Wealth of Households and Nonprofit Organizations Recovering In Second Quarter 2020 by Growing 7.0 Percent Inflation Adjusted Above Levels Relative to First Quarter 2020 and Equal in Inflation Adjusted Levels Relative to Fourth Quarter 2019, Financial Assets and Real Estate Lead Wealth Recovery, World Inflation Waves, Destruction of Household Nonfinancial Wealth with Cyclically Stagnating Total Real Wealth in the Lost Economic Cycle of the Global Recession with Economic Growth Underperforming Below Trend Worldwide, World Cyclical Slow Growth, and Government Intervention in Globalization: Part I
Carlos M. Pelaez
© Carlos M. Pelaez, 2009,
2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020.
I World
Inflation Waves
IA Appendix: Transmission of
Unconventional Monetary Policy
IB1 Theory
IB2 Policy
IB3 Evidence
IB4 Unwinding Strategy
IC United
States Inflation
IC Long-term US Inflation
ID Current US Inflation
IE Theory and Reality
of Economic History, Cyclical Slow Growth Not Secular Stagnation and Monetary
Policy Based on Fear of Deflation
IIB Destruction of Household Nonfinancial Wealth
with Stagnating Total Real Wealth in the Lost Economic Cycle of the Global
Recession with Economic Growth Underperforming Below Trend Worldwide
III World Financial Turbulence
IV Global Inflation
V World Economic
Slowdown
VA United States
VB Japan
VC China
VD Euro Area
VE Germany
VF France
VG Italy
VH United Kingdom
VI Valuation of Risk
Financial Assets
VII Economic
Indicators
VIII Interest Rates
IX Conclusion
References
Appendixes
Appendix I The Great Inflation
IIIB Appendix on Safe
Haven Currencies
IIIC Appendix on
Fiscal Compact
IIID Appendix on
European Central Bank Large Scale Lender of Last Resort
IIIG Appendix on Deficit Financing of Growth and the
Debt Crisis
I World
Inflation Waves. This section provides analysis and data on world inflation
waves. IA
Appendix:
Transmission of Unconventional Monetary Policy provides more technical
analysis. Section IB United States Inflation analyzes inflation in the United
States in two subsections: IC Long-term US Inflation and ID Current US Inflation.
There is similar lack of reality in economic history as in monetary policy
based on fear of deflation as analyzed in Subsection IE Theory and Reality of
Economic History, Cyclical Slow Growth Not Secular Stagnation and Monetary
Policy Based on Fear of Deflation.
The critical
fact of current world financial markets is the combination of “unconventional”
monetary policy with intermittent shocks of financial risk aversion. There are
two interrelated unconventional monetary policies. First, unconventional
monetary policy consists primarily of reducing short-term policy interest rates
toward the “zero bound” such as fixing the fed funds rate at 0 to ¼ percent by
decision of the Federal Open Market Committee (FOMC) from Dec 16, 2008 to Dec
16, 2015 (http://www.federalreserve.gov/newsevents/press/monetary/20081216b.htm). Fixing
policy rates at zero is the strongest measure of monetary policy with
collateral effects of inducing carry trades from zero interest rates to
exposures in risk financial assets such as commodities, exchange rates, stocks
and higher yielding fixed income.
Chart
III-1C provides the yields of the ten-year, two-year, one-month Treasury Constant
Maturity, and the overnight Fed funds rate from Jan 2, 1962 to Sep 24, 2020.
The final data point is for Sep 24, 2020 with the Fed funds rate at 0.09
percent, the one-month Treasury constant
maturity at 0.08 percent, the two-year at 0.14 percent and
the ten-year at 0.67 percent. The causes of the financial crisis and global recession were
interest rate and housing subsidies and affordability policies that encouraged
high leverage and risks, low liquidity and unsound credit (Pelaez and Pelaez, Financial
Regulation after the Global Recession (2009a), 157-66, Regulation of
Banks and Finance (2009b), 217-27, International Financial Architecture
(2005), 15-18, The Global Recession Risk (2007), 221-5, Globalization
and the State Vol. II (2008b), 197-213, Government Intervention in
Globalization (2008c), 182-4). Several past comments of this blog elaborate
on these arguments, among which: http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html
Gradual
unwinding of 1 percent fed funds rates from Jun 2003 to Jun 2004 by seventeen
consecutive increases of 25 percentage points from Jun 2004 to Jun 2006 to
reach 5.25 percent caused default of subprime mortgages and adjustable-rate
mortgages linked to the overnight fed funds rate. The zero-interest rate has
penalized liquidity and increased risks by inducing carry trades from zero
interest rates to speculative positions in risk financial assets. There is no
exit from zero interest rates without provoking another financial crash. The yields
of Treasury securities inverted on Mar 22, 2019 with the ten-year yield at 2.44
percent below those of 2.49 percent for one-month, 2.48 percent for two months,
2.46 percent for three months, 2.48 percent for six months and 2.45 percent for
one year (https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield).
