Four years ago, I made the case why Janet Yellen would make an excellent chair of the Federal Reserve. As testimony to the power of our mighty blog, President Obama followed our advice and nominated her for a four-year term. So I thought I’d call attention now to a few of the reasons why President Trump should ask Yellen to serve a second term.
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Author Archives: James_Hamilton
U.S. begins ninth year of economic expansion
The Bureau of Economic Analysis announced today that U.S. real GDP grew at a 2.6% annual rate in the second quarter. That is below the long-term historical average of 3.1%, but better than the 2.1% we’ve seen on average since the Great Recession ended in 2009.
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Are we in a new inflation regime?
Federal Reserve Bank of Chicago President Charles Evans got some attention recently with the following statement:
In a world of global competition and new technology, I think competition is coming from new places. New partners are choosing to merge and sort of changing the marketplace and [bringing] more competitive pressures on price margins…If that’s the case, and I think that’s just speculative at this point, then it means that we need even more accommodation to get inflation up.
How to remove the trend from economic variables
I have an article at voxeu discussing my recent research on how you should (and shouldn’t) try to do this.
Fed balance-sheet reduction not scaring anyone
Today the Federal Reserve announced that it is increasing its target for the fed funds rate to a new range of 1 to 1.25%, a development that surprised no one. But something that was not heralded in advance was the announcement that the Fed intends to “begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated.” The Fed spelled out in detail exactly what that will entail. Sometime later this year, the Fed will begin limiting the amount of maturing Treasury securities and mortgage-backed securities that it reinvests, initially bringing its balance sheet down by $10 billion each month as its holdings are redeemed. Those amounts will gradually increase each month until after a year balance-sheet reduction reaches a pace of $50 billion per month. That compares with a net increase of $100B/month on the way up during QE1. Given current Fed security holdings of $4.2 trillion, this would reduce the Fed’s security holdings by about 14% per year once it gets into full swing.
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Treasury debt held by the public
How much does the U.S. government owe? The number that is subject to the recurrent debt-ceiling wrangling includes intra-government debts that the Treasury is imputed to owe to other Federal government operations. For example, Social Security taxes have historically exceeded benefits paid out. The surplus was used to pay for other government programs, and the Social Security Trust Fund was credited with corresponding holdings of U.S. Treasury securities representing the accumulated value of those surpluses. Many of us think of this as an I.O.U. that the government issued to itself. Economists usually subtract those intra-government debts when talking about the size of the federal debt, relying instead on the Treasury’s measure of debt held by the public. Although many of us have made use of the latter numbers in academic research, policy analysis, and lectures to our students, those data are also getting less reliable in recent years.
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Economy off to a slow start for 2017
The Bureau of Economic Analysis announced today that U.S. real GDP grew at a 0.7% annual rate in the first quarter, weak even by the post-recession average annual growth rate of 2.1% and far below the U.S. historical average of 3.1%.
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China’s tetralemma
Many countries have three policy objectives: (1) being able to set their own monetary policy, in order to keep their own inflation and unemployment at desired levels; (2) having a stable exchange rate, in order to avoid disruptive shifts in exports or imports; and (3) allowing free capital flows, in order to help the country’s citizens and firms find the most efficient sources and uses of capital. But the famous policy trilemma of international economics claims that any country is going to be forced to give up on one of those three goals.
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How the Federal Reserve controls interest rates
The way in which the Federal Reserve controls the short-term interest rate today is completely different from the way things worked ten years ago. I was looking for a good description of how the current system works and couldn’t find one, so decided to write my own.
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2017 Econbrowser NCAA tournament challenge
March Madness returns! All are invited to sign up for the world famous tenth annual Econbrowser NCAA tournament challenge, in which you can demonstrate your inability to predict the outcome of the U.S. college men’s basketball tournament. If you want to participate, go to the Econbrowser group at ESPN, do some minor registering to create a free ESPN account if you haven’t used that site before, and fill in your bracket before Thursday at noon!
I see that a number of the more serious Econbrowsers have already joined the group before I even got this announcement up, including last year’s winner Jackiegee. So watch out, these guys are good at correctly anticipating!