The Fed’s action in Tweets:
Yellen: “Room for further improvement in the labor market continues” That’s dovish.
— David Wessel (@davidmwessel) March 18, 2015
FOMC marks down NAIRU to 5.0% to 5.2% Had been 5.2% to 5.5% http://t.co/zT3W0RZFBQ
— David Wessel (@davidmwessel) March 18, 2015
Precisely… (more in next tweet) “@delong: .@DanielAlpert So the Fed removed the word “patient”, but they became more patient…”
— Dan Alpert (@DanielAlpert) March 18, 2015
Kylroy
Seeing a lot of raw HTML in there right now.
Peale
Sure. Elon finally performs a single post, and now you give me a post that contains a secret code. What is Ulf=6? Is that some kind of code indicating that the revolution begins at midnight?
Belafon
@Kylroy: It’s all very technical and numbery and we’re not really meant to understand it.
dmsilev
@Kylroy: That’s the Fed’s new way of opaquifying their statements. Just be thankful it’s not the 90s anymore; we all remember Greenspan giving reports in Perl, and nobody wants to see that again.
elm
I’m used to Richard posting technical material, but this is too far.
cmorenc
So the big Fed announcement was that they’re going to control monetary supply via HTML coding? Or else have you decided Richard to communicate from now on exclusively in obscure HTML coded language? What am I to make of a post filled with gems like:
???
Richard Mayhew
Love you guys :)
Dexter
What is NAIRU, a new name for Nairobi?
Mary G
I thought if I looked up NAIRU, I might understand better:
…but I was wrong, and I spent 20+ years working at a car insurance company and have even met a couple of actuaries in person. You are going to have to explain better what this means to us regular people.
piratedan
all I know is that the guys who make money in the stock market are pleased as the numbers went from like 100 down for the day to back on the positive side. Unsure if this means good things for you and me, but my extremely modest stock portfolio is making modest gains today.
One of those weird things, I was laid off at the end of 2008, had to reinvest my 401k money and had a small amount of money leftover that I could invest and make it part of my retirement portfolio… this was roughly April of 2009. I selected some stocks and bought like 20 shares of 6 companies and have sat back and watched the economy sluggishly recover. That roughly 2300 is now supposedly worth north of 9k now. So yeah, while the rest of us aren’t seeing exponential growth, the stock market, the barometer of business commerce, is still kicking ass. Granted we’re due for a correction, but while the Feds maintain a business friendly position and interest rates are low coupled with negligible inflation, if you have money, it’s quite literally working for you.
Richard Mayhew
@Mary G: The TLDR takeaway is the Feds changed their model to assume much more labor slack (why wages are barely moving despite a good year in job gains), and interest rates will stay low for a while longer.
jl
@Mary G: Any language people out there know what kind of definition that is, for NAIRU? Decades ago, I think it was supposed to be a more or less fixed number. That is very debatable now.
And now that RM has the HTML solved, he can work on this one:
Is the Walrasian Auctioneer microfounded?
http://economistsview.typepad.com/economistsview/2015/03/is-the-walrasian-auctioneer-microfounded.html
Richard Mayhew
Takeaway #2 is my Twitter feed of economists and policy wonks had not gone for the obvious Dylan or GNR reference and there was a massive need for that….
Mary G
@Richard Mayhew: Thank you. So the rich people can keep raking it in borrowing money basically for free until the poors get a raise? Why would they ever let that change?
Turgidson
Glad Yellen is in the big chair. Hopefully she can hold the line a while longer and keep the premature inflation hysterics at bay. I’m with Krugman that inflation rising slightly above target due to Fed inaction is far less-bad than the Fed hitting the brakes too soon and stalling the labor market’s recovery, which as observers rightly point out, still isn’t strong enough to push wages up perceptibly.
boatboy_srq
@Richard Mayhew: And the post-edit version is proof that you can take any economic gibberish and turn it into pretty pictures; all it takes is the right twist on the image.
