Wednesday, November 28, 2018

Janet Yellen "Not Tall Enough"

So said Donald Trump on several occasions in connection with possibly appointing her as Fed Chair, according to an article in today's Washington Post by Philip Rucker, John Dawsey, and Damian Paletta.  This article, along with several others, mostly covered the 20 minute interview these three had with Trump in the Oval Office.  Most of the news was was expected: on MbS still "maybe he did and maybe he didn't" on his role in the Khashoggi murder; "i don't see it" regarding evidence of a human role in global warming presented in the recently released climate change report, and California forest fires still due to poor forest management (with Interior Sec under investigation Ryan Zinke weighing in on that one about the importance of good forest management).  No, the top story was about the economy.

So Trump is blaming GM's impending layoff of 15,000 workers on the Fed raising interest rates, no role for his steel tariffs.  Janet Yellen should probably grateful she is not in the firing line.  It is Jerome (Jay) Powell who is, with Trump declaring "So far, I'm not even a little bit happy with my selection of Jay.  Not even a little bit. And I'm not blaming anybody, but I'm just telling you I think that the fed is way off-base with what they are doing."

Now arguably the Fed is being too vigorous about raising interest rates, and they may well slow down or even halt this if the rumblings of growth slowing become louder.  That said, if Yellen had been reappointed probably we would have seen interest rate increases  this year, if possibly maybe not quite as rapidly as we have seen (or would have with some hawk outsider many Congressional Republicans were pushing like Jon Taylor).  But the Fed is much more of a group operation than many realize, especially given that the Chairs for quite some time have sought more or less consensus decisions, even as they are often scattered dissidents making public noises.  And this consensus has a strong element coming from the staff and their models, with all of this building in a lot of momentum.  Once the Fed gets itself into doing something, like deciding on the string of interest rates they have been doing, it is hard to undo that.

While I am not enthusiastic about it, I do see one reason for some interest rate increases.  It is the matter of looking ahead to the next recession: if interest rates are not up at least somewhat, it will be hard to cut them much to stimulate the economy when it goes down again.  Obviously the problem is avoiding having those increases pushing the economy into that, although it may be that the zero lower bound is not the limit anymore we have thought it was in the past, with many nations running negative nominal rates for extended periods of time.  OTOH, Trump himself is at least partly responsible for rising interest rates, especially the longer term ones the Fed has less control over, thanks to his exploding budget deficit.

So what about this report about Yellen?  Apparently this was  not a matter that came up in the interview specifically, but near the end of the lead article, Rucker, Dawsey, and Paletta wrote the following, which I shall simply quote and end without further comment.

"Trump considered reappointing Yellen, and she impressed him generally during an interview, according to people briefed on their encounter.  But advisers steered him away from renominating her, telling him that he should have his own person in the job.

The president also appeared hung up on Yellen's height.  He told aides on the National Economic Council on several occasions that the 5-foot-3-inch economist was not tall enough to lead the central bank, quizzing them on whether they agreed, current and former officials said."

Barkley Rosser


Peter said...

Disagree, disagree, disagree.

The one thing Trump is right about is taking it to the Fed. The Fed has been raising rates with no inflation in sight and no doubt it has hurt the economy. If the tariffs are hurting the economy, then stop hiking rates!

I can somewhat sympathize with liberals who want a recession to kick Trump from office, thereby saving many from needless misery even as a recession will hurt many vulnerable people. But really we should try to be objective.

What if Hillary was President? The Fed shouldn't be hiking. Providing room to lower rates is a bizarre argument. So you bring on a recession in order to provide room to fight it? The government can use fiscal policy and QE if it needs to, to fight the next recession.

Sad when liberals don't have these basic macro insights on lockdown. If Obama had focused on the Fed as Trump is rightly doing, Hillary would be President. said...


Note that I said rates should not be raised so rapidly or high as to push us into a recession. I am not one calling for a recession to get rid of Trump.

Obama's problem was not that he failed to focus on the Fed. The Fed kept the fed funds rate basically at zero until near the end of Obama's term, and he had reasonably steady growth throughout. Where he failed was in not fully using fiscal policy especially in 2011, although Congress was pushing the austerity. He also failed to get the gains from growth more widely spread so that most did not feel any growth, a matter really having little to nothing to do with the Fed.

As it is now, Trump is destroying the ability to use fiscal policy in a recession as he is running a highly stimulative one now. It is the budget deficits from this that are pushing up long term interest rates, which the Fed has not that much control over.

So, I think you are off somewhat here, Peter. said...

