Still Economic Waters Hide Lurking Danger

By Karen Shaw Petrou

On Tuesday, FRB Chairman Powell delivered a strongly-positive statement on the state of the U.S. economy.  Citing factors such as recent wage growth and employment, Mr. Powell is far more worried about keeping the good times going than about how inequitably the good times deliver the goodies across the gaping U.S. income and wealth divide.  This is setting monetary and regulatory policy the same way a diver looking only at a calm, blue surface jumps into a lake and breaks his neck.  Continue reading “Still Economic Waters Hide Lurking Danger”

Caught in CCAR’s Cross-Fire

By Karen Shaw Petrou

  • CCAR now tries to make big banks a shadow U.S. central bank.
  • Result: more systemic risk and still less economic inequality.

How do you make the financial system less stable and increase U.S. economic inequality at the same time?  It’s not easy, but if you’re the Fed, then you accomplish this frightening feat by toughening up the annual CCAR stress test for the biggest banks without an eye to its systemic or market impact.  Stress testing is fine – indeed an important addition to the post-crisis supervisory arsenal.  But, CCAR itself is founded on two flawed premises:  big BHCs are the heart of financial stability and nothing the central banks does adversely affects economic inequality.  Continue reading “Caught in CCAR’s Cross-Fire”

The Mysterious Case of the Misfiring Monetary Policy

By Karen Shaw Petrou

When former Fed Chairman Bernanke launched a new approach to U.S. monetary policy earlier this year, he prompted many within and outside the U.S. central bank to call for sweeping change that would solve the “mystery” Janet Yellen says bedevils post-crisis monetary-policy transmission.  Just like the blue carbuncle Sherlock Holmes eventually found inside a large goose, central bankers are searching for a new gemstone within reams of data by which to guide increasingly complex policy-transmission channels.  Continue reading “The Mysterious Case of the Misfiring Monetary Policy”

Why Liberal Economics is to Growth and Systemic Risk as the Clinton Campaign was to Winning the White House

By Karen Shaw Petrou

At its October meeting, the IMF’s economists pronounced that global economic prospects are “benign,” with financial risks well within acceptable bounds, at least for now.  But, as Martin Wolf said the following Friday in the Financial Times, the meeting’s mood was anything but calm and confident.  Why?
Continue reading “Why Liberal Economics is to Growth and Systemic Risk as the Clinton Campaign was to Winning the White House”

Why “Full” Employment is an Empty Promise

By Karen Shaw Petrou

In her speech on September 26, FRB Gov. Brainard deploys a lot of data to raise, but then duck, what I think is the most critical question about post-crisis monetary policy:  Is U.S. employment really “full” enough to justify wider wealth inequality that is in part the Fed’s fault?  Chair Yellen and others defend quantitative easing (QE) and ultra-low rates on grounds that U.S. “full” employment will eventually be matched by growth, consumption, and resilient, robust recovery.
Continue reading “Why “Full” Employment is an Empty Promise”