Last Wednesday, we were amazed to read in Australia’s press that Cleveland Fed president Loretta Mester said “helicopter money” could be considered to stimulate America’s economy if conventional monetary policy fails.

Specifically, quoting Australia’s ABC reports, Mester, president of the Federal Reserve Bank of Cleveland and a member of the rate-setting Federal Open Market Committee (FOMC), signalled direct payments to households and  businesses to stoke spending was an option if interest rate cuts and quantitative easing fail.

“We’re always assessing tools that we could use,” Mester told the ABC’s AM program. “In the US we’ve done quantitative easing and I think that’s proven to be useful. “So it’s my view that [helicopter money] would be sort of the next step if we ever found ourselves in a situation where we wanted to be more accommodative.

It appears that – very clear transcript aside – the Cleveland Fed got an earful for ABC’s report which originally disclosed Mester’s “qualified support” for helicopter money (and anyone else who touched on it) and overnight we have been bombarded by emails from the same regional Fed, which urgentl want our readers to know that “Mester did not in any way advocate helicopter money.”

It also appears that Cleveland Fed was insuleted by ABC’s use of a helicopter as a cover image, and demanded to have it replaced with a photo of $100 bills being printed instead.

So, for those who are interested in what the Cleveland Fed president really meant to say, after at least one round of confusing revisions, here it is.

From: Campbell, Doug
Sent: Monday, July 18, 2016 8:14 AM
To: ‘info@zerohedge .com’
Cc: ‘legal@zerohedge .com’; abuse@zerohedge .com
Subject: Incorrect post re. Cleveland Fed

 

Your posts on alleged statements by Cleveland Fed President Loretta Mester regarding the use of helicopter money were based on an erroneous report. Mester did not in any way advocate helicopter money.

 

Incorrect: http://www.zerohedge.com/news/2016-07-15/helicopter-money-wont-fix-whats-broken

 

Please delete or correct the below post, as it was based on an incorrect report. The original report from the Australian Broadcasting Corp. has been corrected. Cleveland Fed President Loretta Mester did not advocate the use of helicopter money and she does not advocate it.

 

http://www.zerohedge.com/news/2016-07-13/feds-mester-says-helicopter-money-next-step-us-monetary-policy

 

Please see corrected ABC report upon which your posts were based: http://www.abc.net.au/news/2016-07-13/quantitative-easing-useful-fed-official-mester/7623888

 

* * *

For reference, here are the tops of the original ABC story (1.) and the amended story (2.). I think the differences make clear that they agree President Mester was not referring to helicopter money. These difference include the different headlines and the change in the photo, and the change from “qualified support” of helicopter money to “cautious response.”

 

* * *

 

1. Helicopter money ‘the next step’ in monetary policy says Fed official Loretta Mester


Photo: Helicopter money is so named because it involves metaphorically dropping money onto the economy. (Simon Fergusson: Getty Images)

 

A top official from the US Federal Reserve has said “helicopter money” could be considered to stimulate America’s economy if conventional monetary policy fails.

 

Dr Loretta Mester, president of the Federal Reserve Bank of Cleveland and a member of the rate-setting Federal Open Market Committee (FOMC), signalled direct payments to households and businesses to stoke spending was an option if interest rate cuts and quantitative easing fail.

 

“We’re always assessing tools that we could use,” Dr Mester told the ABC’s AM program.

 

“In the US we’ve done quantitative easing and I think that’s proven to be useful.

 

So it’s my view that [helicopter money] would be sort of the next step if we ever found ourselves in a situation where we wanted to be more accommodative.

 

Dr Mester’s qualified support for the use of “helicopter money” – when stimulus is directly pumped into the real economy, not through the banking system – comes amid expectations that the Bank of Japan is poised to unleash a major fiscal stimulus package of at least 10 trillion yen ($130 billion) to kickstart its flat-lining economy.

 

* * *  

 

2. Quantitative easing ‘useful’ when all else fails, says Fed official Loretta Mester

 

By AM business editor Peter Ryan

 

Photo: The Federal Reserve has injected trillions of dollars into the US economy since the GFC. (Karen Bleier: AFP)

 

A top official from the US Federal Reserve says quantitative easing has “proven useful”, but the likely path of US monetary policy is still for interest rate rises.

 

Talk of further unconventional monetary policies globally has increased as Japan reaches the limit of what negative interest rates and quantitative easing can achieve.

 

That has sparked speculation that the Bank of Japan may adopt a policy of so-called helicopter money.

 

Dr Loretta Mester, president of the Federal Reserve Bank of Cleveland and a member of the rate-setting Federal Open Market Committee (FOMC), signalled direct payments to households and businesses to stoke spending was an option central banks might look at in addition to interest rate cuts and quantitative easing.

 

“We’re always assessing tools that we could use,” Dr Mester said in response to a question from the ABC about the potential use of helicopter money.

 

However, Dr Mester signalled that in the event of another shock or economic downturn that most likely option would be more quantitative easing-style money printing.

 

“In the US we’ve done quantitative easing and I think that’s proven to be useful,” she observed.

 

So it’s my view that would be sort of the next step if we ever found ourselves in a situation where we wanted to be more accommodative.

 

Dr Mester’s cautious response to the helicopter money option follows recent comments from the Federal Reserve chair Janet Yellen that the measure could be used in “extreme situations”.

And now you know.

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