MORNING BID – Hi Janet, Here’s a Selloff.

Mar 20, 2014 14:06 UTC

Welcome Madame Chair, here’s a market selloff for you.

Fed Chair Janet Yellen made some news that she didn’t expect yesterday. She perhaps thought she was offering some clarity when she answered the question from Reuters’ Ann Saphir as to when the Fed might start raising interest rates. That’s not how it worked, although at least in this case she didn’t mouth off to Maria Bartiromo the way Ben Bernanke did eight years ago.

What we didn’t see in her answer on the distance between the end of QE3 and the first rate hikes of “six months” (or something like that), is whether we will start to see any kind of reaction from the primary dealers surveyed by Reuters yesterday.

Most still see the Fed not raising rates until late in 2015 although there were a couple of notable changes. Barclays moved up its expectations for the rate increases to the second quarter of 2015. There were still, however, four dealers that do not see rate hikes coming until 2016. This may, on some level, put the Fed behind the curve as interest-rates adjust, though it was notable to see several Fed members in the Fed’s projections believe rates should be at 1 percent by the end of 2015. (It wasn’t much of an adjustment, but somehow, the way it looked on the dot matrix chart the cool kids were talking about was enough to get the bond market in a lather. The stock market, of course, didn’t react until someone (Yellen) told it what to do.)

What is undetermined now, however, is what the Federal Reserve will be looking at when it decides whether to raise rates or not. The market has gotten awfully used to the idea of a threshold on the unemployment rate that made things easy. Without that, it reverts to looking at a number of indicators, although the Fed chair yesterday did say that she thought the unemployment rate was one of the best indicators.

It is perhaps to the markets’ credit that many commentators remarked on the Fed’s use of several indicators as worrisome. In years past, there was great praise for Alan Greenspan just because he used to discuss looking at various pieces of data in his bathtub or whatnot. Now the market finds such alchemy to be less comforting. That may at least be a sign of maturity. Or, perhaps, the Fed has through years of communication efforts changed the markets’ belief that the Fed chair should be this omniscient presence in the market. If so, that bodes well for what is usually an awkward transition between Fed chairs. This may make that much easier, regardless of what Yellen said.

Slacktivist monetary policy

Mar 12, 2014 22:01 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to

How much slack is there in the labor market? That is, how close is the American labor market to full employment? The answer to that question is important, says Evan Soltas, because estimating whether the economy is near its potential affects what, if anything, policymakers actually do to help the economy. No one is quite sure, but Paul Krugman argues against the emerging consensus that says “even though we still have huge unemployment, we’re actually running out of employable workers”.

Soltas divides the two economic camps into the slackers and the quitters. The slackers, including Fed chair Janet Yellen, as well as Krugman, think the economy still has a long way to go before it’s back at its full potential, therefore the Fed should continue to help it along. The quitters think there’s very little slack in the labor market, especially for the short-term unemployed, and therefore the Fed should think about raising interest rates to stem coming inflation.

In the quitters camp is the New York Fed’s Henry Linder, Richard Peach, and Robert Rich, who in a recent paper found evidence that “the long-duration unemployed exert less influence on wages than the short-duration unemployed”. Soltas sees this as “a sign that the job market is working for some even as it fails others”. When wages are going up as they are now (albeit slowlyaround 2%), that implies the advantage in the labor market is shifting toward workers, and therefore there’s not much slack.

However, Krugman points out that wages normally rise during bad weather — like this winter — because low-wage workers are more often unable to work than their white-collar counterparts. Jared Bernstein looks at both quit rates in yesterday’s JOLTS report and short-term unemployment rates and thinks the economy still isn’t at its potential. Dean Baker says much the same thing. If you go back a decade or more, says Bernstein, neither metric is back to normal. “I don’t think an objective person would look at the end of the lines in the figure and conclude: ‘our work is done here, folks’”, he writes. – Shane Ferro

On to today’s links:

Modern Problems
Silicon Valley’s youth problem: engineers, money, and being over-the-hill at 35 – NYT Mag

Tax Arcana
Big US companies are holding nearly $2 trillion overseas to avoid US taxes (up nearly 12% last year) – Bloomberg

