Opinion

Nicholas Wapshott

Yellen shows her hand

Nicholas Wapshott
Apr 19, 2014 05:19 UTC

The difference between the Federal Reserve Board of Chairwoman Janet Yellen and that of her immediate predecessor Ben Bernanke is becoming clear. No more so than in their approach to the problem of joblessness.

Bernanke made clear that in the post-2008 economy, his principal goal was the creation of jobs, not curbing inflation. He settled on a figure, 6.5 percent unemployment, as the threshold that would guide his actions.

While remaining true to the spirit of Bernanke’s principal goal, Yellen and the rest of her board refined the target in their meeting on March 18 and 19, a change in approach that at first sent the wrong signal to the stock and bond markets. At the press conference following the meeting, Yellen said she would not be raising interest rates “for a considerable time,” which could mean “something on the order of around six months.”

The Fed decided it would no longer be tied to the “quantitative” 6.5 percent jobless figure, which is fast being approached. The February unemployment numbers, for example, are 6.7 percent. After listening to Yellen, the markets assumed — wrongly — that the Fed was about to abandon the jobless target, end quantitative easing and start raising interest rates.

That misreading by the markets was evidence of what might be called the “Thumper Rule” for Fed chairmen, named after the rabbit in Walt Disney’s Bambi, whose father told him, “If you can’t say something nice, don’t say nothing at all.” To avoid saying anything, Yellen’s wily predecessor at the Fed, Alan Greenspan, only spoke in gobbledegook.

Hooray for inflation

Nicholas Wapshott
Nov 13, 2013 20:25 UTC

There have been some extraordinary headlines in recent days. Here’s the Economist: “The perils of falling inflation.” Here’s the Financial Times: “The eurozone needs to get inflation up again.”

For those with memories of hyper-inflation and “stagflation” in the 1970s, these cogent pleas for higher prices is heresy, an irresponsible clamor for the return of an ever-changing fiscal landscape that led to widespread misery and economic turmoil.

A little history. By the mid-’70s the Western world was engulfed in an inflation typhoon — with prices rising rapidly and out of control. As companies increased prices to keep up with the higher costs of basic raw materials — such as oil, deliberately hiked way beyond the norm by the Organization of the Petroleum Exporting Countries — trade unions demanded higher wages to protect their members’ standard of living. This led to higher costs, and higher prices, and so on.

Can Tea Party afford the shutdown cost?

Nicholas Wapshott
Oct 23, 2013 20:35 UTC

Victories come in many sizes. The Battle of the Little Bighorn, for example, at first seemed an overwhelming win for the Sioux. But it soon became clear their success would not last. Who really won the Alamo? The Mexicans? Try telling that to a Texan. So, who won the Battle of the Shutdown 2013? The conventional view is that the Tea Party Republicans were seen off by the congressional leadership in both parties. Having made their protest, disrupted the nation and cost Americans a great deal in anxiety, time and treasure, they lost the battle — but promise to resume the war another day. Perhaps as early as January.

While moderation appears to have triumphed and dogmatic extremism held at bay, the 800,000 federal workers and those who need their services were the obvious losers of the budget and debt ceiling battle. But so were those who hoped to derail the Affordable Care Act, freeze federal government spending and balance the budget.

A complete audit of the shutdown, however, shows the Tea Partiers suffered a more profound setback than they would like to admit — or perhaps even know. The exact philosophy of the Tea Party is hardly clear, but in as much as there is a manifesto it states: the government is too big and should shrink; government borrowing is out of control and the nation should live within its means; big business executives are unfairly propped up by government even when they make sizable mistakes; the government should stop manipulating the dollar through quantitative easing, and taxes should be reduced but never be raised.

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