There was some flattening on Mar 29, 2019, with the 10-year at 2.41 percent,
the 1-month at 2.43 percent, the 3-month at 2.40 percent, the 6-month at 2.44
percent and the 1-year at 2.40 percent. There was further mild steepening on
Apr 12, 2019, with the 10-year at 2.568 percent, the 1-month at 2.419 percent,
the 3-month at 2.440 percent, the 6-month at 2.463 percent and the 1-year at
2.453 percent. The final segment after 2001 shows the effects of unconventional
monetary policy of extremely low, below inflation fed funds rate in lowering
yields. This was an important cause of the global recession and financial
crisis inducing as analyzed by Taylor (2018Oct 19, 2) “search for yield, excessive
risk taking, a boom and bust in the housing market, and eventually the
financial crisis and recession.” Monetary policy deviated from the Taylor Rule
(Taylor 2018Oct19 see Taylor 1993, 1997, 1998LB, 1999, 2012FP, 2012Mar27,
2012Mar28, 2012JMCB, 2019Oct19 and http://cmpassocregulationblog.blogspot.com/2017/01/rules-versus-discretionary-authorities.html http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html)). An explanation
is in the research of Adrian, Estrella and Shin (2018, 21-22): “Our findings
suggest that the monetary tightening of 2004-2006 period ultimately did achieve
a slowdown in real activity not because of its impact on the level of longer
term interest rates, but rather because of its impact on the slope of the yield
curve. In fact, while the level of the 10-year yield only increased 38 basis
points between June 2004 and 2006, the term spread declined 325 basis points
(from 3.44 to .19 percent). The fact that the slope flattened meant that
intermediary profitability was compressed, thus shifting the supply of credit,
and hence inducing changes in real activity. The 18 month lag between the end
of the tightening cycle, and the beginning of the recession is perfectly
compatible with effective monetary tightening.” See (https://www.newyorkfed.org/research/capital_markets/ycfaq.html). A major
difference in the current cycle is the balance sheet of the Fed with purchases
used to lower interest rates in specific segments and maturities such as
mortgage-backed securities and longer terms.
Chart III-1C, Yield US Ten-Year, Two-Year and One-Month
Treasury Constant Maturity Yields and Overnight Fed Funds Rate, Jan 3, 1962-Sep
24, 2020
Note: US Recessions in shaded areas
Source: Board of Governors of the Federal Reserve System
https://www.federalreserve.gov/releases/h15/
Chart VI-12A of the Board of Governors of the Federal
Reserve System provides the overnight fed funds rate and the bank prime rate on
business days from Jan 5, 2007 to Sep 17, 2020. There is a jump in the rates
and yield with the increase in fed funds rates target range from 0 to ½ percent
to ¼ to ½ percent on Dec 16, 2015 by the Federal Open Market Committee (http://www.federalreserve.gov/newsevents/press/monetary/20151216a.htm),
½ to ¾ percent on Dec 14, 2016 (https://www.federalreserve.gov/newsevents/press/monetary/20161214a.htm)
and ¾ to 1 percent on Mar 15, 2017 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20170315a.htm).
The FOMC raised the fed funds rate to 1 to 1¼ percent at its meeting on Jun 14,
2017 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20170201a.htm).
The FOMC increased the fed funds rate to 1¼ to 1½ percent on Dec 13, 2017 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20171213a.htm). The FOMC
increased the fed funds rate to 1½ to 1¾ percent on Mar 21, 2018 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20180321a.htm). The FOMC
increased the fed funds rate to 1¾ to 2.0 percent on Jun 13, 2018 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20180613a.htm). The FOMC
increased the fed funds rate to 2.0 to 2¼ percent on Sep 26, 2018 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20180926a.htm). The FOMC
increased the fed funds rate to 2¼ to 2½ percent on Dec 19, 2018 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20181219a.htm). The FOMC decreased the fed funds rate to 2 to
2¼ on Jul 31, 2019 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20190731a.htm). The FOMC
decreased the fed funds rate to 1¾ to 2.0 percent on Sep 18, 2019 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20190918a.htm). The FOMC
decreased the fed funds rate to 1½ to 1¾ on Oct 30, 2019 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20191030a.htm). The FOMC
decreased the fed funds rate to 1 to 1¼ percent on Mar 3, 2020 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200303a.htm). The FOMC
decreased the fed funds rate to 0 to ¼ percent on Mar 15, 2020 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315a.htm). On Aug 27, 2020, the Federal Open Market Committee changed its
Longer-Run Goals and Monetary Policy Strategy, including the following (https://www.federalreserve.gov/monetarypolicy/review-of-monetary-policy-strategy-tools-and-communications-statement-on-longer-run-goals-monetary-policy-strategy.htm): “The
Committee judges that longer-term inflation expectations that are well anchored
at 2 percent foster price stability and moderate long-term interest rates and
enhance the Committee's ability to promote maximum employment in the face of
significant economic disturbances. In order to anchor longer-term inflation
expectations at this level, the Committee seeks to achieve inflation that
averages 2 percent over time, and therefore judges that, following periods when
inflation has been running persistently below 2 percent, appropriate monetary
policy will likely aim to achieve inflation moderately above 2 percent for some
time.” The new policy can affect relative exchange rates depending on relative
inflation rates and country risk issues. The final segment of Chart VI-11
shows similar movement of the fed funds rate and the prime bank loan rate
following the fixing of the fed funds rate to approximately zero. In the final data
point of Chart VI-12A on Sep 17, 2020, the fed funds rate is 0.09 percent and
the prime rate 3.25 percent. The causes of
the financial crisis and global recession were interest rate and housing
subsidies and affordability policies that encouraged high leverage and risks,
low liquidity and unsound credit (Pelaez and Pelaez, Financial Regulation
after the Global Recession (2009a), 157-66, Regulation of Banks and
Finance (2009b), 217-27, International Financial Architecture
(2005), 15-18, The Global Recession Risk (2007), 221-5, Globalization
and the State Vol. II (2008b), 197-213, Government Intervention in
