Summers’ Fed Put Beats Bernanke’s for Potency: Cutting Research – Bloomberg 09-05-13

Salient to Investors:

David Zervos at Jefferies said:

  • A Lawrence Summers Fed may give financial markets even stronger support in times of stress than Bernanke. Summers is no fool and loves the art of the bailout.
  • Summers would be more hawkish than Bernanke. Summers played a role in bailing out banks and the automobile industry during the recent financial crisis, and helped craft a rescue plan to ease Mexico’s financial crisis in the 1990s. Summers’ academic work always found a crucial role for government intervention.
  • Summers may be less likely than Bernanke to use QE to fight deflation, and may prefer helping support private sector lending.

BNP Paribas said a Summers Fed would mean 10-year T-yields would be 50 basis points higher than if Yellen were in charge and economic growth as much as 0.75 percent weaker over the next 2 years.

Greg Tkacz at St. Francis Xavier University said tracking the extent to which users typed “recession” and “jobs” into Google could have predicted Canada’s 2008-2009 recession by as much as 3 months in advance, and internet search engines will serve as useful inputs for monitoring economies.

Taeyoung Doh and Michael Connolly at the Fed Bank of Kansas City found a weakening in the response of both stock prices and bond yields on days when the Fed made major monetary policy announcements.

Christopher J. Neely at FRB of St. Louis Fed Bank said central banks are not toothless. The Fed’s unconventional monetary policy announcements of 2008 to 2009 significantly reduced the 10-year bond yields of Australia, Canada, Germany, Japan and the UK. and dropped the dollar against their currencies. Each country’s central banks also eased their interest rates during that period.

William White at OECD said:

  • The fashions of economic theory and changes in the financial system help explain how monetary policy has changed over time. The knowledge of science, by comparison, evolves slowly and because of external realities.
  • Monetary policy is being relied on too much to revive the world economy.
  • Policy makers may not be able to easily separate price and financial stability challenges, and short-term aims cannot be addressed without thinking about longer-term fallout in markets and economies.
  • Monetary policy remains more art than science and the artists remain all too human and fallible.

Sam Bowman at Adam Smith Institute said gamblers may be better at predicting the outlook for the UK economy than Bank of England Governor Mark Carney. The UK central bank has often gotten its economic forecasts wrong. Bowman said betting markets collect the judgments of thousands of people and gamblers have a strong financial incentive to bet in a dispassionate way, washing out individual biases.

Read the full article at  http://www.bloomberg.com/news/2013-09-05/summers-fed-put-beats-bernanke-s-for-potency-cutting-research.html

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