Ben Bernanke listened to his critics, but the recovery is still stuck. What went wrong?
To print or not to print? That is the question dividing the Federal Reserve.
Back in September the Fed launched its latest, and most ambitious, bond-buying program to date, dubbed QE3. Unlike before, the Fed hasn't committed to buying a specific dollar amount of bonds with QE3; instead, it's committed to buying $85 billion of bonds a month until the labor market improves "substantially". But what's "substantial" and what's not? And what if the Fed loses its nerve before the economy arrives at this mysterious moment of "substantial" improvement?
This latter question has gripped markets after the Fed's January meeting when "a number" of members said it should "taper" its bond purchases even before, you guessed it, there's any substantial improvement in unemployment. In other words, an increasing, and increasingly vocal, minority at the Fed are nervous about keeping open-ended bond-buying quite so open-ended. Now, a vocal minority is still a minority -- and besides, Bernanke tends to get his way -- but this hawkish talk has been enough to spook markets that thought QE3 wouldn't end much before 2014.
But there's a better question than how long QE3 will last. That's how much QE3 will work. Let's back up for a minute. Whether you want to call it "quantitative easing" (QE) or "bond-buying" or "large-scale asset purchases" (LSAP), the idea here is fairly simple: the Fed is printing money and buying pieces of paper. It's doing this because it can't boost the economy like it normally does by cutting short-term interest rates; those rates are stuck at zero, and can't go lower. Okay, that's not entirely true. The Fed can't cut nominal rates now, but it can cut real ones -- in other words, it can push up inflation, thereby reducing inflation-adjusted borrowing costs. That's what the Fed has done by printing money and buying long-term bonds from banks. Even if this freshly-printed money ends up as bank reserves (which it mostly has), the Fed is signaling that it wants more inflation.
Take a look at the chart below of what markets (roughly) think will happen with inflation over the next 5 years, annotated with the Fed's unconventional policies. Markets expect more inflation every time the Fed eases, and less every time it stops ... until QE3. Then, almost nothing. That's crazy. QE3 is open-ended, whereas previous rounds were not. This difference should have convinced markets that this time the Fed was really serious about jump-starting the recovery. Has QE hit a wall of diminishing returns? (Note: The black line shows the Fed's 2 percent inflation target).
Look again, but this time, focus on the black line. QE has hit a wall, but it's a wall of incredibly well-anchored inflation expectations, not diminishing returns. In other words, the Fed has quite easily been able to push inflation expectations back up to its 2 percent target, but no more. QE1 and QE2 had big effects, because they came when expected inflation was well below 2 percent and falling; QE3 has not, because expected inflation was already around 2 percent.
But wait. The Fed unveiled the Evans rule back in December, telling us it wouldn't raise rates before unemployment falls to 6.5 percent or inflation rises to 2.5 percent. In other words, isn't the Fed's 2 percent inflation target really a 2.5 percent inflation target now? Not exactly. The Fed is telling us it will tolerate 2.5 percent inflation, not that it will create it -- indeed, the Fed doesn't think inflation will stray at all above 2 percent over the next few years.
The best way to figure out what the Fed wants is to listen. After all, it tells us what it thinks will happen with GDP, unemployment, and inflation over 1, 2, and 3-year periods. Now, it's GDP and unemployment predictions have been, in the spirit of generosity, a tad optimistic, but not so for inflation (which, not-so-coincidentally, is the only above variable the Fed controls directly). The chart below looks at the Fed's core PCE inflation projections since late 2008; upper-range estimates for 1, 2, and 3-year periods are in red, and lower ranges ones are in blue. This is what a 2 percent inflation ceiling looks like.
There's a lot going on here, but there's a depressingly simple message in this chart: QE3 isn't working, because the Fed doesn't want it to work. The Fed revised its inflation projections up after QE1 and QE2, and markets followed; the Fed has kept its inflation projections steady after QE3, and, again, markets have followed. Now, this doesn't mean QE3 is entirely useless -- it's at least stopping inflation expectations from falling -- just that it could be doing much more if the Fed let it. That would be simple enough. The Fed could make its forecasts symmetrical around 2 percent, rather than peaking at 2 percent. Or it could say it expected (or is that wanted?) inflation well above 2 percent over the next two years, but not after that; in other words, make its target more explicitly flexible.
That leaves us with one last question. The Fed has shown time and again it can push inflation expectations (which largely determine inflation) up to 2 percent, even when short-term rates are parked at zero. But is that as much inflation as the Fed can create? It's hard to see why that would be the case, other than the Fed's self-imposed 2 percent ceiling. But the great thing about self-imposed problems is you can stop imposing them. The Fed doesn't need a new mandate (like NGDP targeting) to speed up the recovery; it just needs to tell us it wants -- gasp! -- 3 percent inflation for a year or two.