Globalization (2008c), 182-4). Several past comments of this blog elaborate
on these arguments, among which: http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html Gradual
unwinding of 1 percent fed funds rates from Jun 2003 to Jun 2004 by seventeen
consecutive increases of 25 percentage points from Jun 2004 to Jun 2006 to
reach 5.25 percent caused default of subprime mortgages and adjustable-rate
mortgages linked to the overnight fed funds rate. The zero-interest rate has
penalized liquidity and increased risks by inducing carry trades from zero
interest rates to speculative positions in risk financial assets. There is no
exit from zero interest rates without provoking another financial crash. The
yields of Treasury securities inverted on Mar 22, 2019 with the ten-year yield
at 2.44 percent below those of 2.49 percent for one-month, 2.48 percent for two
months, 2.46 percent for three months, 2.48 percent for six months and 2.45
percent for one year (https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield). Unconventional monetary
policy of extremely low interest rates was an important cause of the global
recession and financial crisis inducing as analyzed by Taylor (2018Oct 19, 2)
“search for yield, excessive risk taking, a boom and bust in the housing
market, and eventually the financial crisis and recession.” Monetary policy
deviated from the Taylor Rule (Taylor 2018Oct19 see
Taylor 1993, 1997, 1998LB, 1999, 2012FP, 2012Mar27, 2012Mar28, 2012JMCB,
2019Oct19 and http://cmpassocregulationblog.blogspot.com/2017/01/rules-versus-discretionary-authorities.html http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html)). An
explanation is in the research of Adrian, Estrella and Shin (2018, 21-22): “Our
findings suggest that the monetary tightening of 2004-2006 period ultimately
did achieve a slowdown in real activity not because of its impact on the level
of longer term interest rates, but rather because of its impact on the slope of
the yield curve. In fact, while the level of the 10-year yield only increased
38 basis points between June 2004 and 2006, the term spread declined 325 basis
points (from 3.44 to .19 percent). The fact that the slope flattened meant that
intermediary profitability was compressed, thus shifting the supply of credit,
and hence inducing changes in real activity. The 18 month lag between the end
of the tightening cycle, and the beginning of the recession is perfectly
compatible with effective monetary tightening.” See (https://www.newyorkfed.org/research/capital_markets/ycfaq.html). A major
difference in the current cycle is the balance sheet of the Fed with purchases
used to lower interest rates in specific segments and maturities such as
mortgage-backed securities and longer terms.
Chart VI-12A, US, Fed Funds Rate and Prime Bank Loan Rate,
Business Days, Jan 5, 2007 to Sep 17, 2020, Percent per Year
Source: Board of Governors of the Federal Reserve System
https://www.federalreserve.gov/datadownload/Choose.aspx?rel=H15
Chart VI-12B of the Board of Governors of the Federal
Reserve System provides the fed funds rate and prime bank loan rate on business
days from Jan 2, 2001 to Sep 24, 2020. The behavior over time is that of
controlled interest rates. Unconventional monetary policy with zero interest
rates and quantitative easing is quite difficult to unwind because of the
adverse effects of raising interest rates on valuations of risk financial
assets and home prices, including the very own valuation of the securities held
outright in the Fed balance sheet. Gradual unwinding of 1 percent fed funds
rates from Jun 2003 to Jun 2004 by seventeen consecutive increases of 25
percentage points from Jun 2004 to Jun 2006 to reach 5.25 percent caused
default of subprime mortgages and adjustable-rate mortgages linked to the
overnight fed funds rate. The zero-interest rate has penalized liquidity and
increased risks by inducing carry trades from zero interest rates to
speculative positions in risk financial assets. There is no exit from zero
interest rates without provoking another financial crash. The final segment
shows the repetition of this policy with minute increases in interest rates. The causes of
the financial crisis and global recession were interest rate and housing
subsidies and affordability policies that encouraged high leverage and risks,
low liquidity and unsound credit (Pelaez and Pelaez, Financial Regulation
after the Global Recession (2009a), 157-66, Regulation of Banks and
Finance (2009b), 217-27, International Financial Architecture
(2005), 15-18, The Global Recession Risk (2007), 221-5, Globalization
and the State Vol. II (2008b), 197-213, Government Intervention in
Globalization (2008c), 182-4). Several past comments of this blog elaborate
on these arguments, among which: http://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html http://cmpassocregulationblog.blogspot.com/2011/01/professor-mckinnons-bubble-economy.html http://cmpassocregulationblog.blogspot.com/2011/01/world-inflation-quantitative-easing.html http://cmpassocregulationblog.blogspot.com/2011/01/treasury-yields-valuation-of-risk.html http://cmpassocregulationblog.blogspot.com/2010/11/quantitative-easing-theory-evidence-and.html http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html Gradual
unwinding of 1 percent fed funds rates from Jun 2003 to Jun 2004 by seventeen
consecutive increases of 25 percentage points from Jun 2004 to Jun 2006 to
reach 5.25 percent caused default of subprime mortgages and adjustable-rate
mortgages linked to the overnight fed funds rate. The zero-interest rate has
penalized liquidity and increased risks by inducing carry trades from zero
interest rates to speculative positions in risk financial assets. There is no
exit from zero interest rates without provoking another financial crash. The
yields of Treasury securities inverted on Mar 22, 2019 with the ten-year yield
at 2.44 percent below those of 2.49 percent for one-month, 2.48 percent for two
months, 2.46 percent for three months, 2.48 percent for six months and 2.45
percent for one year (https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield). The final segment after
2001 shows the effects of unconventional monetary policy of extremely low,
below inflation fed funds rate in lowering yields. This was an important cause
of the global recession and financial crisis inducing as analyzed by Taylor
(2018Oct 19, 2) “search for yield, excessive risk taking, a boom and bust in
the housing market, and eventually the financial crisis and recession.”
