Fed Chair Jay Powell will deliver his annual remarks this Friday at the Fed’s Jackson Hole Economic Symposium. With the Fed poised to start its rate-cutting cycle next month, any hints on the size and speed of the adjustments will be highly sought. His earlier speeches there, which tell us a considerable amount of how he thinks at a high level about monetary policy, are a good preview.
I’ve noticed that Paul Krugman and Brad DeLong have been quoting your Substack writings in their columns/Substack writings. It’s about time. I was getting tired of the standard references to Larry Summers over the years, especially considering how wrong he repeatedly was on policy.
Anyhow, congratulations on being more recognized for your work with each passing year. I find your work insightful and refreshing. You’re lack of personal bias stands out when you sometimes say the “Sahm Rule isn’t working,” as well as when you take multiple viewpoints into consideration.
I think one of your ideas worth serious consideration by policymakers: sending out federal stimulus checks when the Sahm Rule and other economic measures foreshadow a coming recession.
Some acknowledgement that monetary policy is the distant second best tool for economic management (after the infinitely more powerful and flexible tool of fiscal policy) would be ideal, but I'm not holding my breath ...
Wonderful interview on "Thoughtful Money" with Adam Taggart. Dispelling the notion that recession call is purpose of rule. You are a credit to the profession. Ty.
Thank goodness Powell resisted Trump’s attempts to influence Fed policy, especially with an ongoing pandemic
Volker tells story in his autobiography. James Baker, Reagan’s chief of staff called Volker and asked him to meet at the White House. When Volker showed up and was ushered into a room off the Oval Office where Baker awaited his arrival. Volker was surprised to see Reagan sitting off to the side. Baker said, “The President would like you to lower interest rates.” Reagan stayed silent. When Volker returned his office, he said to his staff: “Good news! We’re raising rates!” The Reagan White House got the message: the Fed is independent. Full stop.
A suite of events bought the U.S. Trump presidency. The worst foreign policy decision in decades: Iraq War 2.0. Followed by the worst domestic decision in decades: a too-small stimulus package Larry Summers sold to Obama. This extended a slow recovery for eight years. Apparently, Summers, who has been wrong for decades on economic policy, didn’t subscribe to the ideas of the Brainard Principle: “. . . recent research highlights two particularly important cases in which doing too little comes with higher costs than doing too much.”
Biden had a ringside seat to how that catastrophic decision played out. When the pandemic hit, Biden’s fresh, young economic advisers understood Biden wasn’t going to make the mistake of a too-small stimulus package. People get angry about inflation, but people get really cheesed-off when they’re out of a job.
I would think a pandemic-induced realignment of international supply chains is inherently inflationary. The cost of lumber soared, so the pace of building new housing became sclerotic. Last I read, the U.S. is still short of needed homes by about one million. That’s not going to bring rents down even if the Fed lowers rates. Note the proposed stimulus offer as policy to first-time homebuyers by Harris.
• Which inflation metric should the Fed be targeting? The OER issue and the cost of credit issue. My guess is w/o OER but retain the w/o cost of credit but I’d like to hear that addressed
• Although it conforms with my bias, I’d like to hear the Fed’s explanation of why FAIT is better then NGDPLT.
• Why is 2% better than 0%? [I know the answer (and it’s not that’s a low as feasible), but I want the Fed to explain to media pundits who can re-explain it the public.]
• Would the Fed please explain publicly that YES it engineered over-target inflation to help the economy adjust to COVID and its aftershocks? And Yes we were too slow to start disinflation?
• Why does the Fed speculate unconditionally (“forward guidance”) about future adjustments in its policy instruments. Is that not contradictory to being data driven?
• Why does the Fed think that it would be bad to move and instrument in one direction at one decision point and move back in the next? Is that not what being data driven means? Should not each decision incorporate all available information leaving none “left over” to affect future decisions?
• Why not have more frequent and smaller movements in Fed’s policy instruments?
• Shouldn’t the Fed request Congress to remove it role in prudential regulation of financial institutions?
• Why does the Fed not publicly request Treasury to start issuing Trillionth’s?
• Why does the Fed not publicly request Treasury to start issuing TIPS in shorter maturities?
• Why does the Fed not do retrospective evaluations of its performance, both:
o Knowing what we knew then, did we do the right thing?
o Knowing what we know now did we do the right thing?
Why is 2% better than 0%? I have some idea of the answer, I think. But, I will check out your Radical Centrist substack.
At some future Jackson Hole conference, I would be interested in hearing some discussion of Reserve Bank of Australia's 2-3% target. That approach seems sensible to me. Australia has had good economic results, although maybe it's hard to sort out how much RBA has contributed to the good fortune of the lucky country.
I’ve noticed that Paul Krugman and Brad DeLong have been quoting your Substack writings in their columns/Substack writings. It’s about time. I was getting tired of the standard references to Larry Summers over the years, especially considering how wrong he repeatedly was on policy.