Until then, the recovery will suffer the outrageous slings and arrows of our 2 percent ceiling.
A history of the first African American White House—and of what came next
In the waning days of President Barack Obama’s administration, he and his wife, Michelle, hosted a farewell party, the full import of which no one could then grasp. It was late October, Friday the 21st, and the president had spent many of the previous weeks, as he would spend the two subsequent weeks, campaigning for the Democratic presidential nominee, Hillary Clinton. Things were looking up. Polls in the crucial states of Virginia and Pennsylvania showed Clinton with solid advantages. The formidable GOP strongholds of Georgia and Texas were said to be under threat. The moment seemed to buoy Obama. He had been light on his feet in these last few weeks, cracking jokes at the expense of Republican opponents and laughing off hecklers. At a rally in Orlando on October 28, he greeted a student who would be introducing him by dancing toward her and then noting that the song playing over the loudspeakers—the Gap Band’s “Outstanding”—was older than she was.
This lack of discussion of civil-rights issues at the hearing was glaring, but it may be in line with DeVos’s advocacy of school vouchers and other school-choice programs in her home state of Michigan. As Kimberly Quick, a policy associate at the Century Foundation, notes, “Both historically and currently, voucher programs have served as a means for wealthier and white families to flee an increasingly diverse public school system, moving into largely unaccountable private schools that can exclude students based on a number of factors.”
William Jennings Bryan, the populist presidential hopeful, warned of an “epidemic of fake news” in his day.
Fake news is everywhere. The power of the press is said to be waning. And because the nation’s most famous populist—the man with his sights on the presidency—can’t trust the lying media, he says, he has no option but to be a publisher himself.
Oh yeah, and the year is 1896.
The would-be president in question is William Jennings Bryan. In an era before the internet, television, or radio, the best way to reach the masses is with newsprint. So, without the option of tweeting his grievances after losing the election to William McKinley, what does Bryan do? He starts his own newspaper. And he uses it to rail against “fake news.”
I don’t need to tell you a lot of this sounds weirdly familiar.
“There seems to be an epidemic of fake news from the city of Lincoln, [Nebraska], and it all comes from Mr. Bryan’s ‘friends’—names not given,” Bryan’s newspaper, The Commoner,wrote in 1907. “It would seem unnecessary to deny reports sent out to which no name was attached, and yet it has been necessary to send a number of telegrams to notify other papers that the report was unauthorized … As Mr. Bryan has a paper—The Commoner—through which he speaks every week, and as he is speaking often and giving out interviews frequently, a newspaper ought to view with suspicion any report sent out from Lincoln or anywhere else purporting to state what Mr. Bryan thinks or intends to do.” (In this case, the issue at hand was Bryan’s stance against a third term for Teddy Roosevelt, which some papers had apparently questioned.)
A mix of patriotic balladeers and apolitical acts will take the stage on Thursday and Friday.
It is not true, as a lot of commentary would have it, that Donald Trump’s inauguration will feature “no stars.” Some of the entertainers who have signed on to play have, in fact, built their success on entertaining millions of people. But it is true that what’s considered “the A-list” will be conspicuously absent, as will be acts from other lists: The B-Street Band, a Bruce Springsteen tribute group, backed out from an unofficial inaugural party after outcry; Broadway singer Jennifer Holliday reneged from the main concert event.
The mix of entertainers lined up for Thursday’s “Make America Great Again! Welcome Celebration” on the National Mall and Friday’s swearing-in ceremony represents a hodgepodge of ideology and expediency. In a savvy MTV essay about Trump’s national-anthem singer Jackie Evancho, Doreen St. Félix argued that booking the 16-year-old America’s Got Talent runner up was “a matter of scavenging, and then gilding over the spoils”—a description that could apply across the lineup given the many headlines about Trump’s team getting turned down by celebrities then saying that not having famous people is a good thing. But in its relative lack of glitz, and in its coalition of performers well familiar to state-fair stages, this week’s bill may inadvertently achieve the stated inaugural goal of projecting an image not of Trump but of the people who elected him.
More clues that the Facebook founder is eyeing a run for office
There’s a long-running theory that Mark Zuckerberg has presidential aspirations. It makes sense to wonder. After all, if the civically engaged and ambitious billionaire leader of the most powerful media company on the planet wanted to take on a new challenge, why not try running a country? It’s not like he has many other opportunities for a promotion.
