'Accommodative' Monetary Policy & Risks to Central Bank Independence | Bill Nelson

In Episode 155 of Hidden Forces, Demetri Kofinas speaks with Bill Nelson, Chief Economist & Executive Vice President at the Bank Policy Institute, who spent most of his career working at the Federal Reserve, with a brief stint at the Bank For International Settlements.

Before joining BPI, Dr. Nelson served as a deputy director of the Division of Monetary Affairs at the Federal Reserve Board and actually helped design and manage several of the Fed’s emergency liquidity facilities during the 2008 crisis.

Dr. Nelson’s expert understanding of the plumbing of our monetary system and how monetary policy is effectuated at the ground level is important because, despite all the ways in which the Fed has sought to increase transparency and further communication with the public over the years, the mechanics of monetary policy remain baffling to most people. Even those of us who think we understand how it works are often only scratching the surface.

Consequently, one of the items we discuss in this episode is how monetary policy has changed operationally since the 2008 crisis -- how a combination of regulations introduced by Basel III and Dodd-Frank, as well as emergency actions taken by the Fed during the financial crisis explain some of what we are seeing in markets today.

We also discuss inflation and inflation expectations, as well as credible threats to the Fed’s independence given how far it’s gone in expanding its balance sheet and in purchasing corporate bonds and corporate bond ETFs. In addition, we look at what it would take for the Fed to bring out “the Bazooka” as Bill Nelson refers to it, and what that Bazooka would look like. Would it include equities, and if so, how would Fed officials justify those purchases? Lastly, what type of language should we be focused on? What types of signs should we be looking for that might give us a hint that we are about to enter a new phase of policy action?

You can access the episode overtime, as well as the transcript and rundown to this week’s episode through the Hidden Forces Patreon Page. All subscribers gain access to our overtime feed, which can be easily added to your favorite podcast application.

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Producer & Host: Demetri Kofinas

Editor & Engineer: Stylianos Nicolaou

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Episode Recorded on 09/16/2020