Implicitly, Trump is saying John Taylor is crazy, since the original Taylor rule would imply even faster rises in the Fed funds rate (I am inferring from Professor Taylor’s discussion of neutral rates. Below I plot the implied Fed funds rate, assuming no interest rate smoothing, the Laubach-Williams one-sided estimate of the real natural rate, and a target variable of 4 quarter PCE inflation.
Figure 1: Implied Fed funds rate, using CBO output gap, Laubach-Williams one-sided estimate of real natural rate, PCE 4 quarter inflation, and no interest rate smoothing. Source: Atlanta Fed.
Assuming a higher natural real rate (2%) would — obviously — imply we are currently far below Taylor rule implied levels.
First post Menzie turning hawk?
Zi Zi: Doubt it — if I were a hawk, I would’ve assumed 2% neutral rate, instead of an estimated. What has changed since a year ago is a drastically more expansionary fiscal policy.
@ Zi Zi
…… And I have heard some people express Chinese are not good at dry humor. Although I am forced to confess it provoked a muffled chuckle from me, maybe the humor didn’t quite hit the mark you intended.
The inflation rate has been low and fairly stable, so we’d expect that any increase in the Fed’s rates would be relatively minor. Interest rates are still low enough that they should have minimal effect on economic decisions. https://www.bloomberg.com/news/articles/2018-10-11/u-s-core-inflation-trails-estimates-as-used-car-prices-tumble
On the plus side, it would be beneficial to keep home prices https://www.fhfa.gov/DataTools/Tools/Pages/Motion-Chart.aspx and automobile prices a little suppressed.
But don’t expect to see much change in what you receive in the way of interest from your bank or credit union. The stock market might be a bit skittish realizing that the days of free money might be ending.
Now I would argue that r-star = 2% is still too high and we know Dr. Taylor’s insistence on holding onto his original formulation of his rule was crazy. But then let’s grant that if the economy is incredible as Trump claims it is – the FED should be raising interest rates a bit.
But let’s also be fair. Lawrence Kudlow today that Trump never meant to bash the FED at all. Never mind what the press documents that Trump has been saying. It is all Fake News anyway! After all the Usual Suspects point out that the Trump trade war is actually a movement towards free trade. And in other news – the earth really is flat!
So shall we break down the FOUR times bankrupt trump’s analysis: ” ‘Fed Put’ for President Obama bad, ‘Fed Put’ for donald ‘The Great Inheritor’ trump good.”
https://www.scmp.com/news/china/economy/article/2147452/day-reckoning-coming-chinas-corporate-bond-market
http://fortune.com/2018/03/15/us-national-debt-trump-tax-cuts/
https://www.marketwatch.com/story/trump-still-owes-lenders-including-deutsche-bank-as-much-as-480-million-2018-05-16
https://themoscowproject.org/dispatch/trump-russia-deutsche-bank/
https://themoscowproject.org/?s=deutsche+bank
https://www.motherjones.com/politics/2018/04/the-head-of-the-deutsche-bank-division-that-loaned-trump-364-million-just-got-a-big-promotion/
If you owed hundreds of millions of dollars to banks, including a large German bank being subpoenaed for documents in relation to both corruption and collusion, would you be against the raising of interest rates?? I guess once you get all your money from Daddy, ruin multiple businesses, end up keeping the wealth you inherited barely floating with bank credit, then interest rates would become nearly an obsessive topic for you. When you’re not asking White House staff to sign confidentiality agreements and non-consensually grabbing women’s genitals.
Does anyone hear Warren Buffett whining about Fed interest rate moves?? Maybe it has something to do with the fact Buffett is a creditor and not a debtor?? In fact Buffett owns a decent amount of bonds (anyone here can probably look up the exact figure, but it’s safe to say “a lot” of bonds and treasuries). Now if bonds and treasuries (and stocks for that matter) tend to drop when rates rise, wouldn’t Buffett be a big loser in the instance of the Fed raising rates?? Yet not a word from Buffett as far as recent criticism of the Federal Reserve. Perhaps our “resident geniuses” on this blog who can nary get a single prediction correct would like to “enlighten” us all on why Buffett hasn’t said a recent critical word on Federal Reserve moves??
If anyone else was bewildered over Menzie’s reference to “one-sided” estimate of rates, I think the latter portion of this FRBSF article by Tao Wu explains it decently:
https://www.frbsf.org/economic-research/publications/economic-letter/2005/october/estimating-the-neutral-real-interest-rate-in-real-time/
Dear Menzie,
This one I agree with.
Julian
Moses: Google “Deutsche Bank largest shareholder”.
China’s HNA Group. Now tell us who this group is.
@ Zi Zi
Kind of interesting. I don’t think this has any relationship to donald “The Great Inheritor” trump’s debt he owes to Deutsche Bank. But it’s still an interesting and fascinating story. If you have light to shed on the topic that Financial Times does not, I’m sure I would love to know, the other Econbrowser readers would like to know, and hell, Financial Times would probably pay you for, or at least buy you an upscale lunch and a couple British craft beers:
https://ftalphaville.ft.com/2018/02/23/1519404195000/HNA-via-GAR–The-mystery-of-Deutsche-Bank-s-largest-shareholder/
It’s interesting to note, that even though that is a large hunk of pocket change, it is NOT what they term a “controlling interest” which would draw even more eyes to the HNA/DeutscheBank situation, along with a degree of ominous concern.
Post Script For whatever it’s worth, usually FT paywall is a b*tch to get past. That link works amazingly easily, even if you aren’t registered.
I registered when it was free and they havn’t blocked me yet. Maybe also that I was a subscriber to the dead trees version years ago.
If you’re talking about Alphaville, yeah, they have always been super good about that—but what surprised me is that link works off of Google, without registering or even “signing in”. They have a pretty strict paywall, so, it just kind of surprised me. But anyone can view it if you register. But I’m “old school” about blogging or putting stuff up on twitter, because I think if you put a link up that either you have to pay for or even have to sign in for you should TELL people before they take the link jump. So, I was just letting people know they didn’t have to do that to look at the article. As far as if they are willing to register, yes, ANYONE can look at that.
thanks moses, very interesting article. i guess i am rather lucky, and am affiliated with several institutions, any one of which almost always has access to most paywalled sites. so i tend not to feel your anger and frustration, but certainly recognize it.
would be interesting to consider, as china cuts back on their treasury purchases (which they are doing and not hiding it), where do they put their surplus cash? would not be surprising at all if a growing percentage of what was once a treasury fund, ie china, moves a greater percentage of those funds into equities around the world. perhaps the chinese government has decided it can be less risk averse than treasuries, and move to some other stocks. but notice, even with financials stocks with some risk, those financials have been shown to be backed and supported by their own governments. so if china were to buy us or european big financials, they would also be getting a risk subsidy paid for by the us and europe. it would not be surprising in the least if these rather complicated business ventures ultimately turn out to be chinese government investments-diversifying away from treasuries. if the investments fail, you will never know the government was involved. and if they turn out to be profitable, they probably won’t gloat about it anyways. just collect their extra cash and reinvest.