Economy Sees Uptick; Bernanke Defends Fed Easy-Money Policies; Crisis in Mediterranean Possibly Over
- Mar 26, 2013
In the broad uptick, the Federal Reserve of Chicago reported on Monday that its National Activity Index (CFNAI) increased to +0.44 in February, from 0.49 in January. All four broad categories of indicators making up the index increased from January, led by production-related indicators, and three of the four categories made positive contributions to the index in February.
The index is a weighted average of 85 indicators, based on four broad categories of data. Namely, production and income; employment, unemployment, and hours; personal consumption and housing; and sales, orders, and inventories. A zero value for the index means that economic activity is expanding at its historical trend rate of growth, while negative means below-average growth and positive above-average growth.
The index’s three-month moving average, the ponderously named CFNAI-MA3, decreased to +0.09 in February from +0.28 in January, but that still marks its fourth consecutive reading above zero. According to the Fed, February’s CFNAI-MA3 suggests that growth in national economic activity was somewhat above its historical trend.
Bernanke Defends Fed Easy-Money Policies
In a speech at the Department of Economics and STICERD (Suntory and Toyota International Centres for Economics and Related Disciplines) at the London School of Economics, Fed chairman Ben Bernanke argued on Monday in behalf of accommodative monetary policies — easy money from the central bank, that is. The chairman was recently before Congress defending these policies, and in the UK he asserted that they are good not just for this country, but others as well.
“Today most advanced industrial economies remain, to varying extents, in the grip of slow recoveries from the Great Recession,” the chairman said. “With inflation generally contained, central banks in these countries are providing accommodative monetary policies to support growth. Do these policies constitute competitive devaluations?” (That is, drive exchange rates in a favorable direction for the country pursuing those policies, which has been called “currency wars,” though he didn’t use that term.)
Bernanke answered his rhetorical question in the negative: “To the contrary, because monetary policy is accommodative in the great majority of advanced industrial economies, one would not expect large and persistent changes in the configuration of exchange rates among these countries. The benefits of monetary accommodation in the advanced economies are not created in any significant way by changes in exchange rates; they come instead from the support for domestic aggregate demand in each country or region.”
Crisis in the Mediterranean Over, Maybe
The Cypriot crisis seemed to be over by Monday, but as in the case of many eurozone crises, it might not really be over. The country still has a lot of sovereign debt, and might yet leave the euro zone to take its chances with its own currency, which it can devalue. Also, the banks will re-open on Thursday — two days later than previously planned — so there’s still the possibility of some colorful bank runs.
Wall Street was a bit glum on Monday, perhaps because investors weren’t impressed with the resolution in Cyprus, with the Dow Jones Industrial Average down 64.28 points, or 0.44 percent. The S&P 500 was off 0.33 percent and the Nasdaq declined 0.3 percent.