Unsurprisingly, women still do the majority of the unpaid work – Shane Ferro
The CEA’s report on the importance womens’ contributions to the economy – The White House

BoE governor: currency manipulation charges are more serious than Liebor – Telegraph

Ackman’s revenge: The FTC announces its investigating Herbalife – Dan McCrum
When hedge funds lobby – Felix

Piketty: The US has seen an “unprecedented rise of top managerial compensation” – NYT
How finance gutted American manufacturing – Boston Review

The problem with restaurant letter grades: health inspectors don’t know anything about cooking – Open City

Inside the barista class – The Awl
Related: When a journalist is forced to take a retail job – Joseph Williams

Journalism startups aren’t a revolution if they’re filled with white men – Emily Bell

Primary Sources
The economics of the underground commercial sex economy – Urban Institute

The Fed
The Fed’s 7 degrees of communication – Jon Hilsenrath

Primary Sources
The average Wall St bonus was up 15% last year to $164,000, the highest since ’08 – NY State Comptroller

Interesting Failures
“Error is the engine of language change” – The Guardian

Profiles in Capital
A good profile of Stanley Fischer, including a sick Larry Summers burn – Binyamin Appelbaum

Study Says
The myth of the myth of the myth of the hot hand – Andrew Gelman

Want to sign up for the Counterparties email? Click here. 

Follow Counterparties on Twitter. And, of course, there are many more links at Counterparties.

Morning Bid — The Minutiae of the Minutes

Jan 8, 2014 13:52 UTC

December’s last salvo before going into holiday mode was the surprise Federal Reserve decision to trim its monthly $85 billion in bond buying to a more modest (but still enormous) $75 billion, that helped balloon its balance sheet to north of $4 trillion.

Suffice to say, on some levels, there was a bit of a disconnect here: The Fed’s inflation outlook showed inflation not getting back to its 2 percent target for a long time (like, forever; several years out, it was seen as just sneaking its way over 2 percent, never mind what Charles Plosser of Philly says).

With the Fed’s minutes due out later Wednesday, there are a number of unanswered questions about the Fed’s decision as Ben Bernanke exits and Janet Yellen (confirmed on a 56-26 vote, with “OMG IT’S COLD” coming in third place with 18 votes) enters the scene:

There’s been no guidance on this so far. Ben Bernanke, in his final press conference as the Fed head, said he could envision a steady reduction in $10 billion increments at each meeting, which would drop the monthly buying to nothing by the end of 2014. Richard Fisher, Dallas Fed head and now a voting member for 2014, said he would be comfortable with a more accelerated rate of purchases. And dovish John Williams of San Francisco said yesterday he’d expect to see the end of buying by year-end.

So it will be interesting to see any commentary on this – whether a faster pace was considered or not. (There will probably be some boilerplate on the Fed saying it could ‘reduce at a faster pace’ or ‘resume additional purchases’ or something. Just as a warning.)

But the October minutes provide some clues, as the Fed said some participants “mentioned that it might be preferable to adopt an even simpler plan and announce a total size of remaining purchases or a timetable for winding down the program. A calendar-based step-down would run counter to the data-dependent, state-contingent nature of the current asset purchase program, but it would be easier to communicate.”

Recent inventory figures, construction data and durable goods orders point to better-than-expected figures for the fourth quarter, and a first quarter where the economy gains momentum. The baseline projection for GDP growth in the fourth quarter has been for around 2.5 percent, but it could be higher thanks to a boost in exports.

The Fed sees 2014 GDP growth of 2.8 to 3.2 percent, which may end up being optimistic, while they see inflation as not much of a threat.
Yellen, in the past, has been more explicit about the idea of living with additional inflation, if needed, to help reduce unemployment, so there’s that. Again, that central tendency only ticks up to 2 percent in 2015 and 2016, and that’s the just the upper end of the Fed’s forecasts.

October’s minutes sounded a note of caution when it came to regular people, saying that “consumer sentiment remained unusually low, posing a downside risk to the forecast, and uncertainty surrounding prospective fiscal deliberations could weigh further on consumer confidence.“

Said fiscal shenanigans have receded for the time being (give it a day or so), which has removed a layer of uncertainty, though it’s debatable that consumers make decisions based on what’s happening in Washington to begin with. But a weak September payrolls figure and a few limp sentiment surveys put the Fed in a mind to be more concerned, and later economic figures don’t show a similar kind of worry.

