Blog

If it keeps hitting imaginary crossroads, the Fed will end crashing the economy

In “Fed hits crossroads on unemployment”, we read: Most Federal Reserve officials agree the economy is at or getting very close to what economists consider full employment, the rate below which inflation starts to rise. What they can’t agree on is what should happen next. As the unemployment rate hovers below 5% and job gains moderate, one of the key debates at this week’s Fed policy meeting will be how much farther the Fed can let it decline without risking runaway inflation. In the 1960s and early ’70s, the Fed let the jobless rate fall below estimates of full employment.… Read More

Share

It’s a daunting thought the hours that are spent a year ploughing through economic data, trying to suss out just what’s going on. How many hours?  Hundreds of thousands of hours? Millions? Thus we get an article from a few days ago on Bloomberg.com: The Fed Should Be Clear and Raise Rates In this article we’re told by David Shipley that the economy is sending mixed signals, but that the Fed should go ahead and raise rates because of… “financial distortion,” that is it. Now reader, as you are a valued NGDP Advisers reader, and possibly even a sincerely loved… Read More

Share

The UK, under the name “Team GB”, has recently done well at the Olympic Games where it came second in the medals table to the US, even ahead of China and well ahead of the disgraced superpower Russia. A great result. It was achieved thanks to a really focused, success-driven financial support from the British Olympic Association. Likewise, Team GB central bank is doing a brilliant job in a world of insane central banks bent on either causing the next Great Depression or, at best, lengthening the Great Stagnation. The US central bank has become a little less hawkish over… Read More

Share

If the recent Rio Olympics had “misleading sniveling” as a competition, central banks would have won through their champion entrant, the Bank of International Settlements. Try reading this, from Claudio Borio, Head of the Monetary and Economic Department at Bank of International Settlements, a redoubt of central-bank perspective and, well, propaganda. “It is becoming increasingly evident that central banks have been overburdened for far too long,” said Borio, in the press conference of the BIS Q2 review. “Developments…have highlighted once more just how dependent on central banks markets have become.” You might think central bank staffers are heaving bales of… Read More

Share

The key (code?) words are highlighted. Although inflation has never been a problem over the seven years of the so called recovery, until 2014 the FOMC thought inflation was and would likely remain too low. Since 2015, however, it has expected inflation will gradually move up with “transitory” factors “dissipating” and the labor market “strengthening”. They can keep on “expecting”! FOMC Meetings and Excerpts from Statements June 2009 The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some… Read More

Share

“The Old Fed is dead” says Robert J. Samuelson in an OpEd in the Washington Post. If only. The old Fed is very much alive, just running around like a headless chicken. It is still so mired in its old Inflation Targeting thinking that it cannot understand why or how the US economy is growing so slowly. And the Fed is dragging down global growth at the same time, so influential is the USD in the world economy. Inflation Targeting seemed like a good idea at the time of high inflation, but when it worked it really worked through lowering… Read More

Share

New RBA Governor Philip Lowe may want to interrupt a quarter century of no recession: Lowe, who joined the RBA in 1980, has been studying such imbalances for decades. As far back as the early 1990s, he was developing the notion that central banks needed to keep a close watch on asset bubbles and use policy to prick them. And this clinches it: His ideas attracted the attention of BIS — known as the central bankers’ bank — and Lowe was invited to do a two-year stint there. In 2002, he and BIS economist Claudio Borio published a paper arguing… Read More

Share

That, as the chart shows, is the path of the unemployment rate and core PCE inflation. But, according to Dallas Fed president Robert Kaplan: I would like to find a way for us to remove some amount of accommodation, but you can’t force it,” said Robert Kaplan, president of the Federal Reserve Bank of Dallas, in an interview. “You have to remind yourself it makes sense to be patient, because I don’t think the economy is overheating.” The Fed might sound like it is waffling, but Mr. Kaplan said it is simply reacting to a mixed economic backdrop. “For the public hearing… Read More

Share

The WSJ has a typical take: When oil prices first plunged in 2014, there was hope that cheap gasoline would be a giant stimulus for the U.S. economy. Federal Reserve Chairwoman Janet Yellen cited a statistic that the average household would save $700 in fuel costs. Two years on, it’s not at all clear that oil prices provided a major net boost to economic growth. As oil prices declined, many U.S.-based oil producers were forced to sharply curtail their drilling activity. Waves of layoffs followed in the oil and gas industry. The drop presented both good and bad news for the overall U.S. economy. A new paper, being presented Friday at a Brookings… Read More

Share

There are, in general, two strategies undertaken by professional macro forecasters. The first strategy is to try and get the true expected path correct or at least act like that’s what you’re trying to do. This is what the big outfits do and what the major banks’ economics groups do. Notice I say “try” because most economic forecasters have been dead wrong about long term interest rates for the better part of this decade, while we Market Monetarists have been right. It was no mistake that I also used the word “act” in the last paragraph. Sadly, macro forecasting has… Read More

Share