The Fed’s new strategy amounts to low-cal inflation targeting

The Fed’s new chief, Ben Bernanke, made a speech at the Cato Institute in Washington on November 14th. In this speech he set out his view on America’s monetary policies.
Central to his speech was his strategy for communication with the public. For the Fed communication is paramount. Trough communication, the Fed creates confidence with the public that is the underlying basis for a stable economy and tradings at stock exchanges throughout the world.

He revealed his policy for keeping inflation low and gave his forecast on the economy for the coming months.
Bernanke further explained the changes he has made and will make since he took over from Greenspan. Greater transparency is the buzzword that will bolster the Fed’s legitimacy and help preserve its independence. The two major changes are that he will give his prediction on the economy not two times a year but four times. The second change is that his predictions will be extended up to three years instead of two.

At first I believe the importance of communication for a central bank can’t be overestimated. The major role of a central bank is to create confidence in the economy among bankers, traders and economists in general and among the wider public.
Bernanke’s predecessor Greenspan had the confidence of the public. Bernanke is brand new at the job and still has to win over the trust.

Secondly I have some doubts about the predictions over a three year period. On the one hand such predictions may come in handy for longer term planning. On the other hand questions remain whether such long term predictions really can be made.

Sarah Struyf

http://www.economist.com/research/articlesBySubject/PrinterFriendly.cfm?story_id=10146901

Trade deficit lowest in 28 months

The weak dollar has an advantage: American goods become more competitive in foreign markets. The trade deficit fell to an all time low as a falling dollar spurred US export to an all time high. The Commerce Departement said that the deficit for September decreased to $56.5 billion, that's a decrease of 0.6%. This surprised many economists since they predicted a rise in the deficit.
The improvement came from a jump in US exports wich rose to a record $140.1 billion. Because the dollar is weak against most other major currencies the US goods are cheaper and therefor more competetive in foreign markets. Import also rose in September, climbing by 0.6% to $196.6 billion. Most imports were up except for the oil import, this fell by 0.8%.
In September the trade deficit ran at an annual rate of $703.4 billion, down by 0.7% from last year's $758.5 billion.

This is once again good news for the US. This is a good example of some of the most basic theory's about the economy. A weak currency makes your products cheaper oversea's wich shows an increase in export. And for a country like the US, with a trade deficit of $703.4 billion,
this is always good news. Any oppertunity to decrease this deficit is worth taking. This is also a good example for Bush to use when he promotes more foreign trade policies.
This might once again be a sign that the American economy will recover from there recent setback.

Nico Cottry

Source: http://money.cnn.com/2007/11/09/news/economy/bc.economy.ap/index.htm?postversion=2007110908