[ Pobierz całość w formacie PDF ]
.This led to the seizing14See Wighton and Guha (2007) and Dash and Morgenson (2007). 108 Benjamin S.Bernanke 2006up of short-term debt markets and potentially to the forced sale of the un-derlying assets.Common stock prices of commercial banks and other fi-nancial firms involved in securitization fell sharply in November.Addi-tional fragmentary evidence consistent with this interpretation is reportedin Chapter 10.The FOMC s next regularly scheduled meeting was held on October 30and 31.The FOMC lowered the target nominal federal funds rate to 4.50%at the conclusion of the meeting and the Board lowered the primary bor-rowing rate at Reserve Bank discount windows to 5.00%.The statement atthe end of the meeting began with following paragraphs:Economic growth was solid in the third quarter, and strains in financial marketshave eased somewhat on balance.However, the pace of economic expansionwill likely slow in the near term, partly reflecting the intensification of thehousing correction.Today's action, combined with the policy action taken inSeptember, should help forestall some of the adverse effects on the broadereconomy that might otherwise arise from the disruptions in financial marketsand promote moderate growth over time.Readings on core inflation have improved modestly this year, but recent in-creases in energy and commodity prices, among other factors, may put renewedupward pressure on inflation.In this context, the Committee judges that someinflation risks remain, and it will continue to monitor inflation developmentscarefully.The minutes of this meeting were released on November 20.It includesthe first release of the committee s new three-year forecasts.When com-pared to forecasts from the July 2007 Monetary Report to the Congress,forecasts for 2007 were largely unchanged, although the core PCE infla-tion forecast was lowered about 0.3%.Forecasts for real GDP for 2008were lowered about 1/2% from those made in July, and risks to the down-side seem to have increased.The forecasts for real GDP growth for 2009and 2010 were about 2.55% and for core PCE about 1.8%.The committeeseemed to have reduced its estimate of the rate of growth of potential GDPslightly.The unemployment rate was predicted to be about 4.8% over thecoming three years.The price of oil closed above $94 after the meeting and reached $99 inlate November.These increases seemed attributable to decreases in thevalue of the dollar, as appears to have occurred in the 1970s.The July Monetary Report did mention that the broad trade-weightedindex of the dollar had fallen during 2007, but it did not analyze the cumu-lative decline in this exchange rate index since Bernanke became Chair-man or explore its implications for inflation in the U.S.The extended pe- Benjamin S.Bernanke 2006 109riod of negative real short-term interest rates beginning in 2002:3 duringthe Greenspan era led to a sizable decrease in the index; it fell from 129.53(1997 = 100) in February 2002 to 112.46 in January 2004 and then roughlyremained constant until November 2005, when its value was 112.25.15 Theindex fell from 110.01 in January 2006 (Greenspan s last month in office)to 99.80 in October 2007.The decrease in the major currencies componentwas especially strong; its value was 111.99 (1973 = 100) in February 2002,86.41 in November 2005, and 73.93 in October 2007.The component forother important trading partners was 137.77 (1997 = 100) in February2002, 138.11 in November 2005, and 127.98 in October 2007.The sticki-ness in the last index during the Greenspan era reflects efforts by severaldeveloping countries to peg their exchange rates to the dollar, but that ef-fort was weakening during Bernanke s term.Ceteris paribus, a decrease in exchange rates should stimulate exports,curb imports, improve the balance of payments, and increase output, em-ployment, and the rate of inflation.It is too early to say whether the ob-served decrease is large enough to have substantial impacts, which in anyevent will occur with lags.However, the possibility of such a scenario isone further reason to believe FOMC concerns about inflation.The greaterdecrease in the major currencies component may foreshadow a furthershift away from the dollar as the prime international currency, whichwould strengthen these consequences.15Exchange rates in this discussion are from the Federal Reserve Bank of St.Louis s FRED data bank. 8 Overview and Summary of Part 1While recent histories are unavoidably incomplete, it is important to drawlessons from what has transpired.In 1945 there were widespread doubtsthat controlling interest rates would provide a sound foundation for FederalReserve policy.1 While interest rates remained the main indicator until theVolcker 1979 initiatives, the doubts continued.In the next fifteen yearsmany other indicators were tried and found wanting.By 1994, the FederalReserve was almost exclusively focusing on real interest rates when im-plementing monetary policy.Nominal rates were the focus in 1945 be-cause the Federal Reserve was pegging the yield curve and, perhaps, be-cause it was unclear how to measure and forecast inflation.Nevertheless,doubts persist about whether changes in interest rates are sufficient toachieve price stability and maximum sustainable economic growth.Areother policy instruments and regulations needed? The next section summa-rizes the reasons for changes in indicators and instruments over the pastsixty years.The second and third sections present arguments for andagainst believing that controlling real interest rates is likely to suffice.Thelast section draws conclusions from this analysis.8.1 Indicators and InstrumentsThe real federal funds rate had taken center stage as the indicator throughwhich open-market operations were interpreted, because the relation be-tween other indicators and targets such as inflation and sustainable eco-nomic growth had broken down.Among the indicators that had been triedand largely discarded were the monetary aggregates M1 and M2, discountwindow borrowing, net free reserves, unborrowed reserves, and the mone-1However, in 1906 there had been a lucid statement that: .a change in therelation between the natural and the market rate of interest cannot fail to exercise adetermining influence on the extent to which credit is used, and thus on the factorby which the value of money, or its purchasing power, is finally regulated. Wick-sell (1935, p.27) The natural rate can be interpreted as the marginal cost of capitaland the market rate as a short-term interest rate. 112 Overview and Summary of Part 1tary base
[ Pobierz całość w formacie PDF ]
