Sumner doesn't get why they are raising rates at all this year.
"It's not clear why the Fed is planning to raise rates this year. Are they still committed to a 2 percent inflation target? If the U.S. avoids recession, then inflation would have undershot 2 percent during almost the entire 2009-20 expansion. But why? And if we have a recession between now and 2020, how will the Fed avoid the mistakes of the last recession? Recall that in 2009 the U.S. experienced deflation during a period of high unemployment, a clear violation of the Fed's dual mandate."
"Congress is now trying to get the Fed to adopt a clearer policy rule. This leaked report makes it clear why more transparency is needed. I've spent my entire life studying monetary economics, and especially the Fed, and yet even I would not be able to explain to an economics student what the Fed is trying to achieve with the forthcoming rate increase."
http://econlog.econlib.org/archives/2015/07/prediction.html
That last paragraph worries me a little. In theory it is a good thing if Congress finally holds the Fed accountable to any degree but this is the House GOP I assume Sumner is referencing here. They're basic problem with the Fed is they don't get why it hasn't already raised interest rates long ago.
http://lastmenandovermen.blogspot.com/2015/07/pat-toomey-wants-to-reign-in-fed.html
So if the GOP Congress were to give the Fed a rule it would basically be 'Neo-Fisherian'-which amounts to this: the Fed needs to raise interest rates much quicker than it has.
The Fed from now on should raise interest rates in a more normal-ie, quicker-way. In principle then while Congressional guidance might be good, I'm not so sure from this Congress.
As to Sumner's question as why they are raising rates this year-it's again, Neo-Fisherianism. What NF theory comes down to is a desire to see high interest rates. In 2009 the NFers were raising holy hell about the idea that we were going to see galloping inflation thanks to what the Fed was doing.
Yes, Krugman has documented exhaustively how wrong those inflationphobes were. However, this has just led them to come up with a new-rather ingenuous-reason for raising rates: they've gone from warning about inflation exploding to inflation staying too low too long.
http://lastmenandovermen.blogspot.com/2015/08/have-inflationphobes-learnt-anything-in.html
I suggested this to David Glasner but I guess he sees it as speculation as to motives.
"Mike, You may be right, but I am not going to try to guess what their motives are."
http://uneasymoney.com/2015/07/24/neo-fisherism-and-all-that/#comment-458469
Which is fine-I get that not everyone in the academic econ mainstream is going to want to follow me in such speculations as to motive. Yet aren't economists always telling us that All motives are wrong but some are useful?
Then again there's the Hippocratic Oath-First do no harm. So what harm would come from assuming this theory-that NFers are all motivated y a desire to raise interest rates? Generalizing is the whole point of using 'false economic models.' I mean if you oversimplify the motives of a few idiosyncratic academic economists-who all hail from the Freshwater School-so what?
Now when you generalize you also simplify-which is a blessing and a curse. Still you have to generalize if you intend to say anything interesting or notable about the world.
Maybe you can find me some NFers who haven't wanted to raise rates all along-but for changing reasons. But I can't help but notice that all the really notable NFers-John Cochrane, Stephen Williamson, etc. They were inflatonphobes in 2009 and had been demanding that interest rates rise soon. Now they are warning that low interest rates actually produce low inflation.
In judging a model, one very important consideration is explanatory power. I think my theory of NFers here works. I think that the Neo-Fisherian position should be understood as a desire to raise interest rates because it's just not normal to have rates this low this long,
Today the some NF comments by the Fed's Lockart is in the news:
Overnight, markets digested hawkish comments from FOMC voting member and Atlanta Fed President Dennis Lockhart who spoke to The Wall Street Journal. Lockhart said the economy is ready for an increase in short term rates and it would have to deteriorate significantly for it to persuade him not to move.
He said there was a "high bar right now to not acting, speaking for myself." Lockhart is one of the first Fed officials to speak since the Fed met last week, and his comments sent the dollar and bond yields higher."
http://www.cnbc.com/2015/08/05/wall-street-wobbly-ahead-of-adp-jobs-report.html
The news just came in that the ADP jobs report missed expectations. However, this didn't drag the futures down as a voting member of the Fed says he hasn't decided on raising rates in September.
Federal Reserve Gov. Jerome Powell said Wednesday on CNBC's "Squawk Box" that the labor market continues to be strong, but he has not made up his mind yet on whether interest rates should be raised next month.
"Nothing has been decided and I haven't made any decisions of what I would support and certainly the committee hasn't," he said. "We're still working with the same framework, we're looking for some further improvement in the labor market and reasonable confidence on inflation going back to 2 percent in the medium term. I'm going to be very focused on the data from now until the meeting, particularly the labor market data."
So could disappointing nonfarm payroll numbers actually be bullish on Friday? Some have argued that the banks would do better if interest rates go up but right now they are rallying with the rest of the futures with the prospect of no rate hike in September.
