Tag Archives: economy

Is the FED broken? Some random thoughts.

Is the FED  (Federal Reserve System) broken? If not broken then certainly being strongly tested, as this piece shows to me: The Fed Is Searching for a New Framework. New Minutes Show It Doesn’t Have One Yet. – The New York Times.

Since the start of the Great Recession, the target interest rate has gone from just over 5% to just over 0% and has more or less stayed that way for over half a decade. (See the chart). After a very long pause, the chairwoman of the Federal Reserve has begun the process of raising interest rates,  a process that her predecessors have engaged in over recent decades as they put their own distinctive stamp on the economy. (See A History of Fed Leaders and Interest Rates – The New York Times). Some of them, like Paul Volcker, have been hugely successful in shaping the economy. Others, like Alan Greenspan, also have shaped the economy hugely, but I would add, unsuccessfully. So what should the FED do?

Paul Krugman has his take, here. Perhaps an extreme inflation target is the answer, just like Volcker’s extreme interest rates were the answer for their time. However, I don’t think they are symmetrical, and the goals of a higher inflation target would be dampened down by other forces. Furthermore, the FED and most other central banks seem only capable dealing with tamping down inflation and not so capable when dealing with unemployment.

The Chairwoman is signalling she will be raising rates soon. We should see what the effect is, and how the economy and President Trump and Congress responds. If the economy goes into a recession, that would say to me the FED is broken.  If the economy does not go into a recession, I would say this means the FED still has a limited role in managing the economy. Let’s see.

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Two good articles on the new economy (work is changing)

These two articles: In the Sharing Economy, Workers Find Both Freedom and Uncertainty and Is owning overrated? (both from the NYTimes) look at how people are changing their how they work and what they own in the new (American) economy. I don’t think there is one thing driving these changes. Partially it is how people feel about work, but also what type of work is available to them. Plus technology is allowing for people to work and own in ways not available before.

I found the first article depressing. My hope is that as more companies like this come along, they will need to compete more and this will be better for the workers. Indeed, this seems to be happening to Uber as Lyft (and likely others) come along. As for renting, I think there is a limit to this. While it makes sense to rent some things, I believe that subset is alot smaller than one may initially imagine. What may happen is that people own things for smaller windows.

What seems certain is that the days of working for one employer for along period of time is only going to decline further. Additionally people may conspicuously rent or hold for smaller periods of time and then release things.

Time and changes in the economy will tell.