Has Bernanke Finally Done It?

      Lars Christensen has some pretty high praise for Ben:

      "So we nearly got what I asked for: 1) A clear target – not an NGDP level target, but a soft Mankiw rule/Evans rule based on the Fed’s dual mandate. 2) A clear instrument to increase the money base: Mortgage backed securities. 3) A promise to do more if the target is not hit."

       "Now the markets should do a lot of the additional lifting."

        "I think it would be ungrateful to ask for more – yes, yes it is not NGDP level targeting and a lot of things can go wrong, but today I think we can take a little victory lap. This is excellent news for the US economy and for the global economy. Then we can hope that we in the coming months will get an even more clear defined “Bernanke rule” so we finally can back to a rule based rather than a discretionary monetary policy.

     http://marketmonetarist.com/2012/09/13/i-think-ben-just-did-it/

      So according to Lars, Ben "nearly" got everything right and he thinks it would be greedy to ask for more. I tend to agree. I mean while maybe there are things that can be fine tuned Bernanke certainly has come far.

      Mr. NGDP is pleased, as well. Sumner says:

      "There’s enough news here for a month’s worth of posts. Matt Yglesias has my general take on things, although my hunch is that we are a bit too little and too late to significantly affect this business cycle. However this is really good news for monetary policy going forward, especially for the next recession. It’s baby steps toward level targeting.
Now for the title of this post. Here’s what the Fed says it’s trying to do:

These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

     "Nope. Long term yields increased on the news, just as market monetarist’s would have expected. And thank God they did! The higher yields are an indication that markets have (slightly) raised their NGDP forecasts going forward. The jump in equity markets suggests that RGDP growth will also rise (albeit modestly.) The bad news is that 100 points on the Dow is indicative of a really small change in the RGDP growth rate, basically within the margin or error. So we’ll never know any more than we know right now about whether the policy will “work.” Of course that won’t prevent hundreds of economists from making silly pronouncements a few months from now, based on actual changes in RGDP. I beg you to ignore them all."

     http://www.themoneyillusion.com/?p=16202

     That's vintage Sumner-the idea that the markets don't lag monetary policy but rather leads it. Sumner makes another observation about interest rates:

     "One other thing. The rise is interest rates undercuts the Keynesian model (although I suppose the sophisticated version merely predicts that long rates would fall relative to the (rising) Walrasian equilibrium value.) But the markets are even more strongly rebuking John Cochrane’s claim that Bernanke’s promises would not be credible. Even a very vague and inadequate promise from the Fed was enough to boost markets significantly."

     As he says that Cochrane is much more wrong than the Keynesisan model I won't push back right now on this comment. Not that I'm in the mood to push back right now. The market has actually doubled since Sumner's post and ended up 200.