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.

The EU-U.S. love-hate relationship

Nicholas Wapshott
Apr 11, 2014 17:51 UTC

The elaborate gavotte between the American and European economies continues.

While the Federal Reserve has begun to wind down its controversial quantitative easing (QE) program, the European Central Bank (ECB) the federal reserve of the eurozone, has announced it is considering a QE program of its own.

It is a belated acknowledgement, if not an outright admission, from Mario Draghi, president of the ECB, that five years of the European Union’s austerity policy has failed to lift the eurozone nations out of the economic mire. The ECB has presided over a wholly unnecessary triple-dip recession in the eurozone and sparked a bitter rift between the German-dominated European Union bureaucracy and the Mediterranean nations that must endure the rigors imposed from Brussels. All to little avail.

If there are any “austerians” left standing, let them explain this. Ignoring the cries of the unemployed and those pressing for urgent measures to promote growth in Europe, the ECB blithely imposed its punishing creed, arguing that there would be no gain without pain. The result? Little gain, endless pain.

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.

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