They go up, they go down. It doesn't sound confusing. But it is. Even for economists. Just ask James Bullard, the president of the St. Louis Federal Reserve.
Let's step back for a moment. What does the Federal Reserve do exactly? The story you usually hear is all about interest rates. The Fed raises rates when the economy is too hot, and lowers them when it's too cool. But there's a problem. The Fed can't cut short-term interest rates now. They've been stuck at zero since 2008. But longer-term interest rates aren't. So the Fed has tried to push those longer rates down to spur stronger growth.
The big question now is whether the Fed should do more. This shouldn't be a big question if the Fed believes its own economic projections -- which show inflation staying too low and unemployment too high for years to come. So why did the Fed basically sit pat at its latest meeting? For one, Ben Bernanke wants to see more data confirming a slowdown before doing more. For another, James Bullard -- and some other FOMC members -- don't think the Fed needs to do more.
Bullard thinks Europe is doing the Fed's job for it. Or something. Here's what Bullard had to say recently about why he doesn't think further easing is called for:
Treasury yields have gone to extraordinarily low levels. That took some
of the pressure off the FOMC since a lot of our policy actions would be
trying to get exactly that result.
In other words, the Fed doesn't need to push down long-term interest rates because long-term interest rates have already been pushed down by investors looking for a financial safe haven. This would be right if the point of Fed policy was lower interest rates. But the point of Fed policy isn't lower interest rates.
The point is more growth. Lower interest rates only matter insofar as they promote more growth. Lower interest rates do not matter unto themselves. Think about it this way. Interest rates might fall for good or bad reasons. The Fed buying bonds is a good reason. Investors buying bonds due to fears of eurogeddon is a bad reason. They are not equivalent.
Don't take my word for it. Ask the markets. The chart below from Bloomberg gives us a sense of how much inflation markets have expected in five years time.
So-called breakevens just take the borrowing costs on normal Treasury bonds and subtract the borrowing costs from inflation-protected Treasury bonds. That difference should be a decent proxy of expected inflation. That's not always the case because inflation-protected Treasury bonds are traded so little that they're prone to fairly violent swings.
But why do we care about inflation? Well, when the Fed pushes up growth, it also pushes up inflation. Breakevens have jumped dramatically whenever the Fed has eased -- whether that was QE2 in late 2010, Operation Twist in late 2011, or extended guidance in early 2012. But breakevens are falling dramatically now. In other words, markets expect less growth and less inflation right now. That's a weeee bit different than what happens when the Fed eases.
And that brings us to the paradox of interest rates. (Feel free to skip to the next paragraph for the big reveal, if your'e so inclined.) Take a look at the breakeven chart again. Whenever the Fed eases, it says that it's trying to reduce long-term borrowing costs. For breakevens to rise while Treasury yields fall, inflation-protected Treasuries would have to fall even more. Now, that's happened a bit. But not enough to explain the rise in breakevens.
In other words, Treasury yields rise when the Fed eases. Huh? Isn't the whole point to lower interest rates? Technically, yes. But if the Fed succeeds in reducing borrowing costs, that increases inflation. And when inflation increases, investors demand higher yields on Treasuries. So if the Fed succeeds, we'd expect interest rates to rise. If the Fed fails, we'd expect interest rates to fall. It's an upside down world.
There's no big mystery why our economic recovery hasn't felt like much of one. The Fed has run far too tight a policy for far too long. The worst part is that too many Fed officials don't seem to understand that. They think policy has been loose. That's a shame.
Maybe it's time for them to start doing the opposite.
The Islamic State is no mere collection of psychopaths. It is a religious group with carefully considered beliefs, among them that it is a key agent of the coming apocalypse. Here’s what that means for its strategy—and for how to stop it.
What is the Islamic State?
