Thus far, Governor Lisa Cook has been winning in the courts. She remains a Governor and so a member of the board of the Federal Reserve Board, entitled to a part in the deliberations of the September meeting, yesterday and today. That fact is a small victory for sanity in an insane moment and is worth celebrating. Also, we hereby note that going into the meeting the general expectation has been and so far as I know remains that there will be a smallish cut in the Fed rate, (probably 25 basis points, or one-quarter of a percent), BUT that it will be a "hawkish cut". The Fed will issue a statement about the cut, saying sternly that it is NOT the beginning of a series of cuts but a one-off and that the rate of inflation is a grave concern. For review: Fed policy commentators have long since used the language of "doves" and "hawks" long used by military-policy pundits. In the case of the Federal Reserve, the old foe is inflation and interest rates ...
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This is my annual post on the top Financial stories of the year now ending. As usual, I do not try to rank them, merely listing one Big Story for each of the twelve months of the year. Each story is accompanied by a ( bold ) acknowledgement of the theme it may illustrate. But my emphasis is on the story, not the theme. Something happened with a particular who-what-when-where structure in each of these twelve instances. Despite all the storm-and-stress over the election campaign in the US, and the obvious financial significance of the result both within the US and without, you will not find much of that campaign in this post. It isn't even featured in the November entry. Yet four of our grafs are US-focused. They focus not on the racehorse of the campaign, but on the stakes. If there is a theme here, though, it is the significance of financial/economic sanctions in wartime. Most of the "western world" has sanctioned Russia for its assault upon the sovereignty of U...
The Federal Reserve has now met for September and as expected has lowered the base rate in the US banking system, known as the federal fund rate. This is the first Federal funds rate decrease since the spring of 2020, the start of the Covid crisis. The Fed cut the rate to zero back then to juice the economy. By the time that crisis was deemed to have passed, nearly two years later, inflation was the new crisis. Thus, the Fed recently gave us a round of inflation busting rate increases followed by a frustrating period of holding-them-steady. And now at last a decrease by half a percentage point, or "50 basis points" as monetary economists prefer to say. You, my reader, may have encountered discussions about the Fed funds rate many times over your years as a "news consumer". But it is possible no one has explained its significance to you before. Consider this your lucky day. I will italicize the next seven 'graphs. You'll see why. In general, the ups and d...
Until a few minutes ago I was under the impression that I had already written something in here about the failure of Silicon Valley Bank in March of this year. I can't find any such post now. So ... maybe not. I see a brief reference to it in an item about an FDIC regulation, but that's it. Anyway, my apologies if I didn't. I'm am sure I have masses of lurking readers whom I've disappointed. Here is a very short statement of what happened. I will say something about its significance tomorrow. Just the facts today. In the early days of March there was a run on SVB. The Federal Reserve's long campaign of interest rate hikes, combined with bad managerial decisions, had caused bank losses that made depositors nervous -- hence a bank run right out of the Potterville playbook. People need their liquidity. On the morning of March 10, a Friday, the California Department of Financial Protection and Innovation seized SVB and put it int he receivership of the Federal...
J une has been a good month thus far for US economic news. Some points: 1. The month began with U.S. politicians avoiding a cliff, avoiding default on U.S. Treasuries. Good for us, and good for the rest of the world. The world, after all, needs a numeraire , a measure of the measures, a money of the monies. The numeraire was long ... gold. Now it is the U.S. dollar. With a U.S. bond default, one fears it would soon be something else ... perhaps the Chinese yuan. The transition would not be accomplished without grave difficulties and hardships and, once it was resolved, a new geopolitical balance would have been struck. One difficult to contemplate with equanimity. 2. The Fed decided NOT to raise the base rate of interest this month. It has been on a long campaign of increases, in order to try to cool down inflation. The goal, though, is to thread a needle -- to cool the price increases without dampening productivity and job creation. 3. A new contract for the west coast dockworkers. T...
The latest figures on inflation turned out poorly. Yes, gasoline prices have headed down but that has been overwhelmed in the rising numbers by increases elsewhere. We're not back to 1970s-era figures yet. But it is worth mentioning that this administration has not been honest with us about inflation. Not by a long shot. Yes, Biden is not Trump and I am willing to cut him some polemical slack for that great merit. Further, under Biden's administration there appears to be a real chance Trump will be quite deservedly indicted. More slack. Still, this is a "normal politics" issue. And I have to say, the administration has not been straight with us. Early on it said there was no inflation, just a transitory blip in prices. As the blips continued and increased, the Biden line become: this is all Putin's fault. What Putin did was wage a war against a neighboring country, leading to sanctions, leading to the cut off of pipeline supplies to western Europe. That in...
The Biden administration has nominated Sarah Bloom Raskin to be the vice chair for supervision on the Federal Reserve. That is not one of the best known positions that it is a President's duty to fill, but it is an important one. In coordination with the Office of the Comptroller of the Currency within the US Treasury, the Federal Reserve has supervisory authority over the banks that the federal government insures. The vice chair for supervision has no special role in the monetary-policy part of the Fed's remit, but she is in charge of its regulatory role. Still, this is rarely the stuff of confirmation fights. Why are the Republicans making an unholy fuss about this appointment? There are two bad reasons, and one kind-of good one. The first bad reason is that Sarah Bloom Raskin is the wife of Rep. Jamie Raskin (D - Md). To stop her ratification would be to deal a blow to him and he, to his lasting credit, has done nothing to endear himself to the Republicans of the upper hous...
