12:00 AM, Apr 19, 2014 • By IRWIN M. STELZER
A few weeks ago I suggested that we now know when Federal Reserve Board chair Janet Yellen will raise interest rates: never. Her first formal monetary policy speech can be read to support that view, or at least that “normal” interest rates are what the Economist describes as “a distant prospect.” It will take more than the recent spate of good news to stay Yellen from her course.
The Beige Book, a survey of the 12 Federal Reserve districts, was released on the same day as Yellen addressed the New York Economic Club. “Economic activity increased in most [ten] regions of the country ….Consumer spending increased in most Districts … the transportation sector generally strengthened… manufacturing improved… home prices rose modestly and inventory [the stock of unsold houses] remained low….loan demand strengthened … labor market conditions were mixed but generally positive.” Not too shabby as the ‘tweens like to say, in other connections, of course.
Retail sales in March recorded their best gain in a year and a half (+1.1 percent over the previous month), and estimates for January and February were revised upward. That prompted Goldman Sachs’ economists to raise their guess as to what the overall growth figures for the first quarter will show, and Bank of Tokyo-Mitsubishi chief financial economist Chris Rupkey to tell the press, “The linchpin of economic growth, the consumer, is back.” Some analysts doubt whether the pace of the last two months can be maintained, in which case the economy will continue to plod along at a 2 percent growth rate or less. But many mall operators report increased foot traffic, and Mike Jackson, CEO of AutoNation, America’s largest car retailer, says he expects vehicle sales this year to hit 16 million units, topping the 15.6 million cars and light trucks sold last year, which was “a boffo year” according to the industry press.
Other signs are just about as good. Industrial production in March rose smartly, and the manufacturing sector more than regained the sharp, weather-related losses it experienced in January. The much-watched Thompson/Reuters/University of Michigan index of consumer sentiment is at its highest level since July of last year. Those who worry about the government’s deficit found relief from the non-partisan Congressional Budget Office (CBO), which lowered its prediction of the red ink the government will spill both this year and later in the decade.
Finally, more and more companies now say they will stop buying back shares, increasing dividends, and squirrelling away every last penny, and instead increase spending on plant and equipment. Such spending, which rose by a mere 1 percent in 2013, looks set to rise by 6 percent this year, according to data provided by FactSet. The rule of thumb has been that when the economy is producing at 80 percent of capacity, businesses have to expand to meet demand. It is now operating at 78.8 percent of capacity.
If the capital spending materializes, the Fed can take a bow. Low interest rates make it cheaper for companies to borrow to fund that spending, which is what they are doing. The six largest banks report that commercial loans outstanding increased 8.3 percent in the first quarter compared with the same period last year. The increase was helped by the better financial condition of potential borrowers, making lending to them less risky, and regulatory crack-downs that have made many less traditional areas of the banking business less attractive than plain vanilla lending.
Throw in an increase by the World Trade Organization (WTO) in its forecast of the volume of world trade, and an upward revision of International Monetary Fund forecasts of global and U.S. growth, and the only problematic bit of data relates to the housing market. The seasonal selling season is off to a slow start, but whether that is because higher house prices and interest rates are stifling demand or because inventories of unsold homes are very low cannot yet be determined. If it’s high prices and rates, sales might disappoint; if it’s low inventories, expect construction activity to pick up.
12:00 AM, Apr 5, 2014 • By IRWIN M. STELZER
We now know the approximate date when Federal Reserve Board chair Janet Yellen will feel comfortable ending the Fed’s near-zero interest rate policy: never. Those who were led to believe by her first press conference that she has shed her dove’s feathers for those of an inflation hawk, circling over the markets, poised to raise interest rates, got it wrong. She has her heart set on keeping rates low enough to eliminate “slack,” borrowing a term often used by Mark Carney, governor of the Bank of England. And “slack” is a many-dimensioned concept when applied to labor markets.
12:00 AM, Feb 15, 2014 • By IRWIN M. STELZER
Janet Yellen made her first appearance before Congress since assuming the chair of the Federal Reserve Board and produced the yawns she was seeking, even thanking several of her interlocutors for calling her “unexciting.” Knowing that some Fed critics are seeking to rein in the bank’s independence (several of these critics would like to eliminate the Fed entirely), Yellen offered to stay for as long as necessary—six hours, as it turned out—in the hope that demonstrating such heightened transparency will head off legislation to politicize the central bank. The examples of Japan and Britain, where the central bankers have become aligned with Prime Minister Shinzō Abe and Chancellor of the Exchequer George Osborne, respectively, apparently do not appeal to her.