Monetary policy deviated from the Taylor Rule (Taylor 2018Oct19 see Taylor 1993, 1997, 1998LB, 1999, 2012FP, 2012Mar27,
2012Mar28, 2012JMCB, 2019Oct19 and http://cmpassocregulationblog.blogspot.com/2017/01/rules-versus-discretionary-authorities.html http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html)). An
explanation is in the research of Adrian, Estrella and Shin (2018, 21-22): “Our
findings suggest that the monetary tightening of 2004-2006 period ultimately
did achieve a slowdown in real activity not because of its impact on the level
of longer term interest rates, but rather because of its impact on the slope of
the yield curve. In fact, while the level of the 10-year yield only increased
38 basis points between June 2004 and 2006, the term spread declined 325 basis
points (from 3.44 to .19 percent). The fact that the slope flattened meant that
intermediary profitability was compressed, thus shifting the supply of credit,
and hence inducing changes in real activity. The 18 month lag between the end
of the tightening cycle, and the beginning of the recession is perfectly
compatible with effective monetary tightening.” See (https://www.newyorkfed.org/research/capital_markets/ycfaq.html). A major
difference in the current cycle is the balance sheet of the Fed with purchases
used to lower interest rates in specific segments and maturities such as
mortgage-backed securities and longer terms.
Chart VI-12B, US, Fed Funds Rate and Prime Bank Loan Rate,
Business Days, Jan 2, 2001 to Sep 24, 2020, Percent per Year
Source: Board of Governors of the Federal Reserve System
https://www.federalreserve.gov/datadownload/Choose.aspx?rel=H15
Chart
VI-9 of the Board of Governors of the Federal Reserve System provides
securities held outright by Federal Reserve banks from 2002 to 2020. The first
data point in Chart VI-9 is the level for Dec 18, 2002 of $629,407 million and
the final data point in Chart VI-9 is level of $6,458,738 million on Sep 23,
2020. On
October 25, 2017, at the beginning of the FOMC programmed reduction of the
balance sheet, Total Assets of Federal Reserve Banks stood at $4,461,117
million. Total Assets increased $2,632,044 million from $4,461,117 on Oct 25,
2017 to $7,093,161 on Sep 23, 2020. Total Assets of Federal Reserve Banks
increased from $3,981,420 million on Feb 20, 2019 to $7,093,161 million on Sep 23,
2020 by $3,111,741 million or 78.2 percent. The policy of reducing the fed
funds policy rate requires increasing the balance sheet. The line “Securities
Held Outright” increased from $4,019,823 million on Oct 25, 2017 to $6,458,738
on Sep 23, 2020 or $2,438,915 million. Securities Held Outright increased from
$3,617,939 million on Jul 24, 2019 to $6,458,738 on Sep 23, 2020 by $2,840,799
million or 78.5 percent. The Chair of the Federal Reserve Board, Jerome H.
Powell, at the 61st Annual Meeting on the National Association for
Business Economics, on Oct 28, 2019, in Denver, Colorado, stated (https://www.federalreserve.gov/newsevents/speech/powell20191008a.htm): “Reserve
balances are one among several items on the liability side of the Federal
Reserve's balance sheet, and demand for these liabilities—notably, currency in
circulation—grows over time. Hence, increasing the supply of reserves or even
maintaining a given level over time requires us to increase the size of our
balance sheet. As we indicated in our March statement on balance sheet
normalization, at some point, we will begin increasing our securities holdings
to maintain an appropriate level of reserves.18 That time is now upon us.
I want to emphasize that growth of our balance sheet for reserve
management purposes should in no way be confused with the large-scale asset
purchase programs that we deployed after the financial crisis. Neither the
recent technical issues nor the purchases of Treasury bills we are
contemplating to resolve them should materially affect the stance of monetary
policy, to which I now turn.”
Chart VI-9, US, Securities Held Outright by Federal Reserve
Banks, Wednesday Level, Dec 23, 2002 to Sep 23, 2020, USD Millions
Source: Board of Governors of the Federal Reserve System
https://www.federalreserve.gov/monetarypolicy/bst_fedsbalancesheet.htm
Second,
unconventional monetary policy also includes a battery of measures in also
reducing long-term interest rates of government securities and asset-backed
securities such as mortgage-backed securities.
When inflation
is low, the central bank lowers interest rates to stimulate aggregate demand in
the economy, which consists of consumption and investment. When inflation is
subdued and unemployment high, monetary policy would lower interest rates to
stimulate aggregate demand, reducing unemployment. When interest rates decline
to zero, unconventional monetary policy would consist of policies such as
large-scale purchases of long-term securities to lower their yields. Long-term
asset-backed securities finance a major portion of credit in the economy. Loans
for purchasing houses, automobiles and other consumer products are bundled in
securities that lenders sell to investors in a process known as “credit-risk
transfer” (Pelaez and Pelaez, Financial Regulation after the Global
Recession (2009a), 48-52; Pelaez and Pelaez, International Financial
Architecture (2005), 101-60). Corporations borrow funds for investment by
issuing corporate bonds. Financial institutions and lenders finance loans to
small businesses by bundling them in long-term bonds. Securities markets bridge
the needs of higher returns by savers obtaining funds from investors that
financial institutions and lenders channel to consumers and business for
consumption and investment. Lowering the yields of these long-term bonds could
lower costs of financing purchases of consumer durables and investment by
business. The essential mechanism of transmission from lower interest rates to
increases in aggregate demand is portfolio rebalancing. Withdrawal of bonds in
a specific maturity segment or directly in a bond category such as currently
mortgage-backed securities causes reductions in yields that are equivalent to
increases in the prices of the bonds. There can be secondary increases in
purchases of those bonds in private portfolios in pursuit of their increasing
prices. Lower yields translate into lower costs of buying homes and consumer
durables such as automobiles and lower costs of investment for business. There
are two additional intended routes of transmission.
