Struggle Over Fed Policy...

[New Bear]

I posted this on the main forum to exactly zero interest - but I think it could be significant. Certainly it is interesting that a Fed person is saying something rather different from the official policy. Anyway, it might resonate better on this forum, we'll see...

An interesting article by Doug Hornig discussing a recent (but under-reported) speech by Tim Geithner, President of the New York Federal Reserve, which seems, perhaps, to depart from the Greenspan/Bernanke approach to the US housing bubble:

http://www.kitcocasey.com/displayArticle.php?id=491

Geithner said:

“[D]espite the fact that policymakers can't be completely confident in their assessment of the future path of asset prices, it seems unavoidable that these assessments will factor into policy decisions. This is not to say that central banks should lean against bubbles or against asset price movements themselves. Nor should the appropriate response to a given change in asset prices be to change policy by more than what would be appropriate to address the effects on the central objectives of the central bank. But policy, in some circumstances, will need to respond to asset price movements when those movements alter the central bank's assessment of the risks to its outlook, and that change in the assessment of the risks to the forecast should be part of the central bank's communication with the public.”

Hornig comments:

"Check that out. Every word is chosen about as carefully as can be, but Geithner is placing himself squarely in opposition to the asymmetric approach to asset class bubbles, and quite possibly to the new Fed chairman.

Does it matter? Well, our caveat is always that we are free marketers opposed to central economic planning, and everything about the Fed partakes of the latter. But we also live in the real world, and what the Fed does has effects (which, of course, we like to turn to our advantage). A looming power struggle between those who want to “address” the housing bubble and those who want to leave it alone is significant. Moreover, if it develops, the outcome will have consequences for us all."

[paradox]

Interesting...

I imagine a similar debate takes place at the BoE

[New Bear]

Yes indeed and we see a selective and coded version of it in the MPC minutes sometimes.

I think Hornig's point is that Geithner was making a public speech, which might be thought to be rather different from the ongoing internal debate in the Fed. Maybe a conflict spilling out into the public sphere??

Edited January 18, 2006 by New Bear