{"id":37624,"date":"2018-09-11T06:56:04","date_gmt":"2018-09-11T11:56:04","guid":{"rendered":"http:\/\/olduvai.ca\/?p=37624"},"modified":"2018-09-11T06:56:04","modified_gmt":"2018-09-11T11:56:04","slug":"monetary-buffers-depleted-boston-fed-concerns-over-next-recession-mount","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=37624","title":{"rendered":"\u201cMonetary Buffers Depleted\u201d Boston Fed: Concerns Over Next Recession Mount"},"content":{"rendered":"
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\u201cMonetary Buffers Depleted\u201d Boston Fed: Concerns Over Next Recession Mount<\/a><\/h3>\n<\/div>\n
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In a recession, the Fed typically slashes interest rates 5 PP. No such buffer exists. A Fed study looks at the impact.<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/header>\n
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One of the reason the Fed seems desperate to hike rates is they want ammunition to cut rates when the recession hits. Typically, the Fed cuts rates by 5 percentage points, but when the next recession hits, no such buffer will exist.<\/p>\n<\/div>\n<\/div>\n<\/div>\n

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A Boston Fed simulation shows the central bank\u2019s inability to cut rates by the usual amount would disproportionately hit certain states.<\/p>\n<\/div>\n<\/div>\n<\/div>\n

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The Wall Street Journal reports States Face Crunch If Fed\u2019s Tool Kit Is Limited in Next Recession<\/a>.<\/p>\n<\/div>\n<\/div>\n<\/div>\n

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\u201cMonetary buffers have been depleted,\u201d said Eric Rosengren, president of the Federal Reserve Bank of Boston, which sponsored the conference this weekend where the research was released. A decline in rates over the past decade means the Fed\u2019s recent experience of running out of room to cut them after lowering them to zero will not be \u201ca one-time event,\u201d he said.<\/p>\n

Mr. Rosengren and his co-authors, Boston Fed economists Joe Peek and Geoffrey Tootell, ran an experiment that shows how a recession might affect states assuming a traditional monetary-policy response, in which the Fed could cut its short-term benchmark rate by 5 percentage points.<\/p>\n

Then they looked at two other alternatives. In both scenarios, monetary policy couldn\u2019t fully respond because the Fed had raised rates to only 2% before the hypothetical downturn. But in the last scenario, regulatory, state and local, and federal fiscal buffers were also depleted because they weren\u2019t built up before the recession.<\/p><\/blockquote>\n<\/div>\n<\/div>\n<\/div>\n

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Per Capita Income Growth in Recession<\/strong><\/p>\n<\/div>\n<\/div>\n<\/div>\n

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\u200bSome Unpleasant Stabilization Arithmetic<\/strong><\/p>\n<\/div>\n<\/div>\n<\/div>\n

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Please consider the Boston Fed study entitled Some Unpleasant Stabilization Arithmetic<\/a><\/p>\n<\/div>\n<\/div>\n<\/div>\n

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\u2026click on the above link to read the rest of the article\u2026<\/p>\n<\/div>\n<\/div>\n<\/article>\n","protected":false},"excerpt":{"rendered":"

\u201cMonetary Buffers Depleted\u201d Boston Fed: Concerns Over Next Recession Mount In a recession, the Fed typically slashes interest rates 5 PP. No such buffer exists. A Fed study looks at the impact. One of the reason the Fed seems desperate to hike rates is they want ammunition to cut rates when the recession hits. Typically, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[21607,303,431,14648,13390,21606,1264,3650],"class_list":["post-37624","post","type-post","status-publish","format-standard","hentry","category-economics","tag-boston-fed","tag-fed","tag-interest-rates","tag-michael-shedlock","tag-mishtalk","tag-monetary-buffer","tag-recession","tag-us-federal-reserve"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/37624","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=37624"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/37624\/revisions"}],"predecessor-version":[{"id":37625,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/37624\/revisions\/37625"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=37624"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=37624"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=37624"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}