·
Unconventional monetary policy or its expectation can
increase stock market valuations (Bernanke 2010WP). Increases in equities
traded in stock markets can augment perceptions of the wealth of consumers,
inducing increases in consumption.
·
Unconventional monetary policy causes devaluation of the
dollar relative to other currencies, which can cause increases in net exports
of the US that increase aggregate economic activity (Yellen 2011AS).
Monetary policy
can lower short-term interest rates quite effectively. Lowering long-term
yields is somewhat more difficult. The critical issue is that monetary policy
cannot ensure that lowering interest cost increases credit, which expands
consumption and investment. There is a large variety of possible allocation of
funds at low interest rates from consumption and investment to multiple risk
financial assets. Monetary policy does not control how investors will allocate
asset categories. A critical financial practice is to borrow at low short-term
interest rates to invest in high-risk, leveraged financial assets. Investors
may increase in their portfolios asset categories such as equities, emerging
market equities, high-yield bonds, currencies, commodity futures and options
and multiple other risk financial assets including structured products. If
there is risk appetite, the carry trade from zero interest rates to risk
financial assets will consist of short positions at short-term interest rates
(or borrowing) and short dollar assets with simultaneous long positions in
high-risk, leveraged financial assets such as equities, commodities and
high-yield bonds (Pelaez and Pelaez, Globalization and the State, Vol. II
(2008b), 202-4). Low interest rates may induce increases in valuations of risk
financial assets that may fluctuate in accordance with perceptions of risk
aversion by investors and the public. During periods of muted risk aversion,
carry trades from zero interest rates to exposures in risk financial assets
cause temporary waves of inflation that may intensify instead of preventing financial
instability. During periods of risk aversion such as fears of disruption of
world financial markets and the global economy resulting from events such as
collapse of the European Monetary Union, carry trades are unwound with sharp
deterioration of valuations of risk financial assets. More technical discussion
is in IA Appendix: Transmission of Unconventional Monetary Policy.
In the effort
to increase transparency, the Federal Open Market Committee (FOMC) provides
both economic projections of its participants and views on future paths of the
policy rate that in the US is the federal funds rate or interest on interbank
lending of reserves deposited at Federal Reserve Banks. These policies and
views are discussed initially followed with appropriate analysis.
Charles Evans,
President of the Federal Reserve Bank of Chicago, proposed an “economic
state-contingent policy” or “7/3” approach (Evans 2012 Aug 27):
“I think the
best way to provide forward guidance is by tying our policy actions to explicit
measures of economic performance. There are many ways of doing this, including
setting a target for the level of nominal GDP. But recognizing the difficult
nature of that policy approach, I have a more modest proposal: I think the Fed
should make it clear that the federal funds rate will not be increased until
the unemployment rate falls below 7 percent. Knowing that rates would stay low
until significant progress is made in reducing unemployment would reassure
markets and the public that the Fed would not prematurely reduce its
accommodation.
Based on the
work I have seen, I do not expect that such policy would lead to a major
problem with inflation. But I recognize that there is a chance that the models
and other analysis supporting this approach could be wrong. Accordingly, I
believe that the commitment to low rates should be dropped if the outlook for
inflation over the medium term rises above 3 percent.
The economic
conditionality in this 7/3 threshold policy would clarify our forward policy
intentions greatly and provide a more meaningful guide on how long the federal
funds rate will remain low. In addition, I would indicate that clear and steady
progress toward stronger growth is essential.”
Evans
(2012Nov27) modified the “7/3” approach to a “6.5/2.5” approach:
“I have
reassessed my previous 7/3 proposal. I now think a threshold of 6-1/2 percent
for the unemployment rate and an inflation safeguard of 2-1/2 percent, measured
in terms of the outlook for total PCE (Personal Consumption Expenditures Price
Index) inflation over the next two to three years, would be appropriate.”
The Federal
Open Market Committee (FOMC) decided at its meeting on Dec 12, 2012 to
implement the “6.5/2.5” approach (http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm):
“To support
continued progress toward maximum employment and price stability, the Committee
expects that a highly accommodative stance of monetary policy will remain appropriate
for a considerable time after the asset purchase program ends and the economic
recovery strengthens. In particular, the Committee decided to keep the target
range for the federal funds rate at 0 to 1/4 percent and currently anticipates
that this exceptionally low range for the federal funds rate will be
appropriate at least as long as the unemployment rate remains above 6-1/2
percent, inflation between one and two years ahead is projected to be no more
than a half percentage point above the Committee’s 2 percent longer-run goal,
and longer-term inflation expectations continue to be well anchored.”
