“Oct. 31 (Boomberg) US stock market closed sharply up after the Federal Reserve Bank announced that Federal Reserve chairman Ben Bernanke has invited Bentley University economics professor and advocate of nominal GDP targeting Scott Sumner for lunch at the prestigious Washington D.C. restaurant CityZen.
Unnamed officials at the Federal Reserve said that chairman Bernanke ‘wanted to pick Dr. Sumner’s brain on monetary matters’. Dr. Sumner declined an interview, but at his blog http://www.moneyillusion.com he asked readers ‘What do you wear when you go out for lunch in Washington DC?’
The news of the scheduled lunch between chairman Bernanke and Dr. Sumner sparked a sharp sell-off in US treasury bonds and 30-year bond yields were up more than 30 basis points in today’s trading.
The US dollar was the worst performing currency of 52 currencies that Boomberg tracks losing more than 4% against the euro on the day. “
Okay this is all a complete fabrication and there is no “Boomberg” news agency, but imagine that this story was really. Would the market react like this? I think it fundamentally would – I no clue about the size of the market direction, but I am pretty sure about the direction.
This illustrates a point that Scott himself has made over and over again: Monetary policy works with long and variable leads.
If Bernanke indeed had invited Scott for lunch and it was made public then it is pretty certain that it would trigger market expectations of what direction Fed policy was going. So in a sense Bernanke can loosen monetary policy by inviting Scott for lunch. Obviously any market reaction would obviously be based on expectations of what direction the thinking of Ben Bernanke was heading and if the Federal Reserve then failed to deliver the markets would just conclude – well, this Scott is nice to hangout with but it is not changing Fed’s policy so the market impact should be revised and gone would be any impact on the future path for NGDP of Scott’s and Ben’s nice lunch.
I nonetheless dare chairman Bernanke to invite Scott for lunch…(Scott do you have the proper outfit for lunch at CityZen?)