Balance sheets of central banks in advanced economies have ballooned by trillions of dollars since the onset of the Great Recession. Now, U.S. policymakers are beginning to focus on the goal of unwinding the balance sheet. While the arguments for doing so are not convincing, it seems inevitable at this point. That said, there are several things that seem to missing from policymakers’ discussions this far of the unwind of which they must be very cognizant. Continue reading Comments on Exiting the Era of Big Balance Sheets
The CEO and President of the St. Louis Regional Federal Reserve Bank, James Bullard, recently offered a presentation (here) making a case for reducing the size of the Fed’s balance sheet—at about $4.5 trillion as a result of the Fed’s crisis response (as opposed to less than $1 trillion pre-crisis). Bullard made several excellent points but I wanted to highlight and/or push back against a few. Continue reading Responding to St. Louis Fed President Bullard’s Call to Reduce the Fed’s Balance Sheet
My latest over at The Huffington Post. A wonkish look at the safe asset shortage and the waning efficacy of quantitative easing: http://www.huffingtonpost.com/european-horizons/yes-the-world-does-have-a_b_14636524.html
The rise of passive investing is upon us. Years of substandard performance from active fund managers promising to be experts able to beat the market consistently has led to a meaningful shift toward lower-cost investing. Continue reading Central Bank “Distortion” Is a Red Herring
A barrage of comments from FOMC members last week has bumped up market expectations of Federal Reserve rate hikes. However, it’s not clear that market players are adjusting their rate expectations correctly; the U.S. Treasury curve has steepened (Figure 1). Continue reading Are Market Players Mispricing Fedspeak?