Category Archives: monetary policy

The Next Fed Vice-Chair

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Oct. 30, 2017 — There has been speculation that after Trump picks one of the five candidates to be chair of the Federal Reserve (with Jay Powell now apparently the front-runner), he could pick another one of them to be Vice-chair.  This latter position is the one that, sadly, Stanley Fischer is now vacating.

I hope that Trump asks Janet Yellen to be Vice-chair, assuming he breaks precedent and does not re-nominate her for Chair, and I hope she accepts. Continue reading

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The Choice of Candidates for Fed Chair

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October 29, 2017 — The Trump Administration has said it will announce its choice for the new Chair of the Federal Reserve Board by November 3.  Subject to Senate confirmation, the chosen candidate will succeed Janet Yellen, whose term ends February 3.

The White House has said it views five candidates as front runners.  Two are eminent economists with unusually impressive records — both in academic research, mostly at West Coast universities, and as practitioners of macroeconomic policy.  That would be Yellen herself, who is a strong candidate for reappointment, and Stanford’s John Taylor.  The other three front-runners are not professionally trained as economists, but rather come from financial backgrounds: Gary Cohn, Jerome Powell, and Kevin Warsh.  They worked, respectively, for Goldman Sachs, Dillon Read, and Morgan Stanley; all three also have important government experience.

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The VIX is too low!

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September 30, 2017 —   During most of this year, the VIX — the Volatility Index on The Chicago Board Options Exchange — has been at the lowest levels of the last ten years.  It recently dipped below 9, even lower than March 2007, just before the sub-prime mortgage crisis. It looks as though, once again, investors do not sufficiently appreciate how risky the world is today.

Known colloquially as the “fear index,” the VIX measures financial markets’ sensitivity to uncertainty, in the form of the perceived probability of large changes in the stock market.  It is inferred from the prices of option on the stock exchange (which pay off only when stock prices rise or fall a lot).   The low VIX in 2017 signals that we are in another “risk on” environment, when investors move out of treasury bills and other safe haven assets and instead “reach for yield” by moving into riskier assets like stocks, corporate bonds, real estate, and carry-trade currencies.

Figure 1: The VIX is at its lowest since 2007

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