Villago Delenda Est
Look, I can jargon like mad in militarese and drive you all bonkers, but I just won’t do it.
Rob in CT
@Mary G:
This is good, meaning the Fed isn’t going to slam on the brakes.
It’s not great, in that the Fed has zero control over fiscal policy (whereas the jackals in the GOP do). Since there is roughly zero hope of stimulative fiscal policy, loose fed rates are better than nothing.
They correctly recognized that there is still lots of slack in the labor market and refused to raise rates, despite the baying of the hard money types.
Roger Moore
@dmsilev:
What’s wrong with Perl? It’s perfectly possible to write readable Perl if you follow a sensible coding style. The problem is that Greenspan was using obfuscated Perl, which makes obfuscated C seem simple and comprehensible.
Trollhattan
My first thought was ’60s fashion reference.
schrodinger's cat
NAIRU: non-accelerating inflation rate of unemployment
dmsilev
@Roger Moore: Someone once sent me a file which was obfuscated TeX code. Not LaTeX even, raw Knuthian TeX. Looked like line noise, but compiled just fine and outputted the complete set of verses of “The Twelves Days of Christmas”.
Edit: Thank you Google: http://sdh33b.blogspot.com/2006/10/obfuscated-tex.html
dmsilev
@schrodinger’s cat: ‘Non-accelerating inflation’ sounds like something a cosmologist would be studying.
Roger Moore
@Mary G:
Very roughly, NAIRU is the “natural” level of unemployment. If unemployment is above NAIRU, inflation is expected to stay at or below the Fed’s inflation target. It’s only when unemployment goes below NAIRU that we’re supposed to have to worry about inflation. Nobody knows for certain what NAIRU really is, but there are various estimates. By lowering their estimate of NAIRU, the Fed is saying that they think they can push unemployment lower before they have to start raising interest rates to keep inflation under control.
schrodinger's cat
@Roger Moore: That’s a good summary. Of course, like most other econ theories it is a bit of a con brought to you by the good folks at UChicago.
Trollhattan
@Mary G:
I’d love to be able to walk up to the Discount Window and borrow a couple hundred large at these (today’s) rates.
Primary Credit 0.75%
Secondary Credit 1.25%
Seasonal Credit 0.15%
Fed Funds Target 0 – 0.25%
That, and I’d have a nice time in the SF Market Street District, since I was already there.
Compare and contrast with the usurious rates at payday lenders (now, conveniently located next to a vape lounge at a strip mall near you). Money that’s almost infinitely more expensive. Legalized crime.
jl
@Villago Delenda Est: Sounds like you are in the mood for some bond market jargon.
The Worldwide Deficit of High-Quality Debt
Barry Ritholtz
‘… the usual big stimulus projects were mostly absent in this cycle. Add to that the winding down of the wars in Iraq and Afghanistan and the reduction in military spending. President Barack Obama, stymied by Congress, was never able to match the government spending increases of his predecessors to help the economy recover from recession.
Had this economic cycle been similar to 2001, unemployment might already be lower than 5 percent and gross domestic product growth could be a half-percentage point higher — and there would be a lot more U.S. debt issued. ‘
http://www.bloombergview.com/articles/2015-03-17/world-has-a-deficit-of-high-quality-debt
I think the very sub par macroeconomic policy of Obama/Geithner, which was followed by terrible macroeconomic policy forced on US by Congress is part of explanation for the disastrous midterms. The job market sucked for most people and they blamed the president, or just cursed both houses and stayed home. Eurozone weakness may be next big import into US economy, which should keep Fed policy vary ‘dovish’ for some time to come.
What we see now is consequences of zombie neoclassical macroeconomics, a failed theory from start to… I was going to say finish, but there seems to be no finish to it.
raven
Cool we just got a 10% increase in our long-term health care policy!
