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.
Even prominent right-wing populists are beginning to worry that they invested their faith in an unstable leader.
This week, as Donald Trump publicly attacked Attorney General Jeff Sessions, an assault one restrained observer described as “a multitiered tower of political idiocy, a sublime monument to the moronic, a gaudy, gleaming, Ozymandian folly,” even David Horowitz, the anti-Leftist intellectual and author of Big Agenda: President Trump’s Plan to Save America, felt compelled to admit something to his Twitter followers: “I have to confess, I'm really distressed by Trump's shabby treatment of Sessions.”
Trump has always been vehemently opposed from the left and distrusted on the right by Never Trump conservatives, who continue to be dismayed by his behavior. But this week as never before, public doubts surfaced among Trump boosters and apologists, prompting Jay Cost to quip, “at the end it's just gonna be Sean Hannity huddled in a corner, quietly whispering to himself that Trump is a great American.”
“I hope that my story will help you understand the methods of Russian operatives in Washington and how they use U.S. enablers to achieve major foreign policy goals without disclosing those interests,” Browder writes.
The financier Bill Browder has emerged as an unlikely central player in the ongoing investigation of Russian interference in the 2016 elections. Sergei Magnitsky, an attorney Browder hired to investigate official corruption, died in Russian custody in 2009. Congress subsequently imposed sanctions on the officials it held responsible for his death, passing the Magnitsky Act in 2012. Russian President Vladimir Putin’s government retaliated, among other ways, by suspending American adoptions of Russian children.
Natalia Veselnitskaya, the Russian lawyer who secured a meeting with Donald Trump Jr., Jared Kushner, and Paul Manafort, was engaged in a campaign for the repeal of the Magnitsky Act, and raised the subject of adoptions in that meeting. That’s put the spotlight back on Browder’s long campaign for Kremlin accountability, and against corruption—a campaign whose success has irritated Putin and those around him.
Lisa Murkowski of Alaska is no vulnerable GOP squish—she wields significant power over the Interior Department and once won her seat as a write-in candidate.
Updated on July 27 at 1:22 p.m. ET
It’s arm-twisting time in the Senate as Republicans close in on a decisive health-care vote, and the arm President Trump has decided to wring hardest belongs to Senator Lisa Murkowski of Alaska.
Murkowski, a former member of the party leadership now beginning her third six-year term, angered the president by defying him on a key procedural vote to begin debate on Tuesday. Along with Senator Susan Collins of Maine, she was one of two Republicans voting against the motion, which succeeded only when Vice President Mike Pence broke a 50-50 tie. Trump ignored Collins but assailed Murkowski in a tweet on Wednesday morning, saying she “really let the Republicans, and our country, down yesterday.”
What Russian officials mean when they talk about “adoptions”
Let’s get something straight: The Magnitsky Act is not, nor has it ever been, about adoptions.
The Magnitsky Act, rather, is about money. It freezes certain Russian officials’ access to the stashes they were keeping in Western banks and real estate and bans their entry to the United States. The reason Russian (and now, American) officials keep talking about adoption in the same breath is because of how the Russian side retaliated to the Magnitsky Act in 2012, namely by banning American adoptions of Russian children. The Russians vowed they were punishing Americans who violated the human rights of Russians, after an adopted Russian toddler died of heat stroke in a Virginia family’s car. But the only Americans the bill directly targeted were the ones involved in putting the Magnitsky Act together.
More than two years ago, soon after Donald Trump entered the presidential race, I noted online that no one like him—with no political, military, judicial, or public-service experience, with no known expertise on policy matters, with a trail of financial and personal complications—had ever before become president. Therefore, I said, it wasn’t going to happen this time.
Quite obviously that was wrong. Penitent and determined to learn from my errors, I’ve avoided any predictions involving Trump and his circles ever since.
But a few days ago, I edged back into the danger zone, after my very first look of the just-named White House communications director, Anthony Scaramucci, on TV. Via the ever-perilous medium of Twitter, I observed that he seemed more at ease on camera than Sean Spicer ever had, and less committed to flat-Earth stonewalling denials than Kellyanne Conway or Sarah Huckabee Sanders. Maybe his smooth-schmoozy approach would be what the Trump team needed? Maybe the press should get ready to be handled by a pro?