Anyhow, congratulations on being more recognized for your work with each passing year. I find your work insightful and refreshing. You’re lack of personal bias stands out when you sometimes say the “Sahm Rule isn’t working,” as well as when you take multiple viewpoints into consideration.
I think one of your ideas worth serious consideration by policymakers: sending out federal stimulus checks when the Sahm Rule and other economic measures foreshadow a coming recession.
Thank you!
Useful and informative post. Friday should be interesting.
Brilliant. Again.
Some acknowledgement that monetary policy is the distant second best tool for economic management (after the infinitely more powerful and flexible tool of fiscal policy) would be ideal, but I'm not holding my breath ...
Very nice piece Claudia.
Natural rate of unemployment is not a useful concept.
https://billmitchell.org/blog/?s=Modigliani
Wonderful interview on "Thoughtful Money" with Adam Taggart. Dispelling the notion that recession call is purpose of rule. You are a credit to the profession. Ty.
For any1 interested, here are my Jul PCE estimates:
https://open.substack.com/pub/arkominaresearch/p/jul-2024-pce-inflation-estimates?r=1r1n6n&utm_campaign=post&utm_medium=web
Keynes understood, by 1939, this error made in his General Theory http://piketty.pse.ens.fr/files/Keynes1939.pdf
And Campbell Harvey (inverted yield curve) is citing the Sahm Rule on LinkedIn:
https://www.linkedin.com/posts/camharvey_did-you-know-the-sahm-rule-was-intended-activity-7232443538951602176-N3Dh?utm_source=share&utm_medium=member_ios
Thank goodness Powell resisted Trump’s attempts to influence Fed policy, especially with an ongoing pandemic
Volker tells story in his autobiography. James Baker, Reagan’s chief of staff called Volker and asked him to meet at the White House. When Volker showed up and was ushered into a room off the Oval Office where Baker awaited his arrival. Volker was surprised to see Reagan sitting off to the side. Baker said, “The President would like you to lower interest rates.” Reagan stayed silent. When Volker returned his office, he said to his staff: “Good news! We’re raising rates!” The Reagan White House got the message: the Fed is independent. Full stop.
A suite of events bought the U.S. Trump presidency. The worst foreign policy decision in decades: Iraq War 2.0. Followed by the worst domestic decision in decades: a too-small stimulus package Larry Summers sold to Obama. This extended a slow recovery for eight years. Apparently, Summers, who has been wrong for decades on economic policy, didn’t subscribe to the ideas of the Brainard Principle: “. . . recent research highlights two particularly important cases in which doing too little comes with higher costs than doing too much.”
Biden had a ringside seat to how that catastrophic decision played out. When the pandemic hit, Biden’s fresh, young economic advisers understood Biden wasn’t going to make the mistake of a too-small stimulus package. People get angry about inflation, but people get really cheesed-off when they’re out of a job.
I would think a pandemic-induced realignment of international supply chains is inherently inflationary. The cost of lumber soared, so the pace of building new housing became sclerotic. Last I read, the U.S. is still short of needed homes by about one million. That’s not going to bring rents down even if the Fed lowers rates. Note the proposed stimulus offer as policy to first-time homebuyers by Harris.
Questions for Powell et all to address:
• Which inflation metric should the Fed be targeting? The OER issue and the cost of credit issue. My guess is w/o OER but retain the w/o cost of credit but I’d like to hear that addressed
• Although it conforms with my bias, I’d like to hear the Fed’s explanation of why FAIT is better then NGDPLT.
• Why is 2% better than 0%? [I know the answer (and it’s not that’s a low as feasible), but I want the Fed to explain to media pundits who can re-explain it the public.]
• Would the Fed please explain publicly that YES it engineered over-target inflation to help the economy adjust to COVID and its aftershocks? And Yes we were too slow to start disinflation?
• Why does the Fed speculate unconditionally (“forward guidance”) about future adjustments in its policy instruments. Is that not contradictory to being data driven?
• Why does the Fed think that it would be bad to move and instrument in one direction at one decision point and move back in the next? Is that not what being data driven means? Should not each decision incorporate all available information leaving none “left over” to affect future decisions?
• Why not have more frequent and smaller movements in Fed’s policy instruments?
• Shouldn’t the Fed request Congress to remove it role in prudential regulation of financial institutions?
• Why does the Fed not publicly request Treasury to start issuing Trillionth’s?
• Why does the Fed not publicly request Treasury to start issuing TIPS in shorter maturities?
• Why does the Fed not do retrospective evaluations of its performance, both:
o Knowing what we knew then, did we do the right thing?
o Knowing what we know now did we do the right thing?
https://thomaslhutcheson.substack.com/p/improving-fed-decisions
Why is 2% better than 0%? I have some idea of the answer, I think. But, I will check out your Radical Centrist substack.
At some future Jackson Hole conference, I would be interested in hearing some discussion of Reserve Bank of Australia's 2-3% target. That approach seems sensible to me. Australia has had good economic results, although maybe it's hard to sort out how much RBA has contributed to the good fortune of the lucky country.