Doug r
@Turgidson: yeah well with the Insane housing prices around here I’d rather see a little bit of interest rate rise. Maybe my savings bonds would actually keep up with inflation.
schrodinger's cat
According to the proponents of NAIRU, if you try to lower the unemployment below NAIRU, that will result into higher rates of inflation.
(NAIRU for the United States is deemed to be around 5%)
schrodinger's cat
I prefer Bob Dylan’s version.
jl
Just visited the handy-dandy Bureau of Labor Statistics site.
Prime age (25 to 54) employment to population wage ratio is 77 percent, which is still 3 points down from late 2007, and 5 points down from 2000. So that is 4 to 6 million people who may still want and/or need a job, but do not have one because of crap macroeconomic policy (jointly produced by Obama and Congress, thought to be fair, Obama would like to make amends for missteps early in administration, Congress would like to make it worse)
The supposedly usually tight link between unemployment rate, interest rates and inflation is far from sight.
schrodinger's cat
@jl: Do you know what’s happening to Greece?
jl
@schrodinger’s cat: I’m suspicious of that 5 percent estimate. You go back to old textbooks and you see that 5 percent as a nice round number for a policy goal before NAIRU was born in theorists’ minds. I don’t think anyone has had a good fix on what the NAIRU is.
As I said before, originally the NAIRU was supposed to be some kind of economic constant that didn’t change much. Now, it is more honest to say that it is whatever the last unemployment rate was the last time inflation started going up, for whatever obscure reason.
I don’t think anyone knows what the NAIRU is.
One, think Greenspan did get right was to disregard theoretical and statistical fantasies about the NAIRU might be as a guide to Fed policy. I have no idea whether he had any half way sensible reason for doing so, but that is what he did.
jl
@schrodinger’s cat: Only what I read in economics blogs. Krugman says the agreement was strategically mushy to allow current policy to continue without disrupting much, and giving some time for the two sides to feel out bargaining room and hardness of respective demands.
Violet
Needs moar jacket.
schrodinger's cat
@jl: I agree, its seems like something Lucas and company pulled out of their collective asses.
Cacti
OT but…
Mass shooting at/near a Mesa, AZ high school. At least 1 killed, 5 wounded.
Suspect is described as a middle aged white male, dressed in black, with a shaved head and face/neck tattoos.
The high school in question is called EVIT (East Valley Institute of Technology). My sister in law used to go to it.
Holy hell.
schrodinger's cat
@Violet: The “h” in Nehru is not silent.
Trollhattan
@schrodinger’s cat:
My favorite cover.
catclub
@Mary G:
Only if they can find more profitable places to invest that borrowed money.
schrodinger's cat
@Trollhattan: I also like Avril Lavigne’s cover.
Violet
@schrodinger’s cat: The “e” is also not pronounced like “ai.” It was just a dumb play on words.
Doug r
Sounds like it’s not strictly a number but more of a range. Seems like immigration policy would affect it as well.
catclub
@jl: Usually, growth out of a recession is much faster and leads quickly to another boom and bust. This time, growth is very, very slow, and and as long as there is no boom – which I don’t see, but others may in the stock market – there will not be a bust. A long period of very slow growth looks like what we are in for. How long? Who knows?
But I think this could go on a few more years, with U6 only very slowly grinding down.
Amir Khalid
@Trollhattan:
As I understand it, them’s wholesale prices for money, which are charged to banks and other moneylenders who borrow at the Discount Window. The interest rates that charged to you and me are the retail prices.
jl
@schrodinger’s cat: the basic idea of NAIRU goes way back long before Lucas. The current ideas about policy implications of NAIRU go back to Milton Friedman and Edmund Phelps. I think it was part of Friedman’s ideas on old fashioned quantity and velocity of money style macro, the one big macro idea he had that did not last long (remember that Friedman’s macroeconomics is considered kommunist Keynesian by today’s GOP and their economic policy entrepreneurs).
And I want to revise a previous comment:
The supposedly usually tight link between unemployment rate, interest rates and inflation is far from sight, in the direction of lower interest rates and unemployment.
