Paul Kasriel's Contributions

The incoming economic evidence suggest that a prudent monetary policy should run counter to the Fed’s forward guidance, who are you going to believe – the Fed or your lying eyes?

Last Friday the BLS reported that the national unemployment rate declined by two-tenths of a percentage point in July vs. June. On the surface, that would seem to be good news for the labor market, right?

Am I the only one who wondered how the Federal Reserve arrived at a figure of $85 billion as the amount of longer-maturity securities it planned to purchase per month in its third round of quantitative easing (QE)?

Whenever I forget to mute CNBC or Bloomberg TV, I invariably hear some wag explaining to us that the goal of the Fed’s policy of quantitative easing (QE) is to lower bond yields in order to stimulate borrowing by the nonbank public and thus, increase aggregate spending.

Collectively, the 27 sovereign nations that make up the European Union (EU) most likely entered a recession this quarter. Chart 1 shows that EU industrial production contracted at an annualized rate of 15.5% in September vs. August, a near certain sign of a recession. Given that the EU represents the largest economy in the world, a recession there is no small beer for the rest of the world.

Chart 1 shows what is driving the projections of federal spending (and, implicitly, the national debt) in the upcoming 11 fiscal years - mandatory federal outlays and interest on the debt. What is driving up mandatory outlays is spending on retirees - Medicare and Social Security.

This is a paraphrased title of an essay written in 2000 for the Peterson Institute for International Economics by then Princeton economics professor, Ben Bernanke. In Professor Bernanke's essay, "Japanese Monetary Policy" appeared in the title, not "U.S. Monetary Policy."

In our April 28 update, we emphasized that our forecast was in "transition" from stronger to weaker in large part depending on the behavior of bank credit. This month we have made the transition to a significantly weaker outlook, not only because of the current behavior of bank credit, but also because of the current behavior of the overall economy. With regard to the latter, even before the Federal Reserve has terminated its second round of quantitative easing - that is, even before the Fed has taken its foot off the monetary accelerator - the underlying pace of U.S. economic activity already appears to be coming in weaker than we had anticipated.

Fiscal austerity is all the rage these days in the developed economies. The proponents of fiscal austerity argue that it will lead to economic prosperity. The opponents of fiscal austerity argue that it will lead to poverty. Who is correct?

Suppose that the federal government cuts its current spending on goods and services. Assuming nothing is done to tax rates, this means that the government’s current borrowing will fall commensurately. (This represents a shift in the demand curve for credit, not a movement along it.)

The forecasts of key economic variables and interest rates are in the usual tables following the respective slides with highlights of the forecast.

No, I am not talking about the Democratic Party. I am talking about the mainstream commentators on the Federal Reserve's second round of quantitative easing, or QE2. In their defense, perhaps one of the reasons they don't get is because the way the Fed, itself, marketed it. This might suggest that the Fed doesn't really get it either.

There is much skepticism as to whether the Fed’s second round of quantitative easing, QE2, will be effective in stimulating the nominal demand for goods and services in the U.S. economy. It was explained in our November 4, 2010 US Economic and Interest Rate Outlook why the Fed’s first round of quantitative easing...

On November 3, the FOMC announced that it would increase the quantity of its outright holdings of securities by a net $600 billion by the end of the second quarter of 2011. Thus, the Fed has re-embarked on a policy of quantitative easing.