- Links for 06-18-15
- Fed Watch: June FOMC Recap
- 'TPP Versus NAFTA'
- 'Why Anti-Keynesian Views Survive'
- 'Microcredit: Neither Miracle nor Mirage'
Posted: 18 Jun 2015 12:06 AM PDT
Posted: 17 Jun 2015 02:02 PM PDT
June FOMC Recap, by Tim Duy: The FOMC meeting ended largely as expected with a nod toward recent data improvement but no change in policy. It is still reasonable to believe that lift-off will occur in September, but only if incoming data removes any residual concern about the sloppy data from earlier this year. Still, as Federal Reserve Chair Janet Yellen emphasized today, the lift-off itself is less important than the subsequent path of rates. That path remains subdued.
The FOMC statement itself was little changed - see the Wall Street Journal statement tracker here. Key is the opening line that validates the belief that the first quarter weakness was largely transitory:
Information received since the Federal Open Market Committee met in April suggests that economic activity has been expanding moderately after having changed little during the first quarter.
Otherwise, growth is expected to continue at a moderate pace that justifies an extended period of low interest rates. The updated forecasts saw reduced growth expectations this year as expected, while the near-term unemployment forecast was raised modestly (I had felt the Fed would be wary of doing this given their tendency to be overly pessimistic on this point). Longer term forecasts were essentially unchanged. The forecasts:
The highest interest rate forecasts for 2015 were eliminated as was virtually required given the lack of any rate hike today. The median rate forecast suggests a rate hike this year, as did Yellen in her press conference. Still, she also said they are looking for decisive evidence to justify a rate hike, and I suspect that evidence will not arrive prior to the July meeting. Maybe September. Maybe not. It's all meeting by meeting now, you know.
Interestingly, although the inflation and unemployment forecasts for 2016 and 2017 were largely unchanged, the median interest rate projection fell along with the most hawkish forecasts. See this handy chart from Fulcrum Asset Management:
No change in the inflation and unemployment forecasts combined with a slower and longer path to normal rates suggests a modest change in the reaction function. In effect, the Fed has turned more dovish as the timing of lift-off is delayed. Even with unemployment falling to current estimates of full employment next year, they do not believe the economy needs (or maybe could withstand) a rapid pace of hikes. Persistently low inflation and wage growth is taking its toll on policy expectations. And even the most hawkish participants are falling in line with this story.
Bottom Line: Fed policy unchanged as expected, door still open for a rate hike in September, but the lower rate path indicates a modestly more dovish Fed resigned to a persistent low interest rate environment. It's the rate path we need to be watching, not the timing of the first hike.
Posted: 17 Jun 2015 12:17 PM PDT
TPP Versus NAFTA: Many people — myself included — thought that TPP would, in the end, follow the model of NAFTA: a Democratic president would push the agreement through Congress, but the bulk of the votes would be Republican. But it doesn't seem to be going that way. Why?
Lydia DePillis suggests that procedural differences and the changed political environment are what changed. Maybe. But I'd suggest three additional factors.
First, while non-trade issues like dispute settlement and intellectual property already loomed large in NAFTA, it was nonetheless more of a genuine trade agreement than TPP...
Despite this, the real case for NAFTA involved foreign policy — which is also true for TPP (administration officials tell me that it's really about geopolitics.) But that case was much more compelling for NAFTA, which was about rewarding Mexican reformers. ...
Finally, I think it's fair to say that the liberal intelligentsia has been somewhat radicalized by Republican extremism; making common cause with those who share your basic values matters more than it seemed to a couple of decades ago. ...
So it really is a different game, and TPP supporters need to realize that old rules no longer apply.
Posted: 17 Jun 2015 08:31 AM PDT
The evidence for the Keynesian worldview is very mixed. Most economists come down in favor or against it because of their prior ideological beliefs. Krugman is a Keynesian because he wants bigger government. I'm an anti-Keynesian because I want smaller government.
Statements like this tell us rather a lot about those who make them. As statements about why people hold macroeconomic views they are wide of the mark. Of course there is confirmation bias, and ideological bias, but as the term 'bias' suggests, it does not mean that evidence has no impact on the views of the majority of academics.
The big/small government idea makes no theoretical sense. Why would wanting a larger state make someone a Keynesian? Many Keynesians, and most New Keynesians, nowadays acknowledge that monetary policy should be used to manage demand when it can. They also know that any fiscal stimulus only works, or at least works best, if it involves temporary increases in government spending. So being a Keynesian is not a very effective way of getting a larger state.
It is also obviously false empirically. ...
Parts of the political right have always had a deep ideological problem with Keynesian analysis. As Colander and Landreth describe, the first US Keynesian textbook was banned. New Classical economists, for all the many positive contributions they brought to macro (in the view of most mainstream Keynesians), also tried to overthrow Keynesian analysis and they failed.
When anti-Keynesians tell you that support or otherwise for Keynesian macroeconomics depends on belief about the size of the state, they are telling something about where their own views come from. When they tell you everyone ignores evidence that conflicts with their views, they are telling you how they treat evidence. And the fact that some on the right take this position tells you why anti-Keynesian views continue to survive despite overwhelming evidence in favor of Keynesian theory.
Posted: 17 Jun 2015 08:10 AM PDT
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