The Fed thinks it’s smarter than the markets

We’ll see . . .

PS. I have a post on low rates over at Econlog. The good news is that the post suggests that money’s not quite as tight as it might look based on bond yields. The bad news is that money is still too tight.

PPS.  Here’s a Paul Krugman tweet, discussing the Fed rate increases of 2017-18:

If you wonder what a negative fiscal multiplier caused by excessive monetary offset looks like, Krugman is describing it. I actually don’t quite agree, I believe the rate increases were appropriate, except perhaps the last one. But even in that case the main problem was bad forward guidance after the December 2018 meeting. Once that was corrected, things were OK. Until they weren’t.

In other words, on this particular fiscal stimulus issue I’m slightly more “Keynesian” than Krugman.

PPPS. As far as I can tell from the tweet thread, I pretty much agree with Krugman on the recession risk. Significant, but perhaps less than it looks.

PPPPS. America’s never had a soft landing, and (at least since WWII) we’ve never had a mini-recession. Other countries experience these sorts of events. Because we are in uncharted territory, with the longest expansion ever, we need to consider the possibility that one of these unusual events might occur.



28 Responses to “The Fed thinks it’s smarter than the markets”

  1. Gravatar of Rodrigo Rodrigo
    15. August 2019 at 00:11

    This makes me a lot less optimistic that the Fed will do the right thing next week by telegraphing several more rate cuts ahead! Scary that they believe they are smarter than the market!

  2. Gravatar of Benjamin Cole Benjamin Cole
    15. August 2019 at 01:34

    I realize hindsight is perfect.

    But there never were signals of supply being strained in the US economy, not in products, or commodities, or labor markets, or anything besides certain artificially restricted property markets (ie, the West Coast, NYC and Boston). Or globally for that matter.

    The globe has been trending towards deflation and zero bound for nearly four decades.

    In recent years, every time a major central bak has tightened, they have had to retreat.

    The vulgarian reality TV show host was right, and the Fed was wrong.

    PS: There is nothing more fake than a reality TV show. Or the current occupant of the White House. Nevertheless, the record speaks for itself: In Trump vs. Fed, we have to the verdict is for, “Trump!”

  3. Gravatar of George George
    15. August 2019 at 03:16

    Paul Krugman, the lame brain who ‘predicted’ the internet would go the way of the fax machine, and ‘predicted’ that the markets would crash if Trump won the election.


  4. Gravatar of George George
    15. August 2019 at 04:16

    People of Hong Kong are facing potential invasion and death from Chinese communists wave American flags and sing the American National Anthem.

    American liberals, i.e. communists, burn and step on the American flag.

    What goes 40,000 feet over the heads of many American ‘academics’, blog author included, is just how much the rest of the world looks to us for their own freedom.

  5. Gravatar of Michael Sandifer Michael Sandifer
    15. August 2019 at 04:27


    On the recession risk, an even better indicator than the inverted yield curve is when NGDP growth falls down to or even below short-term nominal yields, like the Fed Funds rate. It’s an obvious point, but recession normally follows such an event much more closely in time than with the inverted yield curve. By that measure, we still have about a 1.5% fall in NGDP growth to go before the bigger red warning light is flashing frantically on the dashboard.

  6. Gravatar of George George
    15. August 2019 at 06:21

    POTUS retweet.

    “Democrats also boycotted Lincoln’s inauguration because he had this radical idea of ending slavery.”

    Looks like our TRUE history will go from ‘fringe’ (where truth ALWAYS begins) to worldwide.

    They brainwashed billions these Satanic child killers.

    Nothing is going to stop what is coming. NOTHING.

  7. Gravatar of John Hall John Hall
    15. August 2019 at 07:17

    The econlog post was interesting. I’m still digesting it a little. In particular, I suppose I’m just struggling with how you would incorporate this line of thinking more broadly into your perspective.

    For instance, what if instead of tight money or loose money, we have money just about right, but then we also have easy credit. Do you believe there are any potential negative consequences from that? I’m thinking in particular of the pre-GFC period where you have typically said that monetary policy was about right. However, that is also considered a period where people like Bernanke were saying that a savings glut was pushing down interest rates. Easy credit means that individuals and firms can easily lever up, if regulations allow it. This could make the economy more susceptible to NGDP shocks.

  8. Gravatar of ssumner ssumner
    15. August 2019 at 07:31

    John. Clearly the pre-2008 regulatory framework was flawed. I blame things like FDIC, the relative tax treatment of debt and equity, etc.

  9. Gravatar of George George
    15. August 2019 at 09:27

    Racist Demokkkrats Omar and Tlaib barred from entering Israel.


    Now what about banning them from America?

  10. Gravatar of George George
    15. August 2019 at 09:31

    This was soon after Trump asked Israel to not invite these two evil anti-semite psychos.

    Remember when the low IQ blog author and so many fake news victims called Trump “Hitler”?

    Worst Hitler ever.

  11. Gravatar of George George
    15. August 2019 at 09:35

    Fake News is doing everything they can to crash the economy.

    All because orange man bad.

    Forget the millions of innocents in their way.

    And the stupid low IQ idiots on this blog are eating it up.