More for Peter,

Do please note that I said that arguably the rates are going up too much. Do you want rates to remain at zero? Given the rising deficits, that is not going to happen.

The real current problem is Trump's idiotc tax cut for the rich. This is indeed removing the fiscal policy tool for combating the next recession, and there will be one whether any of us like it or not and whehter it arrives while Trump is still around or as is highly likely it arrives for his successor who runs a tight fiscal policy to reign inthe deficits Trump will pass on, much as Bush Sr. suffered from bad economic times thanks partly to having to undo the Reagan deficits.

Indeed, maybe they are mistaken, but there is little question that it is Trump's budget deficits and the stimulus they are providing that is part of what has been motivating the tightening by the Fed. As it is, that may be soon over, with Powell apparently having made a statement that the rates are nearly at the neutral level, suggesting maybe one more hike and then no more. But we shall see. In any case, the stock market responded favorably to that statement.

I am in less idsagreement with you than you may think, Peter, although if you support the current tax cut policy of Trump, well, that I do not support. But while I think some interest rate increases have been justified, I do think the time for them to stop has probably about arrived.

Peter said...

I don't doubt we mostly agree especially about the stupid tax cuts, and my tone may be a little more blunt than necessary b/c I see most of the public pundits (besides the Trumpers) agree with you and your narrative. I am speaking to them as well.

I just don't buy the excuses and rationalizations you make for the Fed and for Obama. They had/have more power and are more responsible for growth and prosperity than you allow.

See Yglesias here:

The Fed focuses too much on inflation in what seems to me as an excuse to prevent labor markets from becoming tight and giving workers bargaining power. Many other policies of both parties conspire against workers so why not the Fed. That has been its results.

Hopefully Powell does slow down and I won't be surprised if some describe him as buckling under to Trump's harsh criticism. I believe Trump will lose in 2020 no matter the state of the economy so I don't need to hope for a recession or rationalize for a Fed that has been too tight in its policy.

The Bank of Japan has pegged long rates so central banks can do something about them.

"The new policy framework consists of two components: the first is "yield curve control" in which the Bank controls short-term and long-term interest rates through market operations;"

Dan said...

Thank you Trump voters.

reason said...

I think that the fed should tighten more and the government should both tax more and spend more. But I reiterate my general observation that I don't think it a good idea to make growth totally dependent on an increase in private debt .And I don't really see how rational people can think such a policy is sustainable. Given a choice between debt and the devil, choose the devil every time. said...


Various debt levels in the US have gotten quite high recently, with a lot of attention being paid to the pileup of corporate debt in particular. Dean Baker argues with some reason (not you, reason) that the media huffing on this is overdone and that those levels are not all that dangerous. I do not know on this for sure, but it is not just the US. There has been a considerable escalation of various forms of debt around the world. We may be setting up for another big "correction," although I suspect it is not immediate, if it happens at all.

reason said...

Barkley, I am more worried about personal debt. And I was obliquely referring of course to the book "Between Debt and the Devil" where mortgage debt was of primary concern - natural from a London based perspective. But my bigger concern is that the Washington concensus is just wrong - a loose fiscal, tight money (especially tight lending) is much healthier in every way than the tight fiscal, loose money mix that was promoted. And even more importantly, it is compatible with an aging population, lower resource use and slower growth that represent the only chance of a sustainable future. People keep assigning to capitalism in general the problems that really belong to debt driven monopoly capitalism (I am also sceptical of the value of hostile takeovers).

Owen Paine said...

The policy rate as effective demand control instrument
Defies the kalecki imperative

"Don't let corporate capitalists control
The macro economy "

That is unless the policy rate changes
mostly thru
Changes in residential housing sales rates

Which seems to have a role in the last crisis
And protracted recession

Owen Paine said...


You know very well the fiscal debt burden
is a mqcro policy variable
Not a exogenous constraint

We badly mislead the educated public
by condemning Trump deficits per s3
when we really should condemn
the pattern of tax cuts
not the cumulative size of these cuts

We need to offer tax cuts to wage earners
And tax increases to unearned high incomers
A nice change in the health tax system
Is asking to be placed on the progressive agendas top line

Owen Paine said...

Proposals to set a REAL NOT NOMINAL target rate
for the treasury debt structure of zero


Owen Paine said...

Social domestic per job hour accumulation of zero looks like it arrived
a couple decades ago

Owen Paine said...


reason said...

Of course it happens the other way around, people assign to capitalism the progress that comes from science, the rule of law and infrastructure.