MA's Bomfim Discusses "Who Moves Markets" on CNBC Squawk Box

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Who Moved Markets in 2011?

2011 was a remarkable year for FOMC communications with many new initiatives and a more aggressive use of communication as a policy tool.

§ The Chairman hosted the first ever post-meeting press briefing in April.

§ The FOMC adopted a calendar-based funds rate guidance in August.

§ The decisions to implement more unconventional monetary policy tools (calendar-based rate guidance and Operation Twist) led to triple dissents at two meetings. Dissenters used their public speeches heavily to explain their votes.

On net, FOMC speeches put slight upward pressure on the two-year Treasury yield last year.

§ The cumulative effect from FOMC speeches raised the two-year yield by about five basis points, but for the year as a whole, the impact of speeches was more than offset by that of other forms of FOMC communications.

§ In the first half of the year, speeches put some upward pressure on the two-year yield, while the effects of other communications were negligible.

§ During the second half, speeches continued to put upward pressure on yields, but the impact was more than offset by the August FOMC statement.

Relative to 2010, our analysis of Fed communications in 2011 suggests that speeches played a smaller role in influencing the two-year yield. But there are some important distinctions.

§ In 2010, FOMC speeches lowered the two-year Treasury yield by about 40 basis points cumulatively. Last year, the impact was to raise the two-year yield by five basis points.

§ The smaller impact of speeches on yields doesn’t necessarily mean that the market wasn’t paying attention to Fed speeches. Indeed, the Committee appeared to be more divided than in 2010, and hawkish and dovish speeches may have largely offset each other.

§ Lastly, there were fewer speeches last year than in 2010, and we excluded a larger proportion of speeches from our analysis because their timing overlapped with at least one other speech.

The winners of this year’s “Who Moved Markets” awards are…

§ The “I Moved Markets Award” goes to St. Louis Fed President Bullard, who had a larger market impact than any other FOMC member. His speeches and interviews moved the two-year Treasury yield by almost 17 basis points last year.

§ The “Power Player of the Year Award” goes to Philadelphia Fed President Plosser, for having the largest impact per speech.

§ The “Market Neutrality Award” goes to Atlanta Fed President Lockhart, meaning that his speeches were about as likely to move yields higher as lower.

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FOMC Funds Rate Projections: Q&A

FOMC Funds Rate Projections: Q&A

Many questions apparently remain, even after the FOMC released the templates that it will use tomorrow to summarize participants’ funds rate projections. We address the main questions in this piece.

This is from a commentary that was published on January 24, 2012.

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MA's Meyer Discusses Fed on CNBC Squawk Box

MA's Monthly GDP Declined 0.8% in November

Monthly GDP declined 0.8% in November, partially reversing a 1.3% increase in October. The November decline was more than accounted for by inventory investment and net exports; domestic final sales posted a decent gain. The level of monthly GDP averaged over October and November was 3.2% above the third-quarter average at an annual rate. Our latest tracking forecast of 3.0% annualized growth of GDP in the fourth quarter assumes a 0.3% increase in monthly GDP in December.

This is from a commentary that was published on January 17, 2012.




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A More Democratic FOMC

Even before Bernanke became Chairman, we believed that one of his objectives was to de-personalize monetary policy, that is, to make it less dominated by the Chairman. If that was his objective, he has now achieved it!

This is from a commentary that was published on January 13, 2012.

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Potential Nomination of Jerome Powell and Jeremy Stein to the Fed Board: A+

The following note was sent to clients on November 15, 2011.

The Wall Street Journal reported that President Obama is considering nominating Jerome (Jay) Powell and Jeremy Stein for the Federal Reserve Board. Both would be outstanding choices, but their eventual appointments would not change monetary policy outcomes.

• The nominations have been held up because of the need to have a “package deal,” with one candidate acceptable to Republicans and one to Democrats.
• We give the President an A+ for his reported choices. These appointments would materially strengthen deliberations around the FOMC table. They would be active participants and highly respected by their colleagues.
• Both potential nominees are well versed in finance and financial markets and would bring to the FOMC expertise in areas that it has rarely had.

Jay Powell has an impressive background in financial markets and macro policy.

• He is a visiting scholar at the Bipartisan Policy Center (BPC), where he has focused on state and local fiscal issues. Before working at the BPC, he practiced law and worked both in investment banking and private equity.
• He served as Under Secretary of the Treasury for Domestic Finance under President George H.W. Bush.

Jeremy Stein is a distinguished economics professor at Harvard with a worldwide reputation and a record of public service.

• He has also taught at MIT and at the Harvard Business School. His specialties include finance, monetary policy, risk management, and banking.
• He served earlier in the Obama Administration as a senior advisor to the Treasury Secretary and was on the staff of the National Economic Council.

If nominated and confirmed, how would they change the dynamics of the FOMC?

• The FOMC would gain two outstanding people whose areas of expertise would complement those of other Board and FOMC members.
• Nonetheless, other than through their interaction with the Chairman, which we shouldn’t discount, Jay Powell and Jeremy Stein would not affect policy outcomes. The Chairman is and will continue to be the dominant force on the Committee.

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