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Yashi

Friday, March 21, 2014

Wait rate don't tell me

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Wednesday marked the first FOMC statement and press conference of the Janet Yellen era, and it ended up being quite difficult to understand. The QE taper proceeds, interest rates remain unchanged, and the Evans Rule (no rate hikes considered until unemployment is below 6.5%) is out. It was replaced by the statement that "it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends".

Yellen elaborated in her press conference, quantifying that considerable time at something like six months, and markets momentarily threw a hissy fit. Calculated Risk unpacks the carefully written FOMC language, along with Yellen's comment, and concludes that there really isn't much news in it: "Yellen's comment fit previously released projections".

Cardiff Garcia thinks discarding the quantitative threshold is ultimately a dovish decision. However, he thinks it "is also a little sad for those of us who had hoped that the Fed would keep moving in the direction of greater clarity and transparency... and who think that numerical markers are helpful for reinforcing it."

Minneapolis Fed president Narayana Kocherlakota, the lone dissenter to Wednesday's decision, agrees. He says the new guidance weakens the Fed's credibility on its 2% inflation target and "provides little information about its desired rate of progress toward maximum employment". Kocherlakota argues that the old rule should have been replaced by new quantitative, not qualitative, guidance: no rate hikes at least until unemployment is below 5.5%, so long as the long-term inflation outlook remains below 2.25%, long-term inflation remains "well-anchored", and the financial system remains stable.

After a press conference that he thought was surprisingly, if unintentionally, hawkish, Tim Duy calls Kocherlakota's statement "remarkable". Duy backs out the thinking of the rest of the committee from Kocherlakota's dissent: "If the most dovish member of the FOMC can tolerate no more than a 25bp upside miss on inflation, what does it say about the other FOMC members?" -- Ben Walsh

On to today's links:

Charts
The rise of the cult CEO - HBR
Invest a moderate amount for most of your life, or the power of compound interest - Sam Ro

Bikes
CitiBike needs a bailout after annual membership proves too popular (and too cheap) - WSJ

Study Says
Only 1 in 10 long-term unemployed Americans end up finding a stable, full-time job - Brookings

Big Ideas
The movement to end traffic deaths in New York - Maggie Astor
A wonderfully detailed proposal for Guaranteed Basic Income in America - Morgan Warstler

Interesting
Legal migration "is the oldest poverty-reduction and human-development strategy" - Project Syndicate

Billionaire Whimsy
Larry Page hopes to leave his wealth to a deserving billionaire - Marcus Wohlsen

Apple
Apple's estimated share of smartphone profits is between 76% and 87% - Farhad Manjoo

Our Dystopian Future
When algorithms take over, we'll be techno serfs and techno aristos - Signe Brewster

Semantics
"Very cold water with corners" and other awesome pseudotranslations - Stan Carey

City Mouse Country Mouse
"The difference in this country is not red versus blue. It's urban versus rural." - WSJ

Equals
Is there a gender gap in tech salaries? (Hint: yes) - Shane Ferro

 

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Business Today: Wall St ends down as investors book profits

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03/21/2014
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Wall St ends down as investors book profits
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U.S. judge OKs JPMorgan $218 million Madoff class-action settlement
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Yellen likely repeated market views on rate hike timing: Fed's Bullard
WASHINGTON (Reuters) - Federal Reserve Chair Janet Yellen was likely just repeating the views of private analysts and investors when she said the central bank could raise interest rates six months after ending a bond-buying program, a top policymaker said on Friday.
Fed's Kocherlakota: Don't raise rates to head off possible crisis
WASHINGTON (Reuters) - Raising interest rates to head off a potential financial crisis is simply not worth it, a top Federal Reserve official said on Friday.
In Washington state, Tesla finds way to share the road with dealers
(Reuters) - On President's Day last month, about 40 electric-car advocates gathered under the rotunda of the state capitol in Olympia, Washington, where a lobbyist for Tesla Motors Inc urged them to rally against a bill that would prevent the carmaker from opening new sales offices in the state.
Fiat Chrysler plans seven new Alfa models by 2018: magazine
FRANKFURT/MILAN (Reuters) - Fiat Chrysler Automobiles (FCA) will unveil seven new Alfa Romeo models and push to increase sales of the sports car brand fivefold, Germany's Auto Bild magazine reported on Friday.
Exclusive: Boeing U.S. tanker program seen $1 billion over budget
WASHINGTON (Reuters) - The U.S. Air Force on Friday estimated that Boeing Co's development of a new refueling plane will cost nearly $1.1 billion more than initially planned, but the terms of the government's contract mean Boeing must cover the added costs.
Credit Suisse to pay $885 million in FHFA mortgage fraud case
NEW YORK/ZURICH (Reuters) - Credit Suisse Group AG has agreed to pay $885 million to resolve claims by a U.S. regulator that the Swiss bank misled Fannie Mae and Freddie Mac into buying mortgage-backed securities that later went sour.
Sprint cuts jobs, closes stores as part of broader plan
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Yellen's 6-month comment parroted market view: senior Fed official
WASHINGTON (Reuters) - Federal Reserve Chair Janet Yellen was likely just repeating the views of private analysts and investors when she said the central bank could raise interest rates around six months after ending its massive bond-buying program, a top Fed official said on Friday.
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Yashi

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