Wednesday, November 7, 2012

What the Obama Win Means for NGDP Targeting

Okay, so Greg Mankiw will not be Fed chairman after all and usher in a golden era of nominal GDP targeting.  All hope is not lost, though, on the nominal GDP targeting front.  Here is the Cynthia Lin of the WSJ:
President Barack Obama‘s re-election has made markets more confident that the Federal Reserve will continue on its current path.

With Obama winning a second term, the odds are higher that any leadership change at the central bank will follow in Chairman Ben Bernanke‘s footsteps. The path of Fed policy now seems clearer to the market, as evidenced in the fed-funds futures market.

November 2014 fed-funds futures now price in no chance of an interest-rate increase by then, compared with a 24% chance priced in at Tuesday settlement. The central bank has said it plans to keep rates near zero at least until mid-2015. But Bernanke’s current term ends in 2014, and some had speculated that a Romney administration would have appointed a Fed chairman who would push for higher rates sooner
So the Fed has less to worry about it as it executes QE3.  To the extent QE3 is a step in the direction of the Fed adopting an explicit nominal GDP level target, this would be a positive development. President Obama also has an opening to fill at the Board of Governors and he could reinforce the Fed's move toward a nominal GDP target by appointing someone who endorses it.  How about his best friend at Goldman Sachs, Chief Economist Jan Hatzius? He would be a nice complement to the Baord of Governors.


  1. Obama will nationalize the FED and only use it for fiscal expansion outside Congresses domain.

    There is a reason they pushed billions to stop him.

    People don't get it right now.

    1. What do you mean by "nationalize"? The Fed is not a private bank.

  2. Obama, who deserved to lose for his lack of a forthright and aggressive expansionary Fed policy (as expressed through appointments) now has a shot at making good.

    I hope he does appt Hatzius or someone else similarly aggressive.

    Worth noting: Japan had a QE program in place for five years, and never had a problem with inflation (to the contrary).

    So...does a long-term QE program suggest a national deleveraging?

    The best outcome? I say mild inflation---4 percent---for several years, and wipe another $2 trillion in federal debt through QE, while bringing the federal budget under control.

    It would not be that hard to send national debt/GDP on a downward path for many years.

    1. Benjamin, your eternal optimism about what the Fed will do is amazing. You never tire.

  3. What makes you so certain he wouldn't appoint Mankiw? He kept Bob Gates at Defense and kept Bernanke as well in his first term. Mankiw would breeze through the appointment process. It's a bipartisan reach.

  4. Good point JDTapp. It would be a great way to show his commitment to reaching across the isle.

  5. Fantastic article. Now Obama most concentrate on market. Thy said, "who well deserved to reduce for his deficiency of a forthright and competitive expansionary Fed plan now has a taken at making good." The level QE3 is a step towards the Fed implementing an precise affordable GDP level focus on, this would be a good growth. Chief executive Obama also has an starting to complete at the Panel of Governors and he could strengthen the Fed's move toward a affordable GDP focus on by employing someone who promotes it.The direction of Fed plan now seems better to the industry, as confirmed in the fed-funds commodity industry. Industry Analysis Report

  6. David-

    As my uncle used to say, "If you can be optimistic while every one else is gloomy...maybe you don't understand the situation."