  12. Gravatar of Tom Brown Tom Brown
    15. August 2019 at 12:12

    Is Major_Freedom using the name George now? The style seems different, but the persistence and winning personality are reminiscent. You don’t suppose there was ever a Major_Freedom Jr, do you?

  13. Gravatar of Brian Donohue Brian Donohue
    15. August 2019 at 13:02

    If George was Major_Freedom, surely he’d have mentioned Rorty by now.

  14. Gravatar of Christian List Christian List
    15. August 2019 at 13:14

    G. is that Wolf-Guy, that’s obvious.

    Or it’s an alter ego of Scott who wants to go hog wild, let it all hang out, and paint the town red.

    Major_Freedom writes in coherent sentences. His style is different.

  15. Gravatar of George George
    15. August 2019 at 17:56

    Trump is packing arenas everywhere he goes.

    Meanwhile the 567 Demokkkrats running for President can’t even fill a bar.

  16. Gravatar of George George
    15. August 2019 at 18:03

    Dear blog posters,

    Instead of worrying over who a person is, try focusing on the messages.



    PS With Dan Coates (deep state swamp rat) no longer Director of National Intelligence as of today (Aug 15), AG Barr wasted no time in starting to declassify documents related to Hillary Clinton’s emails being ‘hacked’ by China, i.e. SOLD STATE SECRETS TO deep state operatives in CHINA.

    Remember when the C_A agents under cover in China were killed? No coincidences.

  17. Gravatar of Benjamin Cole Benjamin Cole
    15. August 2019 at 19:42

    30-Year US Treasuries now below 2%.

    Central banks cannot control rates that far out, except perhaps fleetingly through QE.

    There is now $16 trillion of sovereign debt offering negative yields, and rapidly escalating.

    Jackie Gleason was fat, Jimmy Durante had a big nose, and major global central banks have been generally tight since about 1980.

    But independent self-financing public agencies are perpetual, and evidently perpetual in mindsets.

    The Fed can be wrong longer than Trump can stay in office.

  18. Gravatar of Benjamin Cole Benjamin Cole
    15. August 2019 at 20:10


    For years I have pointed to productivity and labor costs, confidently asserting that unit labor costs were under 2%, so labor was a drag on the Fed’s putative 2% inflation target.

    Well, I was right, until the BLS revised data collection procedures or methodology, or deployed new astrologers. Now I am wrong. Welcome to Macroeconomics 101 (real world edition)

    Talk about revisions.

    For example, under the old way, nonfarm corporate hourly compensation in Q1 2019 grew at an 1.6% annual rate. That has been changed to….8.9%. Oh, that.

    In Q2 2019, for example, under previous regime, manufacturing productivity grew at an annual 0.4% annual rate. That has been changed to minus 2.1%, in the new way. Yes, even in manufacturing, productivity is declining.

    Well, as I say, no one in macroeconomics is ever wrong…or right.

    Yesterday, I believed unit labor costs were dead weight on the Fed’s 2% inflation target. and could cite best data available. Today we can say wages are rising at 9% annually year in some quarters, and workers produce less per hour as time goes by.

    Of course, there is the old fallback position: Challenge the methodology, and if that does not work, then challenge the quality of data collection. If all that fails, change the topic.

    Have you seen 30-year Treasury rates?

    Lowest of all time!

  19. Gravatar of Benjamin Cole Benjamin Cole
    15. August 2019 at 20:19 . link for comments above

  20. Gravatar of George George
    16. August 2019 at 03:10

    This is the case all over the country.

    Fake News has tricked millions into falsely believing the Demokkkrats are anywhere close to being as well received and popular as POTUS.

  21. Gravatar of George George
    16. August 2019 at 03:15

    If, according to fake news and their brainwashed liberal sheep, Trump’s rhetoric is so dangerous, why do they have to lie about what he says to make it sound bad? Wouldn’t it sound bad all by itself?

  22. Gravatar of George George
    16. August 2019 at 04:23

    Fake News in its ugly reality

    This is how they brainwash the blog author and his followers

  23. Gravatar of George George
    16. August 2019 at 06:14

    Yesterday, Donald Trump hosted a freedom loving rally in NH to over 11,000 adoring patriots, breaking an attendance record formerly held by superstar Elton John.

    Hillary Clinton on the other hand was wondering why a painting of her husband wearing Monica Lewinsky’s dress was hanging in the house of a child trafficking pedophile’s home.

    I am grateful Trump won, FOR THE SAKE OF OUR CHILDREN.

  24. Gravatar of George George
    16. August 2019 at 06:21

    TheSquad might as well speak for some of the posters here

  25. Gravatar of George George
    16. August 2019 at 07:29

    Take heed you dorks.

    You’re only just pushing more people to vote for Trump.

  26. Gravatar of George George
    16. August 2019 at 09:15

    Shocker! Anti-semite D Rep Rashida “Impeach the motherfu%&er!” Tlaib LIED LIED LIED.

  27. Gravatar of Lorenzo from Oz Lorenzo from Oz
    16. August 2019 at 16:59

    I hope the George infestation passes quickly …

  28. Gravatar of Jeremy Jeremy
    19. August 2019 at 19:28

    I am actually considering the possibility that George is the test run of a GPT-2 based bot.

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