NEVER ENOUGH LAND

When is something never enough. Never.

If you're a bit confused, then you've most likely been following the pundits on Mario Draghi and his ECB capers.

Draghi made some changes today, cutting three key interest rates by 0.1 percent and lowering its inflation forecast from a whopping 0.7 percent to a whopping 0.6 percent. Toss in Draghi's plan to start buying euro-denominated covered bonds and some asset-backed securities.

One can only hope those asset-backed securities are not of the subprime species. Just a thought about irony. 

The moves will please some but not all. What Drahi and his central bank compatriots have been waiting an hoping for is the Federal Reserve to pull the EU out of its deep, dank economic slumber.  And that may happen yet wth a stronger dollar and if new Cleveland Federal Reserve President Loretta Mester has much to say.

WASHINGTON (MarketWatch)— New Cleveland Federal Reserve President Loretta Mester sided Thursday with hawks on the central bank on a key issue: whether to scrap the forward guidance at the Fed meeting later this month.

The Fed now pledges to keep rates near zero for a “considerable period” after the end of its bond-buying program.

In her first speech on the economy and monetary policy, Mester said that pledge has outlived its usefulness.

“With the end of the program nearing, I believe it is again time for the committee to reformulate its forward guidance,” Mester said in a speech to the Economic Club of Pittsburgh that was streamed online. “While it might sound best to simply give a date about when liftoff is likely to occur, I believe using a calendar date at this point would be poor communication.”

Mester argued that the new forward guidance should convey that the first rate increase will depend on economic conditions and the speed of its progress toward the Fed’s twin goals of low unemployment and stable prices.

This new language should imply that “a faster pace of progress toward our goals would argue for a faster return to normal, while a more subdued pace would argue for a slower return,” she said.

Mester’s comments put her in the camp of hawkish Philadelphia Fed President Charles Plosser, who dissented from the last Fed statement in late July because he wanted to scrap the “considerable period” language.

“I viewed such language as an inappropriate characterization of the future path of policy and so may limit the FOMC’s flexibility going forward,” Plosser said in a statement in early August explaining his dissent.

Mester worked as a key adviser to Plosser at the Philadelphia Fed before assuming her post at the Cleveland Fed in June. She is a voting member of the Fed’s policy-making Federal Open Market Committee this year.

The Fed's next policy meeting in later this month on the 16th-17th when Fed Chair Yellen will brief the media afterwards. 

What should be clear is the lines are being drawn. If it sounds like an upcoming version of gridlock, you could be onto something.

Mester noted that waiting for wages to rise before acting on inflation is a mistake.

In my view, it would not be prudent for policymakers to simply wait for wages to accelerate before assessing the implications of the stance of monetary policy for future price inflation,” Mester said.

She also noted wages should rise "with not necessarily lead prices."

Go get the pop corn and soft drinks ready--just don't breathe a word to Bloomberg--the show's about to start.

t. man hatter