But only in recent weeks has a Zuckerberg run for the American presidency started to seem like a legitimate possibility. First there was his personal challenge for 2017: Zuckerberg’s aiming to visit and meet with people in all 50 states by the end of the year.
And not just that, but he framed the exercise in a way that sounds, well, political: “Going into this challenge, it seems we are at a turning point in history,” he wrote in a Facebook post. “For decades, technology and globalization have made us more productive and connected. This has created many benefits, but for a lot of people it has also made life more challenging. This has contributed to a greater sense of division than I have felt in my lifetime. We need to find a way to change the game so it works for everyone.”
Curfews, sports, and understanding kids’ brain chemistry have all helped dramatically curb substance abuse in the country.
It’s a little before 3 p.m. on a sunny Friday afternoon and Laugardalur Park, near central Reykjavik, looks practically deserted. There’s an occasional adult with a stroller, but the park’s surrounded by apartment blocks and houses, and school’s out—so where are all the kids?
Walking with me are Gudberg Jónsson, a local psychologist, and Harvey Milkman, an American psychology professor who teaches for part of the year at Reykjavik University. Twenty years ago, says Gudberg, Icelandic teens were among the heaviest-drinking youths in Europe. “You couldn’t walk the streets in downtown Reykjavik on a Friday night because it felt unsafe,” adds Milkman. “There were hordes of teenagers getting in-your-face drunk.”
Unlike past presidents-elect, Donald Trump hasn’t expanded his support since the election. His belligerent attitude toward his critics may be one reason why.
Donald Trump always seems most grounded in chaos. He thrives on contradicting his aides, surprising his allies, disparaging his opponents. He revels in the tempest.
This combustible approach has touched a chord with his base of primarily non-college-educated and non-urban white voters who have felt eclipsed both economically and culturally and slighted by the nation’s leadership. But he will arrive at his inaugural Friday facing more resistance in public opinion than any newly elected president in the history of polling, and with lingering clouds over his legitimacy—symbolized by the surprisingly widespread House Democratic boycott of the ceremony. Trump’s agenda is polarizing enough, but the intensity of that opposition appears rooted even more in his relentless belligerence toward any critical voice or institution.
The president-elect filled out his Cabinet on Thursday by nominating former Georgia Governor Sonny Perdue for agriculture secretary.
Updated on January 19, 2017
A day before his inauguration, President-elect Donald Trump has filled out his Cabinet.
Trump on Thursday morning announced the nomination of former Georgia Governor Sonny Perdue as secretary of agriculture, completing a search that took the duration of his presidential transition.
Perdue, who served as governor from 2003 to 2011, grew up on a farm in Georgia and earned a doctorate in veterinary medicine. “Sonny Perdue is going to accomplish great things as Secretary of Agriculture,” Trump said in a statement. “From growing up on a farm to being governor of a big agriculture state, he has spent his whole life understanding and solving the challenges our farmers face, and he is going to deliver big results for all Americans who earn their living off the land.”
Without any of his key appointees confirmed by the Senate, the incoming president has turned to existing officials to help smooth the transition.
Donald Rumsfeld is not joining the Trump administration, but one of his most famous rules is: “You go to war with the Army you have—not the Army you might wish you have.” Or the secretary of the Army, as the case might be.
With the process of vetting and appointing, to say nothing of confirming, executive-branch officials well behind the optimal pace, incoming White House Press Secretary Sean Spicer said during a briefing on Thursday that “over 50” members of the Obama administration will temporarily remain in their posts to help smooth the transition to the Trump administration.
Spicer did not name all of the officials, nor did he indicate whether others had been asked and declined to stay on. A message to the Trump transition team, asking for a full list, has not been answered. Reuters reported Thursday afternoon that some individuals on a list, dated Tuesday, of appointees being asked to stay on had declined to do so, including the principal deputy director of national intelligence, an undersecretary of state, and an assistant secretary of state.
How the vice president spent a few of his closing days in office
When I boarded Air Force Two for Vice President Joe Biden’s final overseas mission, he had four days left in office. His leverage was diminishing by the hour, with every new question at a Trump nominee confirmation hearing, with every new @RealDonaldTrump tweet.
There was no chance of a miracle at that point, a few days away from Vice President-elect Mike Pence getting Biden’s keys to Air Force Two—to somehow rid Ukraine of its debilitating corruption, pull off a Cyprus deal, or stand between Kosovo and Serbia and neutralize the tension between them for good. It’s hard to shame Russian President Vladimir Putin or to inspire him to spiff up his behavior if the president-elect seems to accept Putin just as he is. And of course, there’s Iraq.