The Boston Fed held its 62nd Annual Economic Conference over the weekend. Not quite as well-known as the KC Fed’s Jackson Hole symposium, this Eastern branch’s meeting still attracts many big-name speakers. The “right” speakers, that is, meaning academic and mainstream bank Economists, supranational think tank thinkers, as well as current and former central bankers. The echo chamber is just as thick and impenetrable as it is in Wyoming.
Appearing in Boston alongside former Treasury Secretary Larry Summers, Goldman Sachs chief Economist Jan Hatzius, and Cleveland Fed President Lorretta Mester was Olivier Blanchard. Dr. Blanchard has every bit of pedigree covered: former director of research at the IMF, M. Solow Professor of Economics emeritus at the Massachusetts Institute of Technology, and now a Senior Fellow at the prestigious Peterson Institute for International Economics.
The purpose of this year’s gathering was to decipher if there might be any lingering effects from “long spells” of low interest rates. From what I can tell, nobody addressed the biggest one – why there were long spells of low interest rates. They’ve moved on from all that to fretting over what that might say about the ability of Economists to decipher the major economic problems confronting the global economy.
Having achieved the numerical criteria for economic recovery, by purposefully moving the goalposts, with Economists all agreeing that this prolonged spell of low interest rates was responsible for it not getting worse, there was considerable pressure to look ahead. Even if you believe that recovery story, there is no time to celebrate. Jay Powell and Eric Rosengren, President of the Boston branch, may insinuate that the long end of the UST (or other) market is mispriced, but people are really talking about the yield curve either way.
Blanchard’s purpose was to diagram what a low-level turnaround might look like. Unlike past business cycles, this one, if it is one, isn’t going to give the Fed much room for “stimulus.” Bernanke’s Fed started from a fed funds target of 5.25% (fat lot of good that did); Powell’s Fed is facing 3% max, which is right around where each curve (eurodollar futures in particular) is drawing as a line in the sand.