12:00 AM, Feb 8, 2014 • By IRWIN M. STELZER
When economic forecasts prove wrong, it is customary to blame the weather. So cold that consumers stayed home, or so hot that consumers, well, stayed home. So cold that outdoor construction was unexpectedly low, unless of course unusually high temperatures made such work impossible lest heat stroke afflict the workers. In short, weather is the straw at which sinking forecasters often grasp.
A modest proposal for the new Fed chairman. Jan 27, 2014, Vol. 19, No. 19 • By ANDREW FERGUSON
It's been more than a week now and I’m beginning to suspect she’s not going to call, so here I will offer Janet Yellen the advice I’ve been hoping to give her privately since the Senate confirmed her as the new chairman of the Federal Reserve. My advice is: Think about John Cowperthwaite. By this I mean: Really think about
9:30 AM, Nov 30, 2013 • By IRWIN M. STELZER
Our economy is increasingly policy-driven, at least in the near- and medium-terms. What Congress and the president do or don’t do, what incoming Federal Reserve Board chairman Janet Yellen does or doesn’t do, will be important determinants of our growth, inflation, and job creation rates. So here is an attempt to see through the mist of obfuscation that is a feature of political and policy-making discourse, and spy the contours of future policy.
7:04 AM, Nov 19, 2013 • By JEFFREY BELL
The nomination of Janet Yellen to chair the Federal Reserve has come down to this: a referendum on quantitative easing and zero interest rates. The money-printing program that Ben Bernanke started five years ago this month remains Yellen’s answer for how the economy will get back on solid ground. Yet in her appearance at Thursday’s Senate Banking hearing, a bipartisan group of senators expressed dismay that Fed money printing has widened the wealth gap while fueling potential asset bubbles.
12:00 AM, Oct 26, 2013 • By IRWIN M. STELZER
“The thrill is gone,” famously warbled B.B. King among others. And so it is for watchers of the U.S. economic scene. The eighteenth partial government shutdown is over, World War II veterans can legally visit the monument to their bravery, hikers can trek through national parks, and the National Institute of Health can resume its cancer research—all impossible to do when the Obama administration prevented amelioration of the hurt inflicted by the shutdown in order to maximize voter anger at the Republican party.
12:00 AM, Oct 12, 2013 • By IRWIN M. STELZER
Janet Yellen, dubbed “Ms. QE Infinity” by some wags because of her support for printing money to create jobs, and her willingness to pierce the Fed’s long-held 2 percent annual inflation ceiling, will have more to worry about than monetary policy when she steps into Ben Bernanke’s ample shoes on February 1. There is the small matter of regulating the nation’s banks, a chore made difficult for her by two unrelated facts.
12:00 AM, Sep 28, 2013 • By IRWIN M. STELZER
If not Janet Yellen, who? Larry Summers wanted the job, but couldn’t win the support of leftish Democrats and feminists. Former Treasury Secretary Tim Geithner, who can have Ben Bernanke’s job as chairman of the Federal Reserve board for the asking, is said to have told the White House that he doesn’t want the post.
It’s policy that counts, not personalities. Aug 12, 2013, Vol. 18, No. 45 • By JUDY SHELTON
At first, it was fun—this parlor game of guessing who the Obama administration will appoint as the next chairman of the Federal Reserve. We all assumed it would be Janet Yellen, because she’s a woman. And then suddenly we had Larry Summers all over the leading financial newspapers receiving multiple endorsements from respected economists. There were sly references to his intellectual prowess and invaluable experience, not to mention (but they always did) his connections with Obama’s closest advisers on economic and financial matters.
No, no, and no.12:31 PM, Jul 31, 2013 • By ETHAN EPSTEIN
Have you heard the news? Janet Yellen is positively clairvoyant!
Yellen, vice chairman of the Federal Reserve and, evidently, a front-runner to replace Ben Bernanke as chairman in several months, “was one of the first members of the Federal Open Market Committee . . . to realize that the [housing market’s troubles] could cause a major recession.” (Alan Blinder, Wall Street Journal, July 29.)
‹‹ More Recent