A new study finds that believing society is fair can lead disadvantaged adolescents to act out and engage in risky behavior.
Brighton Park is a predominantly Latino community on the southwest side of Chicago. It’s a neighborhood threatened by poverty, gang violence, ICE raids, and isolation—in a city where income, race, and zip code can determine access to jobs, schools, healthy food, and essential services. It is against this backdrop that the Chicago teacher Xian Franzinger Barrett arrived at the neighborhood’s elementary school in 2014.
Recognizing the vast economic and racial inequalities his students faced, he chose what some might consider a radical approach for his writing and social-studies classes, weaving in concepts such as racism, classism, oppression, and prejudice. Barrett said it was vital to reject the oft-perpetuated narrative that society is fair and equal to address students’ questions and concerns about their current conditions. And Brighton Elementary’s seventh- and eighth-graders quickly put the lessons to work—confronting the school board over inequitable funding, fighting to install a playground, and creating a classroom library focused on black and Latino authors.
The amendment failed to pass on Thursday afternoon, after no lawmakers voted for it.
The Senate voted down a single-payer health care amendment introduced by Republican Senator Steve Daines on Thursday, in a political gambit aimed at putting Senate Democrats on the record on a divisive issue. The amendment failed to pass after no lawmakers from either party voted for it. Fifty-seven Senators voted against the amendment, while 43 voted simply “present.” Four Democrats voted against the amendment: Senators Joe Donnelly of Indiana, Heidi Heitkamp of North Dakota, Joe Manchin of West Virginia, and Jon Tester of Montana.
Daines’s amendment was far from a true test of Democratic support for single payer, however. Senator Bernie Sanders, the most popular progressive politician in the United States who supports a single-payer health-care system, denounced the amendment as a “political trick” designed “to embarrass Democrats,” ahead of the vote. His office had previously announced that even he would not be voting for it, giving Senate Democrats cover to reject the amendment as a political ploy.
Republicans may end up approving a bill that many of them admit they don’t want to become law.
Is the “skinny repeal” of the Affordable Care Act that is nearing a vote in the Senate a means to an end, or the end itself?
That is the crucial question that GOP senators are facing as they consider Majority Leader Mitch McConnell’s latest—and likely final—proposal for rolling back Obamacare. According to an email McConnell sent to Republicans, shared with me by a Senate aide, the current plan under discussion—dubbed the “Freedom Bill” by the White House—would repeal the ACA’s individual insurance mandate permanently and its employer mandate for six years, defund Planned Parenthood for a year, and allow states at least some flexibility to opt out of Obamacare’s requirement that insurers cover certain essential health benefits.
For the past few decades, the unstoppable increase in college tuition has been a fact of life, like death and taxes. The sticker price of American college increased nearly 400 percent in the last 30 years, while median household income growth was relatively flat. Student debt soared to more than $1 trillion, the result of loans to cover the difference.
Several people—with varyingdegreesof expertisein higher-ed economics—have predicted that it’s all a bubble, destined to burst. Now after decades of expansion, just about every meaningful statistic—including the number of college students, the growth of tuition costs, and even the total number of colleges—is going down, or at least growing more slowly.
Less than a week into his job, White House communications director Anthony Scaramucci is accusing President Trump’s chief of staff of leaking damaging information to the press.
When Anthony Scaramucci was named White House communications director last week, he had a dual mandate to fix the president’s dysfunctional press shop and end leaks. So far, those two goals are steeply at odds, as Scaramucci’s fierce, sudden attack on White House Chief of Staff Reince Priebus Wednesday and Thursday show.
An enigmatic series of tweets Wednesday night erupted into a stunning CNN interview Thursday morning in which Scaramucci compared his relationship with Priebus to Cain and Abel (he didn’t indicate which is which) and said he didn’t know whether his relationship with Priebus was “repairable.” He also implied that national-security leakers ought to be executed.