In the direction of higher interest rates and unemployment the link will be very tight indeed, and disastrous.
schrodinger's cat
@Amir Khalid: BJers should start TunchBank.
David Koch
slow news day.
Everyone must be busy filling out their brackets
Mike J
@piratedan:
When interest rates are low, putting your money in stocks makes you more money than putting your money in bonds. That sounds great unless you’re a megabank/insurance company that has boatloads of cash laying around. They want the safety of buying bonds. They’ve been pissed off for years that they’re getting no return for their money, even paying negative interest for a while.
Trollhattan
@Amir Khalid:
You are correct, sir. We, the people, may not walk up for takeout, with or without fries. Our banksters are doing REALLY well on the spread. One need only look at credit card rates versus what savings accounts, interest-bearing checking and certificates of deposit are paying to see that the historical role of banks in the community has eroded to nil.
I blame
ObamaPhil Gramm.Payday lenders I referenced earlier are bank substitutes that serve as legal loan sharks, charging interest on short-term loans at interest rates that can exceed a thousand percent. They skate past state usury laws by being granted exemptions.
Amir Khalid
@schrodinger’s cat:
What shall we call it? Bank of Tunch? TunchSBC? Tunch Manhattan Bank? Tunch Fargo Bank? Manufacturers Tunch?
raven
@David Koch: We have a calcutta tonight, way more fun that the standard brackets except that I have been priced out of anything about an 8 seed.
sharl
OT – via Quinn Norton:
Amir Khalid
Off-topic: Is this meaningful news, or is it just Glenn Beck being his usual not-well-hinged self?
schrodinger's cat
@Amir Khalid: I vote for Tunch Bank or Bank of Tunch.
PurpleGirl
@dmsilev: Back in the mists of time I did mathematical typing — not fiscal numbers but those things known as PDE, ODE, and PsuedoPDE, etc. I could spell stochastic and asymptotic in my sleep (as compared with one NYU professor who simply could not spell them correctly and he was using asymptotic expansions to model blood flow through the heart).
Any way I was interested in the problem of how to print this stuff through a computer. Through my IBM friend I got connected with Knuth’s work in typeface formation and design. Somewhere on my bookshelves is Volume 1 and maybe even Volume 2. I stand in awe of Knuth’s work in typeface design.
Trollhattan
@Amir Khalid:
Will sum it up thus: Area man upset with lack of cameras aimed his way.
Another Holocene Human
@Richard Mayhew: and fuck YEAH to that!
Mike J
UKIP is getting what they want. Man City is going to make sure that England is completely out of Europe for this season anyway.
sharl
@Amir Khalid: The latter. That must have been what set Weigel off this morning:
David Koch
Jerry Jones signs convicted woman beater.Greg Hardy
How Bout Dem Cowboys!
Trollhattan
Just, wowzers.
Germans already think we’re kind of nuts and their continued dealings with Tennessee must have them thinking we’ve achieved third-world status. Yay, us.
geg6
I have no idea what any of those tweets mean. I mean, more than I normally don’t understand tweets. This is why I don’t tweet.
geg6
@schrodinger’s cat:
Whatever that means.
Does anyone here speak English?
Trollhattan
An FYWP test: Volkswagen
http://www.rawstory.com/rs/2015/03/tenn-goper-slams-volkswagen-creating-200000-jobs-is-intentionally-a-magnet-for-unionized-labor/
Tennessee R krazy.
Trollhattan
@David Koch:
To be fair, Jerry has to continue being Jerry Jones while filling in for still-dead Al Davis.
schrodinger's cat
@geg6: Its macroeconomic jargon for the “natural rate” of unemployment.
Rex Tremendae
@geg6:
The Fed kept saying we needed to be “patient’ about the economy, but removed that word today. This was taken as a sign that they would raise interest rates, but they actually lowered the unemployment level at which they are satisfied, which suggests we need more good employment news before they will actually lift rates.