Where did it come from, and what are its intentions? The simplicity of these questions can be deceiving, and few Western leaders seem to know the answers. In December, The New York Times published confidential comments by Major General Michael K. Nagata, the Special Operations commander for the United States in the Middle East, admitting that he had hardly begun figuring out the Islamic State’s appeal. “We have not defeated the idea,” he said. “We do not even understand the idea.” In the past year, President Obama has referred to the Islamic State, variously, as “not Islamic” and as al-Qaeda’s “jayvee team,” statements that reflected confusion about the group, and may have contributed to significant strategic errors.
For centuries, experts have predicted that machines would make workers obsolete. That moment may finally be arriving. Could that be a good thing?
1. Youngstown, U.S.A.
The end of work is still just a futuristic concept for most of the United States, but it is something like a moment in history for Youngstown, Ohio, one its residents can cite with precision: September 19, 1977.
For much of the 20th century, Youngstown’s steel mills delivered such great prosperity that the city was a model of the American dream, boasting a median income and a homeownership rate that were among the nation’s highest. But as manufacturing shifted abroad after World War II, Youngstown steel suffered, and on that gray September afternoon in 1977, Youngstown Sheet and Tube announced the shuttering of its Campbell Works mill. Within five years, the city lost 50,000 jobs and $1.3 billion in manufacturing wages. The effect was so severe that a term was coined to describe the fallout: regional depression.
I spent a year in Tromsø, Norway, where the “Polar Night” lasts all winter—and where rates of seasonal depression are remarkably low. Here’s what I learned about happiness and the wintertime blues.
Located over 200 miles north of the Arctic Circle, Tromsø, Norway, is home to extreme light variation between seasons. During the Polar Night, which lasts from November to January, the sun doesn’t rise at all. Then the days get progressively longer until the Midnight Sun period, from May to July, when it never sets. After the midnight sun, the days get shorter and shorter again until the Polar Night, and the yearly cycle repeats.
So, perhaps understandably, many people had a hard time relating when I told them I was moving there.
“I could never live there,” was the most common response I heard. “That winter would make me so depressed,” many added, or “I just get so tired when it’s dark out.”
But the Polar Night was what drew me to Tromsø in the first place.
Former Senator Jim Webb is the fifth Democrat to enter the race—and by far the most conservative one.
In a different era’s Democratic Party, Jim Webb might be a serious contender for the presidential nomination. He’s a war hero and former Navy secretary, but he has been an outspoken opponent of recent military interventions. He’s a former senator from Virginia, a purple state. He has a strong populist streak, could appeal to working-class white voters, and might even have crossover appeal from his days as a member of the Reagan administration.
In today’s leftward drifting Democratic Party, however, it’s hard to see Webb—who declared his candidacy Thursday—getting very far. As surprising as Bernie Sanders’s rise in the polls has been, he looks more like the Democratic base than Webb does. The Virginian is progressive on a few major issues, including the military and campaign spending, but he’s far to the center or even right on others: He's against affirmative action, supports gun rights, and is a defender of coal. During the George W. Bush administration, Democrats loved to have him as a foil to the White House. It’s hard to imagine the national electorate will cotton to him in the same way. Webb’s statement essentially saying he had no problem with the Confederate battle flag flying in places like the grounds of the South Carolina capitol may have been the final straw. (At 69, he’s also older than Hillary Clinton, whose age has been a topic of debate, though still younger than Bernie Sanders or Joe Biden.)
It wasn’t that bad. But it did help me understand why it made people so angry.
From the Gray Lady, a Modest Dip Proposal. On Microblogging Platform, a Furor. For Peas, a New Use. There are times when The Times out-Timeses itself, and then there was Wednesday. The country's largest newspaper smugly tweeted a link to a recipe for guacamole. One made with peas. "Trust us," it read.
On Wednesday, the United States and Cuba announced that they would reopen embassies in each other’s capitals, thus restoring diplomatic relations for the first time since 1961. The agreement doesn’t mean that Washington-Havana ties will go back to where they were before Fidel Castro’s revolution: Congress still maintains an economic embargo on the island, a policy that’s unlikely to change anytime soon. But the re-establishment of embassies, scheduled to occur on July 20, is nonetheless a major breakthrough in the long-acrimonious relationship between the two countries.