Another rising
risk is division within the Federal Open Market Committee (FOMC) on risks and
benefits of current policies as expressed in the minutes of the meeting held on
Jan 29-30, 2013 (http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20130130.pdf 13):
“However, many
participants also expressed some concerns about potential costs and risks
arising from further asset purchases. Several participants discussed the
possible complications that additional purchases could cause for the eventual
withdrawal of policy accommodation, a few mentioned the prospect of
inflationary risks, and some noted that further asset purchases could foster
market behavior that could undermine financial stability. Several participants
noted that a very large portfolio of long-duration assets would, under certain
circumstances, expose the Federal Reserve to significant capital losses when
these holdings were unwound, but others pointed to offsetting factors and one
noted that losses would not impede the effective operation of monetary policy.”
Jon Hilsenrath,
writing on “Fed maps exit from stimulus,” on May 11, 2013, published in the Wall
Street Journal (http://online.wsj.com/article/SB10001424127887324744104578475273101471896.html?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzes the
development of strategy for unwinding quantitative easing and how it can create
uncertainty in financial markets. Jon Hilsenrath and Victoria McGrane, writing
on “Fed slip over how long to keep cash spigot open,” published on Feb 20, 2013
in the Wall street Journal (http://professional.wsj.com/article/SB10001424127887323511804578298121033876536.html), analyze the
minutes of the Fed, comments by members of the FOMC and data showing increase
in holdings of riskier debt by investors, record issuance of junk bonds,
mortgage securities and corporate loans. Jon Hilsenrath, writing on “Jobs upturn
isn’t enough to satisfy Fed,” on Mar 8, 2013, published in the Wall Street
Journal (http://professional.wsj.com/article/SB10001424127887324582804578348293647760204.html), finds that
much stronger labor market conditions are required for the Fed to end
quantitative easing. Unconventional monetary policy with zero interest rates
and quantitative easing is quite difficult to unwind because of the adverse effects
of raising interest rates on valuations of risk financial assets and home
prices, including the very own valuation of the securities held outright in the
Fed balance sheet. Gradual unwinding of 1 percent fed funds rates from Jun 2003
to Jun 2004 by seventeen consecutive increases of 25 percentage points from Jun
2004 to Jun 2006 to reach 5.25 percent caused default of subprime mortgages and
adjustable-rate mortgages linked to the overnight fed funds rate. The zero
interest rate has penalized liquidity and increased risks by inducing carry
trades from zero interest rates to speculative positions in risk financial
assets. There is no exit from zero interest rates without provoking another
financial crash.
Unconventional
monetary policy, or reinvestment of principal in securities and issue of bank
reserves to maintain policy interest rates below what would be without central
bank intervention, will remain in perpetuity, or QE→∞, changing
to a “growth mandate.” The FOMC was implementing gradual reduction of the
portfolio of government securities in the balance sheet of the Fed beginning in
Oct 2017. There are two reasons explaining unconventional monetary policy of QE→∞:
insufficiency of job creation to reduce unemployment/underemployment at current
rates of job creation; and growth of GDP at around 2.0 percent, which is well
below 3.0 percent estimated by Lucas (2011May) from 1870 to 2010. On Aug 27, 2020, the Federal Open Market Committee changed its
Longer-Run Goals and Monetary Policy Strategy, including the following (https://www.federalreserve.gov/monetarypolicy/review-of-monetary-policy-strategy-tools-and-communications-statement-on-longer-run-goals-monetary-policy-strategy.htm): “The
Committee judges that longer-term inflation expectations that are well anchored
at 2 percent foster price stability and moderate long-term interest rates and
enhance the Committee's ability to promote maximum employment in the face of
significant economic disturbances. In order to anchor longer-term inflation
expectations at this level, the Committee seeks to achieve inflation that
averages 2 percent over time, and therefore judges that, following periods when
inflation has been running persistently below 2 percent, appropriate monetary
policy will likely aim to achieve inflation moderately above 2 percent for some
time.” The new policy can affect relative exchange rates depending on relative
inflation rates and country risk issues. Unconventional monetary policy interprets the
dual mandate of low inflation and maximum employment as mainly a “growth
mandate” of forcing economic growth in the US at a rate that generates full
employment. A hurdle to this “growth mandate” is that long-term economic
performance in the United States consisted of trend growth of GDP at 3 percent
per year and of per capita GDP at 2 percent per year as measured for 1870 to
2010 by Robert E Lucas (2011May). The economy returned to trend growth after
adverse events such as wars and recessions. The key characteristic of
adversities such as recessions was much higher rates of growth in expansion
periods that permitted the economy to recover output, income and employment
losses that occurred during the contractions. Over the business cycle, the
economy compensated the losses of contractions with higher growth in expansions
to maintain trend growth of GDP of 3 percent and of GDP per capita of 2 percent.
