Cliff Notes Version [MY TAKE]
Yellen has been doing a lot of talking
where is that neutral rate going and I think what you see is a downward shift
To an activist central bank, the natural rate is thought one of the few methods of calibration even theoretically available.
There are distinctions between real interest rates and nominal, as well as second derivatives - does pushing market rates below the natural rate cause prices to rise or merely accelerate from whatever level they may start from?
the natural rate had been depressed (in real terms)
policymakers are looking at their mistakes.
The unemployment rate may have dropped to what appears to be "full employment" but that is only because at least 10 million Americans are "missing"; perhaps as many as 15 or 16 million.
population, has grown by 20.2 million since the last payroll peak in November 2007. The labor force itself, at least according to the official definition, only added 4.6 million of them (and 2 million of those were in what increasingly looks like a statistical oddity at the end of last year). Because less than one in four new laborers appear to have actually entered the labor market the unemployment rate gets to be less than 5%
Despite continued claims of being the "best jobs market in decades", this was nothing like what had happened in past cycles of true recoveries.
...on August 9, 2007, as what was supposed to be implicit support yielded to explicit pleading. The private money market reacted in ways the Fed just was not prepared for (largely because they believed it all impossible). Before 2007, the Fed's whims were dutifully carried out under implicit belief in legend and myth; after 2007 they were all proved to be nothing more than that. Not only did the Fed fail to stop the illiquidity leading to panic, their balance sheet expansion has failed to do anything for the recovery thereafter.
Thus, when Janet Yellen claims the economy is strong there are only questions; when Alan Greenspan said the same twenty years ago there were only accolades and adoration.
Janet Yellen tries to speak plain and instead comes across as befuddled, confused, and, at best, unconvincing.
In one sense there is the hint of optimism that they are finally starting to "get it"; but that is equally balanced by the shocking realization of how long it took just to begin the realization, and then further reduced by the fact that even if they view the global economic problem as properly monetary they will still attempt to address in the most orthodox of terms; and continue to fail some more. They are beginning to speak something other than nonsense, important stuff, but I doubt they will ever actually let themselves hear it.
Hmm, maybe we need a short version of my Cliff Notes...
Greenspan made it look he like was in control. Now central bankers have found out that they don’t control much and certainly can’t manage the economic actions of their peeps. Dismal science, ecomomics remains.
GOODMORNINGHAPPYFRIDAY!!!!
Headline:
Brexit Wins! U.S. Stock Futures Dive, Pound Crashes To 30-Year Low
So while Brexit may be bad for journalists and the political faction that pays them the rest of us have stock futures soaring +1.81% and yesterday's gains have IBD resetting the official outlook to "market rally resumes"! Metals have already done their notching up w/ gold & silver's new highs at $1,318.30 & $17.87! FWIW metals futures see this as a metals new normal.
Reports this morning: Durable Orders, Durable Orders, ex-transportation, and Michigan Sentiment - Final.
More headlines:
Here is my take on it. The Fed and the central banks are like sticks trying to prop up a world-sized jellyfish. They make a move and billions of small operators flow around it to a position of their maximum advantage. The Fed and central banks are trying to manage the unmanageable. In so doing they have created a situation where an increase in interest rates to a paltry 4% would bankrupt most nations. This is because low interest rates have led politicians to print and then borrow billions for their pet projects. None of these projects pay for themselves, like a hydroelectric dam would. They are green energy debacles or social payoffs, which do nothing but create more debt and add to the burden the future must eventually pay for.
I agree that labor participation, or rather lack thereof is probably 16 million in the US alone. Much of this is caused not by the economy, but instead is an effect of countless regulations from federal and state agencies. I would like to hire an employee. But to pay the state required wages of $10 costs me about $20 per hour plus I have to spend hours and hours each year doing paperwork. If I miss one of the several required filings and payments required for the state and feds I will be fined hundreds or thousands of dollars. I simply can’t hire anybody.
Now, multiply that issue by all the people not employed.
“Janet Yellen tries to speak plain and instead comes across as befuddled, confused, and, at best, unconvincing.”
LOL, Understatement!
Too bad we can't dump these losers like the British dumped the EU and Trump dumped the GOPe. It is completely idiotic to believe that the "natural" rate of interest is anything other than what a free market says it should be. Sure there will be irrational exuberance affecting the rate but that quickly corrects itself.
The natural interest rate, or neutral rate as she called it, is an unobservable, theoretical interest rate that is supposed to define a long-run equilibrium that would keep the economy operating at full employment with stable inflation.
Boneheads. There's no such thing even in theory. The price of money in a free economy will rise or fall with the economic outlook. Jury rigging the rate does not change the economy or the outlook, it merely distorts the economic signal that the market rate would have provided. So intead of the necessary deflation or inflation or whatever the economy needs at the moment the rates cause the perversely opposite effect.
In 2008 we needed rates to rise substantially to unwind the bubble quickly and efficiently. Instead the idiots lowered rates which cause the unwind to continue to the present day and beyond. It is in slow motion preventing the subsequent recovery.
no...you did good...