There’s your jobs number Mr. Bullard
I saw two interesting stories today at Yahoo.com. First, a discussion of what the Fed would like to see before “tightening” monetary policy:
SHANGHAI (Reuters) – It would be good to see more improvement in the U.S. job market before exiting some stimulus programs, a top U.S. Federal Reserve official said on Friday.
James Bullard, president of the St. Louis Federal Reserve Bank, said the U.S. economy was improving but some policies put in place to support the recovery should not be withdrawn yet.
“We haven’t even seen a positive jobs report in the U.S. economy. We’d like to see at least one month of positive jobs growth,” he told students at a university forum in Shanghai.
Why did I put quotation marks around “tightening?” Because it implies that current policy is easy. The article also says:
The Fed has chopped interest rates to near zero and pumped hundreds of billions of dollars into the financial system to guide the world’s largest economy through the worst crisis since the Great Depression.
Of course it is also true that a few years back the BOJ chopped interest rates to near zero and pumped hundreds of billions of dollars into the financial system to guide the world’s third largest economy through the worst crisis since the Great Depression. And Bernanke once argued that their policy was (despite appearances) actually contractionary.
In any case, Mr. Bullard will not have to wait any longer; we now have “at least one month of positive jobs growth:”
WASHINGTON (Reuters) – U.S. employers unexpectedly cut 85,000 jobs in December, cooling optimism on the labor market’s recovery and keeping pressure on President Barack Obama to find ways to spur job growth.
The Labor Department said on Friday that November payrolls were revised to show the economy actually added 4,000 jobs rather than losing 11,000 as initially reported, breaking a streak of consecutive losses that dates back to December 2007.
I don’t want you pessimists to pay any attention to the 85,000 jobs lost in December. Look at the bright side; we gained 4,000 jobs in November. The recovery continues to zip right along. Let’s hope the Fed doesn’t let this boom get out of hand. Right now Corporate America is squeezing more effort out of fewer workers. Profits are increasing. The S&P seems to rise almost everyday. All is well.
Every researcher who has studied the Great Depression, and that includes me, Friedman and Schwartz, Temin, DeLong, Eichengreen, Romer, Clark Johnson, Hamilton, and yes, Ben Bernanke, reaches a point where they scratch their head an wonder “what could people have been thinking?” Often that point is reached in October 1931, when after two straight years or unrelenting jobs losses, the Fed decided to raise interest rates. Now I don’t want to compare the current situation to 1931. We have not had two years of unrelenting job losses. After all, we did gain 4,000 jobs in November.
The comment that perfectly encapsulates the mindset of central bankers in the early 1930s was a line by Hawtrey that is often cited by Krugman:
Fantastic fears of inflation were expressed. That was to cry Fire, Fire in Noah’s Flood.
Of course Krugman might be wrong this time. But note that years ago Krugman used this line while discussing fears of inflation in Japan. And he was right. I wouldn’t bet against him being right again.
Update: In case you think the comparison to 1929-31 is pure hyperbole, check out this very informative graph on the employment to population ratio from Mark Thoma.
I am not saying it is nearly as bad as 1929-31, and I do think we will get some jobs in 2010 (unlike 1932.) But it sure looks far worse than 1981-82, doesn’t it?
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8. January 2010 at 13:20
Speaking of jobs numbers, this plot is rather frightening. Its of total numbers of jobs, and suggests that the improving unemployment figures are mostly smoke.
http://pajamasmedia.com/instapundit/wp-content/uploads/2010/01/jobs-lost-december-09-600×353.gif
8. January 2010 at 14:28
You do realize that James Bullard is one of the good guys? Please give the dude some positive encouragement. He’s on record as saying he wouldn’t raise rates until the recovery was “well established”.
Compare him, for instance, to Plosser and Hoenig.
