Comments from Federal Reserve Governor Jeremy Stein on “Yield-Oriented Investors and the Monetary Transmission Mechanism”. He will take questions later.
- Would have been comfortable with a September taper but starting a bit later not a key issue
- “There may be room for improvement” on making transition transparent
- Good idea to make link between bond buying and data as mechanical as possible
- Suggests future bond buying could be pre-set amount for every 10 bp drop in unemployment
- More deterministic approach would reduce uncertainty and volatility
- Adjustment in rates since May/June has been healthy, market now in pretty good place
Stein has reportedly clashed with Yellen in the past, which will probably be a career limiting move.
Linking the taper directly to unemployment would be one of the stupidest moves in the history of the Fed because the unemployment rate is so closely tied to the participation rate and it’s often revised. The Fed has a multi-million budget and hires the best economists for their judgement, not some harebrained mechanical idea.