Summers goes negative

Ben Walsh
Nov 18, 2013 23:15 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to

In a new speech at the IMF Economic Forum, Larry Summers said the US may be in a near-permanent slump — an assertion Peter Coy calls “deeply pessimistic”. What the US faces, Summers warns, is secular stagnation. The problem: nominal interest rates can’t go any lower, because they’re already near the zero lower bound, but the economy may need real interest rates of negative two or three percent to get back to full employment. Here’s Summers:

We may well need, in the years ahead, to think about how we manage an economy in which the zero nominal interest rate is a chronic and systemic inhibitor of economic activity, holding our economies back, below their potential.

Paul Krugman is annoyed, because he agrees with Summers, and “Larry’s formulation is much clearer and more forceful, and altogether better, than anything I’ve done”. The US economy, repeats Krugman, still needs good old-fashioned Keynesian policy like burying gold in coal mines or faking an alien attack.

The most radical part of Summers’ speech, Krugman says, is his assertion that we may need very negative real interest rates (that is, interest rates after accounting for inflation) to kickstart growth. When real interest rates go negative, monetary policy becomes less effective, says Krugman. Summers adds that rates can stay low, but QE can’t go on indefinitely, even if the economic conditions that make it necessary continue forever. If that’s true, says Krugman, “we may be an economy that needs bubbles just to achieve something near full employment”.

Ryan Avent thinks there’s far too much over-thinking going on. Inflation is far too low across the globe, and particularly in Europe, so central bankers should raise their inflation goals and “try to increase expectations of inflation”. The Fed is at least studying the possibility of increasing its inflation target above 2% to juice growth.

Tyler Cowen disagrees, saying that negative real interest rates would neither help the economy nor help return the economy to full employment.

James Pethokoukis thinks Summers is too dismissive of things like quantitative easing, or shifting to targeting nominal GDP growth rather than inflation. And, contrary to Summers’ fears of stagnation, he says the US may be in better shape than we think: current productivity metrics may not capture the full economic benefits of the IT revolution. — Ben Walsh

On to today’s links:

The Volcker Rule is now nearly 1,000 pages, still not yet a rule – DealBook

The real heroes of the world economy: Countries like Austria, Canada, Lesotho and the Philippines – Dani Rodrik

Unintended Consequences
How the digital revolution is making it increasingly hard to measure the “real” economy – James Surowiecki

Must Read
“The Pentagon is largely incapable of keeping track of its vast stores of weapons, ammunition and other supplies” – Reuters

Modern Problems
Your job, quite possibly, adds no real value to the economy – Noah Smith

Banks are piling into auto loans, and extending loans of up to 8 years – Sober Look

EU Mess
The flaw in the UK recovery story – Joe Weisenthal

Some reasons not to be bearish – Macro Man

Financial Arcana
Do stocks really trade in fractions of a penny? Sort of – Ben Walsh

The “cost of employee turnover due to various forms of workplace discrimination is about $64B per year” – Senator Klobuchar
Your semi-regular reminder that Europe’s youth unemployment situation is dismal – NYT

“A kind of Kickstarter for political assassinations” – Forbes
The DOJ and SEC to tell Congress that Bitcoin is a legitimate financial instrument – Bloomberg

Keeping Score
A reminder of who was wrong about QE – Barry Ritholtz

People have always left the NYT and they always will – Jack Shafer

People take jobs that pay a lot of money – Ryan Chittum

Follow Counterparties on Twitter. And, of course, there are many more links at Counterparties.


Government spending pulls real economy loan activity, which creates a multiplier effect through loan demand by creating qualified borrowers. QE is pushing on a rope. The Fed’s QE has been trying its best to push that rope, because of the congressional budget cutting. Dear lord. What could be more obvious than that.

Why doesn’t Larry do something useful, like speak up against that cretin, Grover Norquist? Speaking up about what is really wrong, instead of wringing his hands over the limpness of the Fed’s QE rope might be useful.

Posted by BrPH | Report as abusive
  • # Editors & Key Contributors