1) Menzie Chinn sends us to: Michael Rosenberg, Financial Conditions Watch (Bloomberg, Jan. 27, 2010):
Fed Funds Rate Outlook -- A Taylor Rule Perspective: With U.S. real GDP growth moving back into positive territory in the second half of 2009 following four consecutive quarters of negative growth (see Figure 1), the economic forecasting community appears to be increasingly optimistic about the U.S. economy's growth prospects for 2010-11.... According to Bloomberg's latest survey of 57 economists (as reported on {ECFC}), the U.S. economy is expected to grow by 2.7% in 2010 and 2.9% in 2011 (see Figure 2). These projections represent a significant rebound from the 2.5% decline expected for 2009.
Indeed, judging by expectations of the future course of U.S. short-term interest rates, the market appears to believe that the U.S. recovery will prove to be stronger than a typical post-crisis recovery. Expectations for higher short-term interest rates are reflected both in the Fed Funds futures market and in the consensus interest-rate projections of leading economists (as reported in Bloomberg's latest {BYFC} survey)... the futures market is pricing in Fed rate hikes that will take the Funds rate to around 0.75% by year-end 2010 and to around 1.00% by February 2011. The forecasting community believes the Fed will be even more aggressive as they expect the Fed to hike the Fed Funds rate to 1.75% by mid-2011.
While it is certainly the case that the Fed will eventually have to push its policy rate higher, there is reason to believe that the policy-rate path predicted in Figure 4 might be overly aggressive. Indeed, as we demonstrate below, the market's projection for Fed rate hikes is not consistent with the path forecasted by conventional Taylor Rule models. If we input the Federal Reserve's forecasts for core inflation and unemployment into a variety of Taylor Rule-type models, we actually end up with a zero or negative Fed Funds rate projected for all of 2010 and, in a number of cases, for 2011 as well.
2) Felix Salmon: Global financial regulatory reform falls apart:
There are literally more representatives of Bill Clinton here in Davos than there are of Barack Obama. If the Obama administration is serious about its newest ideas for regulatory reform, especially the Volcker Rule, it would have made a great deal of sense to send Paul Volcker — or at the very least someone like Austan Goolsbee — to Davos, to try to get the rest of the world excited about it. But they didn’t.
And even the president himself doesn’t seem to wedded to it... the relevant bit of his address last night... is all so vague as to be meaningless; the one thing that’s for sure is that House has not passed financial reform with a Volcker Rule embedded — mainly because the Volcker Rule didn’t exist when the House was putting its bill together. Yet it seems that Obama is reasonably happy with the House bill in its present form.
3) Tim Duy: Dissent:
The FOMC statement contained a mini-bombshell, the dissent of Kansas City Fed President Thomas Hoenig. I am skeptical, however, that this dissent is a significant shift in the policy environment. Instead, I view the statement as taking another baby step forward to a normalization of monetary policy now that the financial crisis has eased and that the economic environment has firmed. Many policymakers will simply find themselves increasingly uncomfortable holding rates at rock bottom levels while sitting on a bloated balance sheet - regardless of the unemployment rate. Short of a significant reversal of recent economic gains, I would be hard pressed to see the Fed back away from a policy stance that is growing tighter, albeit slowly tighter.
4) John Gruber: The iPad Big Picture:
Apple now owns and controls their own mobile CPUs. There aren’t many companies in the world that can say that. And from what I saw today, Apple doesn’t just own and control a mobile CPU, they own and control the hands-down best mobile CPU in the world. Software aside (which is a huge thing to put aside), it may well be that no other company could make a device today matching the price, size, and performance of the iPad. They’re not getting into the CPU business for kicks, they’re getting into it to kick ass. They’re Microsoft and Intel rolled into one when it comes to mobile computing. In the pre-taped video Apple showed, Bob Mansfield said of the iPad, “No one else could do it.” Only Apple. And so my takeaway from this — with the bragging about making their own CPUs and their annual revenue and their size compared to companies like Sony, Samsung, and Nokia — is that this is Apple’s way of asserting that they’re taking over the penthouse suite as the strongest and best company in the whole ones-and-zeroes racket.