"It's not clear why the Fed is planning to raise rates this year. Are they still committed to a 2 percent inflation target? If the U.S. avoids recession, then inflation would have undershot 2 percent during almost the entire 2009-20 expansion. But why? And if we have a recession between now and 2020, how will the Fed avoid the mistakes of the last recession? Recall that in 2009 the U.S. experienced deflation during a period of high unemployment, a clear violation of the Fed's dual mandate."
"Congress is now trying to get the Fed to adopt a clearer policy rule. This leaked report makes it clear why more transparency is needed. I've spent my entire life studying monetary economics, and especially the Fed, and yet even I would not be able to explain to an economics student what the Fed is trying to achieve with the forthcoming rate increase."
http://econlog.econlib.org/archives/2015/07/prediction.html
That last paragraph worries me a little. In theory it is a good thing if Congress finally holds the Fed accountable to any degree but this is the House GOP I assume Sumner is referencing here. They're basic problem with the Fed is they don't get why it hasn't already raised interest rates long ago.
http://lastmenandovermen.blogspot.com/2015/07/pat-toomey-wants-to-reign-in-fed.html
So if the GOP Congress were to give the Fed a rule it would basically be 'Neo-Fisherian'-which amounts to this: the Fed needs to raise interest rates much quicker than it has.
The Fed from now on should raise interest rates in a more normal-ie, quicker-way. In principle then while Congressional guidance might be good, I'm not so sure from this Congress.
As to Sumner's question as why they are raising rates this year-it's again, Neo-Fisherianism. What NF theory comes down to is a desire to see high interest rates. In 2009 the NFers were raising holy hell about the idea that we were going to see galloping inflation thanks to what the Fed was doing.
Yes, Krugman has documented exhaustively how wrong those inflationphobes were. However, this has just led them to come up with a new-rather ingenuous-reason for raising rates: they've gone from warning about inflation exploding to inflation staying too low too long.
http://lastmenandovermen.blogspot.com/2015/08/have-inflationphobes-learnt-anything-in.html
I suggested this to David Glasner but I guess he sees it as speculation as to motives.
"Mike, You may be right, but I am not going to try to guess what their motives are."
http://uneasymoney.com/2015/07/24/neo-fisherism-and-all-that/#comment-458469
Which is fine-I get that not everyone in the academic econ mainstream is going to want to follow me in such speculations as to motive. Yet aren't economists always telling us that All motives are wrong but some are useful?
Then again there's the Hippocratic Oath-First do no harm. So what harm would come from assuming this theory-that NFers are all motivated y a desire to raise interest rates? Generalizing is the whole point of using 'false economic models.' I mean if you oversimplify the motives of a few idiosyncratic academic economists-who all hail from the Freshwater School-so what?
Now when you generalize you also simplify-which is a blessing and a curse. Still you have to generalize if you intend to say anything interesting or notable about the world.
Maybe you can find me some NFers who haven't wanted to raise rates all along-but for changing reasons. But I can't help but notice that all the really notable NFers-John Cochrane, Stephen Williamson, etc. They were inflatonphobes in 2009 and had been demanding that interest rates rise soon. Now they are warning that low interest rates actually produce low inflation.
In judging a model, one very important consideration is explanatory power. I think my theory of NFers here works. I think that the Neo-Fisherian position should be understood as a desire to raise interest rates because it's just not normal to have rates this low this long,
Today the some NF comments by the Fed's Lockart is in the news:
Overnight, markets digested hawkish comments from FOMC voting member and Atlanta Fed President Dennis Lockhart who spoke to The Wall Street Journal. Lockhart said the economy is ready for an increase in short term rates and it would have to deteriorate significantly for it to persuade him not to move.
He said there was a "high bar right now to not acting, speaking for myself." Lockhart is one of the first Fed officials to speak since the Fed met last week, and his comments sent the dollar and bond yields higher."
http://www.cnbc.com/2015/08/05/wall-street-wobbly-ahead-of-adp-jobs-report.html
The news just came in that the ADP jobs report missed expectations. However, this didn't drag the futures down as a voting member of the Fed says he hasn't decided on raising rates in September.
Federal Reserve Gov. Jerome Powell said Wednesday on CNBC's "Squawk Box" that the labor market continues to be strong, but he has not made up his mind yet on whether interest rates should be raised next month.
"Nothing has been decided and I haven't made any decisions of what I would support and certainly the committee hasn't," he said. "We're still working with the same framework, we're looking for some further improvement in the labor market and reasonable confidence on inflation going back to 2 percent in the medium term. I'm going to be very focused on the data from now until the meeting, particularly the labor market data."
So could disappointing nonfarm payroll numbers actually be bullish on Friday? Some have argued that the banks would do better if interest rates go up but right now they are rallying with the rest of the futures with the prospect of no rate hike in September.
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