Saturday, June 23, 2018

The Mystery of John Williams at the New York Fed

The second most powerful man at the Fed and me, sharing a joke about inflation and the masses.

In a piece titled, "The Mystery of John Williams at the New York Fed," Danielle DiMartino Booth informs:

  • John Williams is now the second-most powerful leader inside the world’s most powerful central bank. If Jay Powell gets hit with the flu in a few months, it is Williams who directs interest rate policy.
  • Williams has advocated for raising the inflation target off the 2% level they’ve failed to attain forever as it’s an ill-designed metric not meant to rise.
  • Williams also advocated for further bond-buying (a.k.a. Quantitative Easing) and in the event all else fails, forward guidance.
  • Williams’ SF Fed has extensively researched raising the inflation target to coerce a steepening in the yield curve. But is that even do-able?
  • That also builds in higher inflation expectations across the term structure of interest rates, so long-end yields would rise. Raising the inflation target means the Fed doesn’t just tolerate higher prices, it tolerates higher costs and profits.
  • But it falls flat in practice. If firms can’t raise prices, then either costs are cut, profits are squeezed, or companies’ balance sheets weaken due to the reduced cash or added leverage that stems from the higher-cost environment. The issue then becomes a credit problem.
I reported this back in April:
Williams in San Francisco was featured at a meeting of a small group of elite globalists, maybe 12 people. As he was explaining to the group how the Fed operated, one of the elitists asked, "So you basically print money out of thin air?"
Williams responded: "Yeah, it's fun. Don't you think?"

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