According to The New York Times, the overture to Cuba leaves just three countries with which the United States has no diplomatic relations. Two of these are easy enough to guess: Iran and North Korea. Washington severed ties with Tehran in 1980, months after Iranian students seized the U.S. embassy there and took 52 Americans hostage. U.S. ties with North Korea, meanwhile, have been fraught throughout the latter country’s existence, and have only grown worse since Kim Jong Un assumed control of the country in 2011.
The social network learns more about its users than they might realize.
Facebook, you may have noticed, turned into a rainbow-drenched spectacle following the Supreme Court’s decision Friday that same-sex marriage is a Constitutional right.
By overlaying their profile photos with a rainbow filter, Facebook users began celebrating in a way we haven't seen since March 2013, when 3 million peoplechanged their profile images to a red equals sign—the logo of the Human Rights Campaign—as a way to support marriage equality. This time, Facebook provided a simple way to turn profile photos rainbow-colored. More than 1 million people changed their profile in the first few hours, according to the Facebook spokesperson William Nevius, and the number continues to grow.
“This is probably a Facebook experiment!” joked the MIT network scientist Cesar Hidalgo on Facebook yesterday. “This is one Facebook study I want to be included in!” wrote Stacy Blasiola, a communications Ph.D. candidate at the University of Illinois, when she changed her profile.
The Republican hopeful’s comments about Hispanics have been disastrous for his brand and reputation, which he values at an outlandish $3.3 billion.
Donald Trump’s run for the presidency is premised on one fact above all: He’s a fabulously successful businessman. And yet, paradoxically, running for president may be the most disastrous business decision he’s made—or, at the very least, his worst in a while.
The trouble started with Trump’s rambling announcement speech on June 16. “When Mexico sends its people, they’re not sending the best,” Trump said of immigrants to the United States. “They’re sending people that have lots of problems and they’re bringing those problems. They’re bringing drugs, they’re bringing crime. They’re rapists and some, I assume, are good people, but I speak to border guards and they’re telling us what we’re getting.”
The last time the labor-participation rate was as low as June 2015 was almost 40 years ago. Who was working and where back then?
As long as you don’t look too far into it, Thursday’s June jobs report looks like good news: The economy added 223,000 jobs, close to expectations, and the unemployment rate fell again, to 5.3 percent. So far, so good—still a slower recovery than anyone might like, but a recovery nonetheless.
The more concerning signs are hidden beneath the surface. Some people have been sounding the alarm about labor-participation rates for years now—Republicans tried, mostly unsuccessfully, to make them an issue in the 2012 election. But as several analysts have pointed out, the June rate of 62.6 percent is the lowest since October of 1977. The decline is part of a long-term trend, as this graph shows:
Can a movie about male strippers be a loud affirmation of feminism? Three Atlantic writers discuss.
Spencer Kornhaber: Magic Mike XXL offers a hint about its politics—yes, it has politics—during the first and perhaps only real moment of conflict in the entire film. It happens when Channing Tatum’s Mike suggests to his roadstripping buddies that they retire their sexy-fireman routine and come up with something new. After some resistance, and under the influence of drugs, Joe Manganiello’s Big Dick Richie relents, and starts babbling out a grand plan for a bold, fresh set piece.
His idea: a striptease … as a wedding ceremony.
Before proceeding, a word about looking for deeper meaning here. Yes, XXL is a skintastic sequel with a plot as slight as Donald Glover in a Hugh Hefner robe, designed to cool down 4th of July audiences just like ice-cream toppings do to Adam Rodriguez’s abs at the film’s climax. But it’s also groundbreaking. Between the Mike franchise and 50 Shadesof Grey, we’re watching the formation of a would-be-blockbuster genre, one that celebrates and profits from the sexual appetites of people other than straight men. XXL’s big male-entertainer convention may well turn into a source of storytelling conventions once Hollywood’s imitation machine revs all the way up.