5) GRAPH OF THE DAY: from the Economic Policy Institute:
6) BEST NON-ECONOMICS THING I HAVE READ TODAY: Michael Cohen: America the Ungovernable:
In 2008 Barack Obama and the Democrats were elected to fix the economy; and yet the only real measures at their disposal—increasing government spending and bailing out or nationalizing key industries—is precisely what is sparking voter discontent. Had Democrats not passed an $800 billion stimulus package, if Obama hadn't bailed out the auto industry or continued the TARP program, the country would likely be in far worse shape than it is today. Yet the president is getting no credit for doing the exact things he was asked to do last November.
On health care, polls indicate that Americans want Congress to extend access, cut costs, and tame the insurance industry. But they don't want their own benefits affected, or government's role in the health-care system to increase, or be mandated to buy insurance. In short, they want change, but they reject the most commonsense means of bringing that change about and generally refuse to sacrifice for the greater good of society as a whole.
Making the situation worse is that political news coverage, rather than explaining the gulf between voter expectations and political reality, often panders to the electorate's misguided notions. Partisans are allowed to spew talking points decrying government spending and rising deficits without being forced to explain how they would rein it in. Politicians call for bipartisan compromise without acknowledging their own role in exacerbating partisan tensions. Voters complain that Washington must do more to help the economy but in the same breath decry government's expanding role or misstate basic facts about their government and are given a virtual free pass by reporters who take "customer is always right" attitude toward the electorate.
7) SECOND BEST NON-ECONOMICS THING I HAVE READ TODAY: Ta-Nehisi Coates: Chris Rock On The Negro Dialect:
8) SECOND STUPIDEST THING I HAVE READ TODAY: Eric Hobsbawm: Age of Empire, p. 50:
The world merchant marine, whose growth roughly indicates the expansion of the global economy, had remained more-or-less static between 1860 and 1890. Its size fluctuated between 16 and 20M tons. Between 1890 and 1914 it almost doubled...
[But the fleet of 1860 is a sailing fleet. The fleet of 1890 is a steam fleet. What with the changability of the wind, a steamship can sail about three times as fast as a sailing ship. the 20M tons of 1890 had three times the cargo-carrying capacity of the 20M tons of 1860.]
9) STUPIDEST THING I HAVE READ TODAY: Greg Mitchell tells us about David Brooks: David Brooks on Sarah Palin: A Profile in Cowardice:
It was amusing -- if appalling -- to watch David Brooks on the TV yesterday declare that Sarah Palin is a "joke" and only qualified to be a TV "talk show host." Last year, during the 2008 campaign, he believed exactly the same thing but refused to put it in print. It was a Profile in Cowardice and one of the biggest stains on Brooks' career in journalism and punditry.... Last year, in early October, the New York Times columnist admitted at a small Manhattan forum -- fortunately captured on video by then-HuffPoster Rachel Sklar -- that vice presidential candidate Sarah Palin was not qualified for higher office ("not even close") and, indeed, was a "cancer" on his party, the GOP. To that point, while offering some criticism of Palin as candidate, Brooks had not offered this frank appraisal to his millions of Times readers or in a national TV airing. Days passed and he never did. I kept a running count here of days he was missing in action. Election day came and went and no Brooks slam in print on this "unqualified" angle. And, of course, he never did say that selecting an incompetent was a fatal blemish on John McCain. In fact, Brooks wrote, "Palin is smart, politically skilled, courageous and likable. Her convention and debate performances were impressive. But no American politician plays the class-warfare card as constantly as Palin." Brooks also mocked what he called the "smug condescension that has so marked the reaction to the Palin nomination in the first place"...
10) HOISTED FROM THE ARCHIVES: Brad DeLong (August 2007)Weirdest First Week of Class Experience EVAR!!:
"The 210a students are waiting for you." "What?" "Economics 210a. The students. They are waiting for you. In Evans 608-7." "But 210a is in the spring!" "There are seventeen 210a students waiting for you in Evans 608-7 right now."
It turns out that when we in the Economics Department moved 210a from the fall to the spring semester, we never told the registrar. So students who relied on the schedule of classes rather than the Economics Department gossip vine thought 210a starts today. I am pushing as many of them as I can back to the spring, and I suppose I will wind up doing a reading course for the rest who cannot make the spring time...
UPDATE: We may well have told the registrar. The registrar thinks that I am teaching 210a in the fall, and that Barry Eichengreen is teaching 210a in the spring. We may have just confused the registrar.
