Mark Carney has given a speech at Davos in which he avoided talking about nominal GDP (NGDP) targeting. The FT argues that this might be because the Chancellor is not keen on the idea and is worried that Carney might have given a misleading impression of future policy when he discussed the idea in public. Carney said that monetary policy needs to get economies to “escape velocity”, that policy is not “maxed out” and that flexible inflation targeting could help central bankers to achieve their goals. I do not have a dog in the NGDP-targeting fight, and I recently read (I forget where) that Mr. Woodford, the monetary-policy expert, and John Williams of the San Francisco Fed have argued that the idea of “optimal policy” — which allows inflation to move temporarily above target in order to pursue an unemployment goal — that has been developed by Janet Yellen is very close to NGDP targeting in the rate path it recommends when the economy is at the zero lower bound. If that is so (after all, the argument is theoretical) then the NGDP debate may be somewhat redundant.
Whatever, it looks like Mr. Carney is going to be reasonably aggressive. His conviction that monetary policy is not maxed out — as I fear it actually is, in the US at any rate — will be just what the Chancellor wants to hear, committed as he is to his ridiculous austerity policy.
Paul Ryan has said that he thinks the sequester is going to happen. While this may just be a negotiating stance, it coheres with my observation of last week: automatic spending cuts allow the Republicans to play the same trick on the President as he played on them with automatic tax increases: once they have happened, any reversal is a move in the right direction.
New home sales in the US came in on the disappointing side; the series has flatlined since its September peak. New homes count towards GDP when they are sold. Eurozone M3 growth was 3.3% YOY, d.e. and still well below the pre-crisis trend, but there is a rough uptrend in place. Eurozone private loans fell 0.7% YOY; this series turned negative in late 2012 and is indicative of the ongoing deleveraging in Europe.
This week we have US advance GDP, an FOMC meeting, non-farm payrolls and global PMI’s.