So the Fed has raised interest rates on short-term loans to banks, which has increased the value of the dollar. Folks like to complain about how cheaply banks can get Fed loans, so this makes that more expensive and is in effect a cut in financial sector subsidies. But, if the move also signals a broader monetary tightening that would choke off growth, that's a bad thing. The Fed announced that it doesn't expect tighter financial conditions or a change in broader monetary policy. There are signs, however, that the markets are ignoring that statement in favor of a more esoteric interpretation, such as higher yields on Treasury notes -- essentially saying they don't believe the Fed when it says no immediate hikes are planned.Beyond noting today's relatively small adjustment, let me just second Matt Yglesias' call for appointments to the empty Federal Reserve seats. I bugged the White House about this today and got the official "no comment" on why there are no nominees for those seats (I also asked about the Fed's interest rate decision -- same answer). Since there's no reason the administration shouldn't explain why it hasn't filled those seats yet, I'm calling that freedom to speculate, so here are some scenarios in order from most to least likely:
1) The White House doesn't want to deal with a confirmation process through the Senate or doesn't think it has the political capital or resources to deal with it right now. I'm rating this a reasonable response, since even though new nominees would be useful policy signaling, they probably wouldn't get confirmed for months and months. Remember how close Chair Ben Bernanke's renomination was?
2) It's confident in Bernanke's policy choices and doesn't want to spend all the effort to get a nominee through when they feel they don't need a change. Of course, if the trend of tighter monetary policy prior to the re-election campaigns of Democratic presidents -- which slows the economy during an election year, hurting approval -- the administration may come to regret that call.
3) The White House wants to wait for financial regulation reform to finish up so it knows where to focus the nominees they believe are most capable.
Other ideas?
-- Tim Fernholz
