12:01 AM, Oct 31, 2015 • By IRWIN M. STELZER
Coming soon to a central bank near you, in time for the Christmas shopping season, an increase in interest rates, courtesy of Janet Yellen and her colleagues on the Federal Reserve Board’s monetary policy committee. Or perhaps not. Folks living in euroland can expect the gift that keeps on giving, unless it doesn’t, more monetary stimulus. China works on a different calendar, so its people have already unwrapped their gifts, a cut in interest rates and assorted credit-easing measures. In Britain, the old naval slogan, “steady as she goes”, is likely to prove the best description of what the governor of the Bank of England has in mind. Which should all add up in the coming weeks to a strengthening dollar and less bounce in the step of exporters, inflation at only bit more than 1 percent, well below the Fed’s 2 percent target, and slowing growth. Inconveniently, just when Yellen & Co. have the last chance this year to consummate their flirtation with an interest rate increase, which they have hinted they still find attractive.
The Fed will have to balance economic and political considerations. It is under attack from politicians of both the right and the left. Republicans want to “audit” the Fed, and require it to set clear guidelines to follow when deciding on whether to raise rates, which most conservatives want it to do lest the currency become completely debased, if not immediately, then soon. Their real preference is to get rid of the Fed, return to the gold standard, and let the market set interest rates, but that is an agenda that can speak its name only in whispers and footnotes. Democrats want the Fed to keep the presses running lest the weak recovery be converted into another recession, and secular stagnation, the liberal hobgoblin since the days of the Keynesian revolution, becomes a permanent feature of our lives. The talk of an audit of Fed policymaking is prompting the Fed to lobby furiously to prevent what it sees as the politicization of monetary policy, an activity that Republican wannabee Rand Paul would have made illegal.
A dollop of sympathy for the Fed might be in order. As Philip Tetlock and Dan Gardner point out in their new, interesting book, “Superforecasting: The Art and Science of Prediction”, the average forecaster they studied over twenty years “did about as well as random guessing”, with the longer the look ahead, the less likely the forecaster to beat the accuracy of a dart-throwing chimpanzee.
Decades ago, as a night-school graduate student, I managed to get hired by an economic forecasting consultancy. The senior economists reserved to themselves the long-run forecasts, confident that they or their forecasts, or both, would be long forgotten when the actual data were compiled. I drew the short straw, and with modelling not yet in its infancy and the economy primarily a goods producer, manufacturing accounting for about half of all jobs compared with less than 20 percent today, decided to make four telephone calls each week: to General Motors to find out how many cars had rolled off the lines; to US Steel, to check on tons of output; to a leading carton manufacturer, to find the firm’s shipment of boxes to be filled with goods by manufacturers; and to the Atchison, Topeka and Santa Fe railroad for data on freight car loadings. The resulting forecasts were good enough to enable me to hang on to this much-needed job until I moved on to the next phase of my education.
Today, forecasters face a more difficult chore. Not only are they looking ahead through clouded windshields, but their rearview mirrors reveal an imperfect view of where the economy has been, as frequent non-trivial revisions to original reports demonstrate. And a service economy presents real measurement challenges, especially of productivity, the major source of rising living standards. We can measure with some confidence the number of man-hours it takes to turn out automobile grills, but are far less confident of our results when measuring the hours taken to invent and produce the software that accounts for about 25 percent of a new car’s cost.
Yellen's Augustinian monetary policy.12:01 AM, Sep 19, 2015 • By IRWIN M. STELZER
The U.S. economy is chugging along. Not at high speed, but at a steady 2.25 percent annual rate, with retailers stocking up in anticipation of a very merry holiday season. The unemployment rate is down to 5.1 percent, according to the Federal Reserve Board headed lower to its “long-run normal” rate, and employers in many sectors are scrambling to find workers with the skills they need.
Here's why.1:31 PM, Sep 18, 2015 • By IKE BRANNON
There are two explanations, one political, one economic, for the Fed's decision to leave interest rates alone. The first of course, is that Fed chair Janet Yellen is a political animal, and the forces on her side have been agitating loudly to leave rates alone.
12:00 AM, Sep 5, 2015 • By IRWIN M. STELZER
“A fact can be a beautiful thing,” sings one of the characters in the award-winning musical, “Promises, Promises.” True. Unfortunately, a gaggle of facts can be somewhere between confusing and a curse, especially if you are a central banker who has specialized in promises, promises that a process of normalization will begin after seven years of zero interest rates. Now, faced with its next meeting less than two weeks hence, the Federal Reserve Board’s monetary policy committee has to decide whether to replace promises with action.
12:01 AM, Aug 1, 2015 • By IRWIN M. STELZER
Hurry up and wait. Hurry to the announcement by the Federal Reserve Board’s monetary policy committee, and then wait for the next one. After 2,417 days of keeping its key interest rate at zero, on Wednesday of last week the Fed policy team decided that a few more weeks or months at that level might be a good idea. The Fed knows that zero is not a sustainable level for interest rates, but also wants to be certain it doesn’t abort the none-too-robust recovery.
12:01 AM, Mar 21, 2015 • By IRWIN M. STELZER
“Fed Puts Interest-Rate Hikes in Play,” led the Wall Street Journal’s page one, following Federal Reserve Board chair Janet Yellen’s latest press conference. “Don’t bet on June for Federal Reserve hike,” countered page one of the business section of USA Today. To which I would add a headline for this piece, “It doesn’t really matter which one is right,” were I consulted by our esteemed headline writers.
12:01 AM, Jan 31, 2015 • By IRWIN M. STELZER
On April 5, 1933, Franklin Roosevelt did it right here in the White House. On August 15, 1971 Richard Nixon came back from Camp David and did it. On September 22, 1985, Ronald Reagan went to the Plaza Hotel and did it.
American presidents are not the only ones who did it. Chinese communists do it often and are doing it now, as is Japan’s Prime Minister Shinzo Abe. And Mario Draghi, the head of the European Central Bank, finally decided to do it right there in Frankfurt even though his German overseers disapprove.
12:01 AM, Mar 12, 2011 • By IRWIN M. STELZER
There’s some light at the end of the tunnel. Just a thin ray, and at the end of a very long tunnel littered with government and private debt.
It just might be that the battles now going on in Congress about this year’s budget will prove to be a sideshow. After all, the difference between the Republicans’ insistence on $60 billion in spending cuts, and the Democrats’ offer of $10 billion is about 1% of the $3.8 trillion budget, a rounding error in the long-term budget outlook.
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