US
economic growth has been at only 1.2 percent on average in the cyclical
expansion in the 44 quarters from IIIQ2009 to IIQ2020 and in the global
recession with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event. Boskin (2010Sep) measures
that the US economy grew at 6.2 percent in the first four quarters and 4.5
percent in the first 12 quarters after the trough in the second quarter of
1975; and at 7.7 percent in the first four quarters and 5.8 percent in the
first 12 quarters after the trough in the first quarter of 1983 (Professor
Michael J. Boskin, Summer of Discontent, Wall
Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are
new calculations using the revision of US GDP and personal income data since
1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) and the
second estimate of GDP for IIQ2020 (https://www.bea.gov/sites/default/files/2020-08/gdp2q20_2nd.pdf). The
average of 7.7 percent in the first four quarters of major cyclical expansions
is in contrast with the rate of growth in the first four quarters of the
expansion from IIIQ2009 to IIQ2010 of only 2.8 percent obtained by dividing GDP
of $15,557.3 billion in IIQ2010 by GDP of $15,134.1 billion in IIQ2009
{[($15,557.3/$15,134.1) -1]100 = 2.8%], or accumulating the quarter on quarter
growth rates (https://cmpassocregulationblog.blogspot.com/2020/08/d-ollar-devaluation-and-yuan.html and earlier https://cmpassocregulationblog.blogspot.com/2020/08/contraction-of-united-states-gdp-at-32_57.html). The
expansion from IQ1983 to IQ1986 was at the average annual growth rate of 5.7 percent, 5.3 percent from
IQ1983 to IIIQ1986, 5.1 percent from IQ1983 to IVQ1986, 5.0 percent from IQ1983
to IQ1987, 5.0 percent from IQ1983 to IIQ1987, 4.9 percent from IQ1983 to
IIIQ1987, 5.0 percent from IQ1983 to IVQ1987, 4.9 percent from IQ1983 to
IIQ1988, 4.8 percent from IQ1983 to IIIQ1988, 4.8 percent from IQ1983 to
IVQ1988, 4.8 percent from IQ1983 to IQ1989, 4.7 percent from IQ1983 to IIQ1989,
4.6 percent from IQ1983 to IIIQ1989, 4.5 percent from IQ1983 to IVQ1989. 4.5
percent from IQ1983 to IQ1990, 4.4 percent from IQ1983 to IIQ1990, 4.3 percent
from IQ1983 to IIIQ1990, 4.0 percent from IQ1983 to IVQ1990, 3.8 percent from
IQ1983 to IQ1991, 3.8 percent from IQ1983 to IIQ1991, 3.8 percent from IQ1983
to IIIQ1991, 3.7 percent from IQ1983 to IVQ1991, 3.7 percent from IQ1983 to
IQ1992, 3.7 percent from IQ1983 to IIQ1992, 3.7 percent from IQ1983 to
IIIQ2019, 3.8 percent from IQ1983 to IVQ1992, 3.7 percent from IQ1983 to
IQ1993, 3.6 percent from IQ1983 to IIQ1993, 3.6 percent from IQ1983 to
IIIQ1993, 3.7 percent from IQ1983 to IVQ1993 and at 7.9 percent from IQ1983 to
IVQ1983 (https://cmpassocregulationblog.blogspot.com/2020/08/d-ollar-devaluation-and-yuan.html and earlier https://cmpassocregulationblog.blogspot.com/2020/08/contraction-of-united-states-gdp-at-32_57.html). The
National Bureau of Economic Research (NBER) dates a contraction of the US from
IQ1990 (Jul) to IQ1991 (Mar) (https://www.nber.org/cycles.html). The
expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP
contracted 1.3 percent from the pre-recession peak of $8983.9 billion of
chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (https://apps.bea.gov/iTable/index_nipa.cfm). The US
maintained growth at 3.0 percent on average over entire cycles with expansions
at higher rates compensating for contractions. Growth at trend in the entire
cycle from IVQ2007 to IIQ2020 and in the global recession with output in the US
reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event would have accumulated to
44.7 percent. GDP in IIQ2020 would be $22,807.6 billion (in constant dollars of
2012) if the US had grown at trend, which is higher by $5525.4 billion than
actual $17,282.2 billion. There are more than five trillion dollars of GDP less
than at trend, explaining the 34.8 million unemployed or underemployed
equivalent to actual unemployment/underemployment of 20.2 percent of the
effective labor force with the largest part originating in the global recession
with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event (https://cmpassocregulationblog.blogspot.com/2020/09/exchange-rate-fluctuations-1.html and earlier https://cmpassocregulationblog.blogspot.com/2020/08/thirty-eight-million-unemployed-or.html). Unemployment is decreasing while employment is increasing in
initial adjustment of the lockdown of economic activity in the global recession
resulting from the COVID-19 event (https://www.bls.gov/cps/employment-situation-covid19-faq-june-2020.pdf). US GDP in IIQ2020 is 24.2 percent lower than at trend. US GDP
grew from $15,762.0 billion in IVQ2007 in constant dollars to $17,282.5
billion in IIQ2020 or 9.6 percent at the average annual equivalent rate of 0.7
percent. Professor John H. Cochrane (2014Jul2) estimates US GDP at more than 10
percent below trend. Cochrane (2016May02) measures GDP growth in the US at
average 3.5 percent per year from 1950 to 2000 and only at 1.76 percent per
year from 2000 to 2015 with only at 2.0 percent annual equivalent in the
current expansion. Cochrane (2016May02) proposes drastic changes in regulation
and legal obstacles to private economic activity. The US missed the opportunity
to grow at higher rates during the expansion and it is difficult to catch up
because growth rates in the final periods of expansions tend to decline. The US
missed the opportunity for recovery of output and employment always afforded in
the first four quarters of expansion from recessions. Zero interest rates and
quantitative easing were not required or present in successful cyclical
expansions and in secular economic growth at 3.0 percent per year and 2.0
percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the
US instead of allegations of secular
stagnation. There is similar behavior in manufacturing. There is classic
research on analyzing deviations of output from trend (see for example
Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term
trend is growth of manufacturing at average 2.9 percent per year from Aug 1919
to Aug 2020. Growth at 2.9 percent per year would raise the NSA index of
manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in
Dec 2007 to 155.5554 in Aug 2020. The actual index NSA in Aug 2020 is 99.2841
which is 36.2 percent below trend. The underperformance of manufacturing in
Mar-Aug 2020 originates partly in the earlier global recession augmented by the
current global recession with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19. Manufacturing grew at the
average annual rate of 3.3 percent between Dec 1986 and Dec 2006. Growth at 3.3
percent per year would raise the NSA index of manufacturing output (SIC,
Standard Industrial Classification) from 108.2987 in Dec 2007 to 163.3909 in
Aug 2020. The actual index NSA in Aug 2020 is 99.2841, which is 39.2 percent
below trend. Manufacturing output grew at average 1.7 percent between Dec 1986
and Aug 2020. Using trend growth of 1.7 percent per year, the index would
increase to 134.0774 in Aug 2020. The output of manufacturing at 99.2841 in Aug
2020 is 26.0 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification
System), manufacturing output fell from the high of 110.5147 in Jun 2007 to the
low of 86.3800 in Apr 2009 or 21.8 percent. The NAICS manufacturing index
increased from 86.3800 in Apr 2009 to 100.4257 in Aug 2020 or 16.3 percent. The
NAICS manufacturing index increased at the annual equivalent rate of 3.5
percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the
NAICS manufacturing output index from 106.6777 in Dec 2007 to 164.9372 in Aug
2020. The NAICS index at 100.4257 in Aug 2020 is 39.1 below trend. The NAICS
manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999
to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output index
from 106.6777 in Dec 2007 to 132.0705 in Aug 2020. The NAICS index at 100.4257
in Aug 2020 is 24.0 percent below trend under this alternative calculation.