Tommy
@Trollhattan: Fuck that guy. I am a VW guy. I will sing the praises of my Passat 24/7. I think the estimate of 200,000 jobs might be way over-the-top, but they are still jobs. Building something in the US. How is that not a good thing?
Southern Goth
@Mary G:
I am not an economist, but as far as I can tell the NAIRU is a number pulled out of someone’s ass that says that:
1. Unemployment below a certain rate means a scarcity of labor.
2. If there’s a scarcity of labor, then job creators are reduced to competing against each other for workers by offering better wages and benefits. Also, workers become uppity and start placing unreasonable demands upon the job creators such as a living wage and other non-productive frivolities such as paid vacation.
3. Inflation! Weimar Republic. Zimbabwe!
4. Ron Paul becomes president.
Now as to whether or not loose monetary policy is the best tool for reducing unemployment…
Trollhattan
@Tommy:
Am sure it’s related to the failed unionization effort in 2014. Here’s WSJ crowing about the loss.
But unemployment is down and wages are slowly creeping up, so it’s never too soon to think about more union-crushing before workers get the notion of having a say in how their workplaces operate into their heads.
Roger Moore
@Tommy:
These people don’t want “labor”; they want serfs. They genuinely would prefer to have a bigger slice of a smaller pie than a smaller slice of a bigger one, even if that means they personally have less.
Violet
@Tommy: Because they’re union jobs. By definition those are jobs for lazy soshulist taker thugs. Not real jobs where people pull themselves up by their bootstraps.
gene108
http://thehill.com/blogs/ballot-box/235987-jeb-bush-signals-opposition-to-minimum-wage-increase
I do wish Republicans would get pushed, if they oppose the minimum wage altogether (which I think they do) or just some crazy “states rights” arguments against a Federal minimum wage.
They do some fine verbal gymnastics to avoid clearly coming out with a straight answer on the question.
Tommy
@Violet: Many years ago there was a book I think which was titled the Millionaire Next Door. That was my mom’s dad. It seems him working almost 50 years for Snap-on after service in WWII and being frugal worked well. He was paid well. Got stock options. Had benefits. Union job!
a hip hop artist from Idaho (fka Bella Q)
@David Koch:
Well, duh. Some of us didn’t get right on that and have to catch up.
@raven: Calcuttas are a blast, except for the getting priced out part.
gene108
@Southern Goth:
From my ECON 101 knowledge of the subject, it is not about hyper inflation. Rather there has been found to be a business cycle and relationship, where after a period of economic expansion wages (and inflation overall) start to rise, the economy slows down, and then you go into a recession.
There’s an actual correlation between inflation -> wage growth -> recession, but our current economy is so out of whack with the ECON 101 model, we do not need to worry an inflation induced recession for some time.
Violet
@Tommy: And? So? Republicans don’t want that to happen anymore. They want serfs working unpredictable hours who will do anything to keep a roof over their heads and food on the table. They do not want happy people being paid a good wage who can send their kids to college and retire with dignity.
It’s a feature not a bug.
a hip hop artist from Idaho (fka Bella Q)
@geg6: You and I and Amir Khalid, apparently. Along with raven, of course. Who’s made me envious with his calcutta.
Trollhattan
@gene108:
My first econ class was during “stagflation” and the professor had to keep reminding us what was occurring didn’t fit the models he was teaching us. The “dismal science” indeed. “But I want butter and guns!”
Belafon
@Trollhattan: I am not an economist, but I have wondered if the reason the models couldn’t explain stagflation is that they didn’t properly account for OPECs influence on the US economy.
Tommy
@Violet:
I totally agree. That grandfather I mentioned sent all his children to college. Two of them women. I am not sure what it was like in the 50s. But they went to college. Pretty sure that was because of a union job that could afford it.
So I am pretty pro union.
BillinGlendaleCA
@Roger Moore: It’s easier to read than APL.
http://en.wikipedia.org/wiki/APL_(programming_language)
Southern Goth
@gene108:
Please pardon my hyperbole. It is clearly out of line here.
