Jon Hilsenrath was on Wall Street Journal TV (available on YouTube, not gated). It goes for 3:50, so if you can squeeze it in over the weekend, you can hear his latest take on what’s happening at the Fed. Former Morgan Stanley-Asia chairman Stephen Roach describes Hilsenrath as “actually the chairman of the Fed” because of his track record in revealing policy discussions and decisions before Fed officials.
For those without 3:50 to spare (hey, it is the weekend), here’s a summary of the video:
- Prior QE programs ended abruptly and, in retrospect, prematurely
- The Fed is trying to decide when to start dialing back on QE
- But not a lot of pressure on them to do this right now because inflation is so low, but it looks like the unemployment rate is improving, which gives them incentive to start dial down
- The Fed has a plan on how they are going to withdraw from QE
- They are in a discussion and debate about when to start
- The rising stockmarket pushed the conversation in the Fed away from worrying about goods-price inflation and pushes the conversation towards risk of asset price inflation/bubble. We’ve heard from Jerome Stein (one of the Fed board of governors and FOMC voter) about this, and we could hear more talk about this.
- Indications are they are not concerned about it yet, but are watching it closely
- Fed is happy to see a recovery in the housing market, good for household balance sheets, as house prices rise, owners more willing to spend money
On prospects for who will be the next Fed governor:
- To the extent that Geithner wants to be, the scandals this week have hurt him
- Also hurt Larry Summers chances, though not as much
- Janet Yellen still front runner
- Another loser from this week’s scandals is the prospects for long-run deficit reduction (the deficit is improving currently in the short-run, but not in the long run)
