What does seem clear is that, at least for now, the Fed is moving back to a more 90s Greenspan style, with short statements, very little communication, and power concentrated in Chair, on who’s every word we will now hang, for better or worse. Discretion it is.

Fantastic response. For those that argue the Fed should just set rates according to the 2-year yield, this is effectively it. I find it refreshing and humble. The Fed should not see themselves as the centre of the universe. How many of you have forgotten the Fed never used to have a presser after the meeting, let alone only a few for important dates, while we have one every meeting now? These guys crave the grain of the pulpit more than they care for words of their speeches. He may or not do a good job, but I think he's at least heading in the right direction.