‘Kansas City Fed President Thomas Hoenig said today the central bank should move “sooner rather than later” to reduce stimulus, with a goal of eventually boosting the benchmark interest rate to “probably between 3.5 and 4.5 percent.”‘
http://www.sott.net/articles/show/200584-U-S-Warns-Banks-to-Guard-Against-Rate-Rise-Risks
And remember Plosser back in early 09, warning that we’d need to tighten rates soon…
http://www.marketwatch.com/story/inflation-risks-higher-than-many-think-plosser
Plosser and Hoenig are very loud, forceful personalities. Plosser is off the FOMC till 2011, Bullard is on the committee as of this year. Plosser doesn’t believe that an output gap is meaningful or has any impact on price level.
You should read up on last year vs. this year’s membership. Hoenig will be a forceful hawk. Yellen is leaving, but Bullard joins. We also get to dump Lockhart (Atlanta, trained at Stanford), Lacker (Richmond, taught at William and Mary), and Evans (Chicago, former UC faculty).
These get replaced by Boston & Cleveland.
http://www.federalreserve.gov/monetarypolicy/fomc.htm
By my count, we gain 3 moderates and 1 hawk, and lose 3 hawks and 1 moderate. That’s a +2 shift. Bernanke, I think, is a moderate. The Board of Governors members look a little less ideological than regional bank presidents. I would expect this year to see the Fed behaving a bit more reasonably than last. In 2011, Plosser comes back like an avenging angel (after his last ministry of death in 2008).
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Obviously, putting much weight on the Nov positive surprise of the Dec negative surprise is a bit silly, since much of this is just noisy time shifting of reported hiring.
BTW, the street’s reaction today was rather tame. It reacted _positively_ to a very large build up in wholesale inventory, which suggested more business activity. In my mind, that’s a strong negative. One of the major projected drivers of growth in 2010 is inventory rebuild. Once that driver is exhausted, if demand/investment does not pick up (and employment recover), then we’re truly hosed.
BUT, inventories have started to rebuild massively without a hiring increase. That says something very important, I’m sure.
I just wish I knew what.
8. January 2010 at 14:43
[previous comment waiting moderation – hit the link filter again]
Anyway, here’s the WSJ’s opinion on incoming/outgoing FOMC members:
http://blogs.wsj.com/economics/2010/01/06/incoming-fomc-voters-keep-hawk-dove-balance-mostly-intact/
I think they mistagged Bullard, tho – recent comment suggest he’s a moderate, not a hawk. So that’s 2 incoming doves, a super hawk, and a moderate. The WSJ is also too nice to outgoing members.
Look to see the Fed’s policy on continued support for open market purchases of MBS to be a serious topic in the next few months.
8. January 2010 at 19:41
Doc Merlin, Yes, when you look at that graph you wonder why they are even thinking of tightening policy.
Statsguy, That info was very helpful. I would just make one comment about Bullard. You are right that he is skeptical of raising rates in 2010, but he thinks other forms of tightening might be needed. So that is still worrisome. But I accept Your point, I shouldn’t pick on him when there are worse cases.
I just had time for a quick comment on the “2 Ben Bernankes” post tonight. If you have any thoughts they would be appreciated.
4. February 2010 at 18:36
[…] Mr. Bullard of the St. Louis Fed wants to see “at least one month of positive jobs growth” before raising rates. Maybe it will come out tomorrow, but stocks fell sharply today on worries that the recovery is sputtering out: NEW YORK (AP) — Stocks buckled Thursday under the growing belief that the global economy is weaker than many investors expected and is likely to stop the U.S. labor market from rebounding in the coming months. […]
7. February 2010 at 19:00
[…] Mr. Bullard of the St. Louis Fed wants to see “at least one month of positive jobs growth” before raising rates. Maybe it will come out tomorrow, but stocks fell sharply today on worries that the recovery is sputtering out: NEW YORK (AP) “” Stocks buckled Thursday under the growing belief that the global economy is weaker than many investors expected and is likely to stop the U.S. labor market from rebounding in the coming months. […]