I was attempting to explain the creation of money by the Federal Reserve to this young person -- at least he projects youth, one can never know on the internets -- and I was having trouble, He had the idea that the only way the Federal Reserve could inject money into the economy was by borrowing it from somewhere. I think he thought of 'money' in overly physicalist terms, like a stack of bills and/or coins. I'll try the explanation again here. The Federal Reserve injects money into the economy by, in essence, creating it as a matter of law. Most money has no physical form at all. It is the set of the numbers we assign to bank accounts. The Bureau of Engraving creates paper money, but that is only a small portion of the total supply of dollars (I've heard around 8%). But that is the tail not the dog. The dog in this situation consists of the idea of money, and numbers that are re-assigned at the tap of keys or the swipe of a plastic card fr...
The staff of the Federal Reserve recently concluded that President Trump's war on trade has not produced or created US jobs. Quite the contrary. Gee, you could've knocked me over with a feather when I saw this. Who predicted such a thing? Anyway, for the curious, here's a URL for the report: https://www.federalreserve.gov/econres/feds/files/2019086pap.pdf?fbclid=IwAR2C4oBHUEDstQXGV7kTkwvTftRoJ19ObYsmsU9vH6gS4sinFcxTIijs80g One quote, and I am done for this post: "We find that tariff increases enacted in 2018 are associated with relative reductions in manufacturing employment and relative increases in producer prices. In terms of manufacturing employment, rising input costs and retaliatory tariffs each contribute to the negative relationship, and the contribution from these channels more than offsets a small positive effect from import protection. For producer prices, the relative increases associated with tariffs are due solely to the rising input cost channe...
We have reached a critical moment in the life of the institution known as a "central bank." A central bank, as many of you likely know, is paradigmatically a bank that is NOT part of the government that it serves, an institution that has both private and public characteristics, and an institution that serves as the grease for macro-economic gears in the machinery of governance. Alexander Hamilton, an admirer of the London model, brought the institution to The United States. We now have a rather peculiar form of central bank, the Federal Reserve Board, created by the Wilson administration more than a century ago. Its peculiarities need not interest us today. But as I said above, we have reached a critical juncture. The central banks of the developed world appear to be running out of their usual arrows. They'll have to come up with something non-traditional when the traditional quiver is empty. What might that be? They might adopt distributed ledger technology -- ...
Jill Stein is running for President on the Green Party ticket. I believe that Jordan Weissman, of Slate's money box, did a fine job recently of chronicling some of the difficulties in taking her policy positions seriously. Yes, Weissman is probably in the tank for HR Clinton, and probably figures running down Stein helps save the world from Trump. Still, when he's right he's right. I'll simply paraphrase here one of Weissman's contentions, about Stein's ignorance of monetary policy. Student loans, she said, "should be canceled in the same way that the debt of Wall Street was canceled, essentially writing it off as a digital 'hat trick,' which is done in the form of quantitative easing.” Let's ignore this as a contribution to discussion of student loan. The point here is whether she knows an anus from a hole-in-the-ground in the realm of monetary policy. The conclusion is: she does not. I'm against quantitative easing. I think is a...
I received an annual report from a money market fund recently. It includes a Q-and-A with two portfolio managers: Joanne M. Driscoll and Jonathan M. Topper. I'll pass along a bit of their wisdom here. The first question is, "Please describe the market environment for the 12-month reporting period ended September 30, 2015?" They respond in part thus: "The steep decline in commodity prices was especially noteworthy as low oil prices have eased inflationary pressures in the U.S. economy -- keeping inflation well below the Fed's 2% target for price stability. ... the central bank left its benchmark rate unchanged at its main policy making committee meeting in July, but added that it expected to begin raising short-term rates before the end of 2015. At their September meeting, Fed policymakers delayed raising the key short-term interest rate, citing weaker macroeconomic conditions abroad and the heightened market volatility brought on by the People's Ban...
As you may recall, just a little over two years ago there was a great deal of fuss which seems likely to go down in history as the "Taper Tantrum." Fed chief Ben Bernanke committed to the idea that the Federal Reserve would taper off its bond buying (that is, its new money creation)in the fall of 2013. In the late spring of that year, some market traders, especially in the bond markets, began to get the idea that "he might really go through with it" and they weren't ready. The Federal Reserve was itself spooked by the volatility in the bonds markets, and it backed off: Bernanke started in with "I didn't really mean it" statements. And left office the following year. Now we have a new Fed chief, Janet Yellen, and she too has proposed what she is calling a "normalization" of Fed policy. This time, too, as the date approaches, some markets get volatile. This time the tantrum is in equities rather than bonds. Why? Mumble mumble ps...
I generally ask myself at this time of year what were the biggest stories of the past twelve months in business/financial news. Of course, I choose the ones I do largely because they illustrate an important theme, and in the list below I'll spell out and italicize the theme. Yet the theme itself isn't the story. In terms of regional mix, with this line-up I've got two Asian stories (Feb., April), four European stories (January, June, October, December) and six North America (March, May, July, August, September, Nov.). A nice thematic point: I both begin and end with Russia. All that said, here is this year's list. January 2014: Russian oligarchs. The Supreme Court of Russia releases Platon Lebedev, formerly of NFO Menatep, and a man who had spent more than a decade in lock-up. Russia has two oligarch problems: the oligarchs have a stranglehold on key parts of the economy, and the govt., when it does try to break that stranglehold, is ham-fisted an...