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Breakingviews: Fed smashes more taboos

Friday, September 21, 2012 - 03:38

Sept 21 - Jeffrey Goldfarb and Breakingviews columnists discuss how recent comments by regional Federal Reserve presidents Kocherlakota and Rosengren could undermine the US central bank’s credibility.

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Just when you thought the Fed had broken all of its taboos all over the last five years to regional. Fed presidents -- -- mismatched couple more. From Minneapolis. For president coach -- And -- Boston fed. President. Rosenberg gave speeches yesterday. And -- you think they've called a deeper here yeah. Yeah and again I if I think it's one of the things I was like diplomacy -- there -- certain things usually leave funds that one of them that rhododendron it's brought -- this kind of debasement of the dollar which is you know. Such a hot button issue and essentially was saying that this new policy that they have well among other things. You know change demand for US dollar based assets and lead to lower dollar which would have which would help exports. This summer it's generally in the view of the treasury it's not a got a song hello hello we also lawsuits when anything that everybody does the fact has been very very you know careful -- kind of silent and the Fed is you know we lead and at what they really think that even risen as well saying this was. Why we did this and saying this we did this and this is a consequence of it right and it's not that. The Fed is trying to think they really don't think. And it is gonna help their goal is to simulate the economy and you want to go to the reason this matters is not only is that hot button here because in his -- sensitivity about how. How often affect policies that hurt the dollar but also abroad where everybody else is trying to -- there. Their currencies is blossoming how a fed official kind of coming -- saying to refuse it kinda be a war is that it would it would hurt so much well. The other issue is the -- president from Minneapolis talking about inflation. And the everyone stuck trying to figure out it's 2% targets that we had this should there be a little bit of fudge area there. He's saying yes you know and it hit me pretty well here yeah -- gave -- but yet -- just quarter point above or below the 2%. You gonna get it's I mean I think it's all reasonable but again it feeds into this whole idea that one of the Fed's objectives. Is to push inflation -- complaining that it 2.2 5%. A little bit higher maybe again maybe. Feel the effects of -- says -- this credibility. Right right. And I mean it it sort of makes you think about this -- that the Fed has been to the central banks don't necessarily right right that there is -- 2% inflation target. Except that that's the number of Bernanke has been told him badly and now there's there's been recently the simplicity to essentially there's also declared -- -- -- employment because right -- live up about 56% right exactly the other half of the men is unemployment -- if inflation is. Delay to two in the courtroom if you yet. That does that the latest I did and -- and unemployment seems too high of 8% and one in and do you gonna. You know if you go to balance the two objectives logically and say well we can tolerate slightly more inflation to bring their employment if we think it's gonna bring unemployment rate actually. But it it still makes you know it. Ultimately you do it's easy to worry that it might. Turned into a lack of credibility to defend -- inflation men would be generally viewed as a bad. And it ends another part of the shifting sands that we first talked about QE2 it was deflation which is the issue that the field fighting then I -- know what to do this extraordinary policy. Now everything has kind of shifting an hour talking like -- planet and it's okay if inflation doesn't. That -- to just again it's one of these Dicey areas of the -- -- -- -- talk about the tennis and it's like the policy and kind of breaking some of these taboos. It's gonna make it harder for them to kind of soft soft peddle some of the stuff I have the audience abroad but also to -- that night when you have you know. So many lawmakers that our guidance for the fact that. We will leave it there and we'll be back next week with more breaking views.

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Breakingviews: Fed smashes more taboos

Friday, September 21, 2012 - 03:38