Roger Moore
@gene108:
FTFY.
Origuy
I thought at first this was a climate change post, about the island nation of Nauru being engulfed by sea levels rising.
Pogonip
@Villago Delenda Est: Go ahead. Give us a sitrep ASAP.
jl
@Belafon: In retrospect, it was a simple thing for Keynesians to steepen the aggregate supply curve and shift it to the left.
Problem is that in an empirical science you are supposed to predict. And similar oil price hikes have occurred since the 70s without similar effect on the economy. So, how good is the Keynesian explanation of the 70s stagflation?
On the other hand, no real oil price shocks have as severe or as long since the mid-1970s. Or maybe the structure of the economy changed wrt to oil after the second price shock in the late 1970s.
Unless you believe that the huge run-up in crude oil prices in 2005 to 2007 had something to do with triggering the 2007 recession, which triggered the financial panic (not the other way around as many believe was the causal sequence).
Oh, well, so much for economics as an exact science like physics, or half-way exact like genetics. Too bad.
But, from a Keynesian point of view, stagflation is easy to explain theoretically as a result of a supply shock. Whether the curve bending needed to explain the 70s has held up well empirically since then is another question. If you think oil prices had a role in 2007 recession, then it has. Otherwise, you don’t.
Pogonip
@schrodinger’s cat: “Your Account Will Grow As Fat As Cole’s Pets!”
Pogonip
@Amir Khalid: Whatever you call it, open an account now and get a free Furminator!
Pogonip
@Trollhattan: They’re right, we have.
JPL
@gene108: Most people on food stamps work. It would seem to me that if the repubs wanted to rid us of food stamps, they would push for a living wage.
raven
@JPL: you so funny
Roger Moore
@jl:
It’s fairly clear that the recession triggered the financial crisis, not the other way around. The recession officially started in December 2007, which was well before the financial panic struck. The financial panic obviously converted an ordinary recession into something much bigger, but there’s no plausible way of claiming that the panic created the recession.
In any case, the run-up in oil prices in 2005-2007 looks a lot like a classic part of the business cycle. That’s what you expect when the economy is overheating; there’s too much money chasing too few goods, so prices go up. Plenty of other commodities, like construction materials, were going up at the same time. It’s a classic demand-driven price spiral. That’s very different from the 1973 and 1980 oil shocks, which were exogenous supply shocks.
Violet
@JPL: What? Wouldn’t that be government interference? Much better that the government not interfere by forcing food stamp recipients to get drug tested.
jl
@Roger Moore: Good point. Thanks. I forgot to say you have tease out demand driven price increases from supply driven increases. There were some spikes in oil prices that probably were supply driven and as large as in 70s due to instability and war in Middle East, but they were relatively brief.
A lot of the recent price drop is demand driven too, except in other direction: price fall parly due to decreased growth in demand, in addition to investment cycle
Francis
@Roger Moore: A couple of big Bear Sterns CMO funds went belly-up in August (?) 07. By early 07 everyone who could afford a mortgage and wanted one had one. In 07 the originators started issuing mortgages to people who ended up defaulting on their very first payment. As everyone in the system was leveraged to the hilt, it only took a tiny number of defaulting borrowers to create a huge crisis.
Matt McIrvin
@Roger Moore: In Massachusetts, the real-estate bubble was in the process of bursting as early as the summer of 2006 (I know because I was selling my house at the time). The avalanche had already started, though the economy wasn’t in recession yet.
J R in WV
@Trollhattan:
Me too. My first class was to the Econ department head, who was a dynamic teacher. I kept after asking about 19% inflation and the economic theory that expansion could be infinite. He kept saying that it was just a model, not reality, and I said “But if the model doesn’t represent reality, how is it useful?”
I got an A, so my questions didn’t upset him… it was interesting to take the Econ classes in a period when the economy didn’t match classic models very well, 1980-84.