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.

On jobs: Be bold, Obama

Nicholas Wapshott
Feb 3, 2014 18:42 UTC

President Barack Obama’s State of the Union was all about jobs. He said the word 23 times, often congratulating himself on having helped create 4 million. He urged a “year of action” to make more jobs, raise wages and create opportunities for social mobility. Then he set out on a jobs tour to persuade large companies to start hiring and pay more.

But if we assume the Tea Party-dominated House of Representatives is not going to help him here and will block any new public borrowing for infrastructure projects, what is the president to do?

Perhaps he needs to do little. The economy is slowly growing, with the number of new jobs increasing at roughly 200,000 a month, and the number of out of work Americans has been falling. The unemployment rate — using the latest figures, from December 2013 — shows unemployment at 6.7 percent, lower than at any time since October 2008. At its most severe, in October 2009, one in 10 Americans was out of a job.

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.

Despite flaws, Summers is the best candidate for Fed chair

Nicholas Wapshott
Jul 30, 2013 14:40 UTC

The two-horse race to replace Ben Bernanke as the Fed chairman appears to have come down to gender. In a letter to the president, about a third of Senate Democrats have made clear they would like Bernanke’s deputy Janet Yellen to replace him, primarily — though they do not openly say it — because she is a woman.

The White House, it seems, would prefer Larry Summers, Bill Clinton’s Treasury Secretary who was also director of Barack Obama’s National Economic Council. Summers is a distinguished economist, a former chief economist of the World Bank and briefly, until he was subsumed by controversy, president of Harvard University. (Summers writes a monthly column for Reuters.)

It is true there are not enough women in top positions. It is true, too, that Janet Yellen is a distinguished economist with considerable reserve bank experience. But her gender should not in itself be enough qualification for her to be awarded with one of the most important jobs in the nation.

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