First,
total nonfarm payroll employment seasonally adjusted (SA) increased 1.371
million in Aug 2020 and private payroll employment increased 1.027 million. The
Bureau of Labor Statistics states (https://www.bls.gov/news.release/empsit.nr0.htm): “Our analysis
suggests that the net effect of these hurricanes [Harvey and Irma] was to
reduce the estimate of total nonfarm payroll employment for September. There
was no discernible effect on the national unemployment rate. No changes were
made to either the establishment or household survey estimation procedures for
the September figures.” A hurdle in analyzing the labor market is the global recession, with output in the US reaching a high in Feb
2020 (https://www.nber.org/cycles.html), in the lockdown of economic activity in the COVID-19 event (https://www.bls.gov/covid19/employment-situation-covid19-faq-august-2020.htm). The average
monthly number of nonfarm jobs created from Aug 2018 to Aug 2019 was 157,667
using seasonally adjusted data, while the average number of nonfarm jobs
reduced from Aug 2019 to Aug 2020 was minus 854 or decrease by 100.5 percent.
The average number of private jobs created in the US from Aug 2018 to Aug 2019
was 145,417, using seasonally adjusted data, while the average from Aug 2019 to
Aug 2020 was minus 794 or decrease by 100.5 percent. This blog calculates the
effective labor force of the US at 172.489 million in Aug 2020 and 171.744
million in Aug 2019 (Table I-4), for growth of 0.745 million at average 62,083
per month. This situation will continue to challenge measurement (https://www.bls.gov/covid19/employment-situation-covid19-faq-august-2020.htm) and the
return to fuller employment is unpredictable.
Closing the economy to mitigate the infection of COVID-19 could deepen the global recession. Gradual reopening in May-Aug 2020 is recovering jobs. The number employed in Aug 2020 was 147.224 million (NSA) or 0.091 million fewer people with jobs relative to the peak of 147.315 million in Aug 2007 while the civilian noninstitutional population of ages 16 years and over increased from 231.958 million in Jul 2007 to 260.558 million in Aug 2020 or by 28.600 million. The number employed decreased 0.1 percent from Jul 2007 to Aug 2020 while the noninstitutional civilian population of ages of 16 years and over, or those available for work, increased 12.3 percent. The ratio of employment to population in Jul 2007 was 63.5 percent (147.315 million employed as percent of population of 231.958 million). The same ratio in Aug 2020 would result in 165.454 million jobs (0.635 multiplied by noninstitutional civilian population of 260.558 million). There are effectively 18.230 million fewer jobs in Aug 2020 than in Jul 2007, or 165.454 million minus 147.224 million. There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs
Second, long-term
economic performance in the United States consisted of trend growth of GDP at 3
percent per year and of per capita GDP at 2 percent per year as measured for
1870 to 2010 by Robert E Lucas (2011May). The economy returned to trend growth
after adverse events such as wars and recessions. The key characteristic of
adversities such as recessions was much higher rates of growth in expansion
periods that permitted the economy to recover output, income and employment
losses that occurred during the contractions. Over the business cycle, the
economy compensated the losses of contractions with higher growth in expansions
to maintain trend growth of GDP of 3 percent and of GDP per capita of 2
percent. The US maintained growth at 3.0 percent on average over entire cycles
with expansions at higher rates compensating for contractions. The US maintained growth at 3.0 percent on average over entire
cycles with expansions at higher rates compensating for contractions. US economic
growth has been at only 1.2 percent on average in the cyclical expansion in the
44 quarters from IIIQ2009 to IIQ2020 and in the global recession with output in
the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event. Boskin (2010Sep) measures
that the US economy grew at 6.2 percent in the first four quarters and 4.5
percent in the first 12 quarters after the trough in the second quarter of
1975; and at 7.7 percent in the first four quarters and 5.8 percent in the
first 12 quarters after the trough in the first quarter of 1983 (Professor
Michael J. Boskin, Summer of Discontent, Wall
Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are
new calculations using the revision of US GDP and personal income data since
1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) and the
second estimate of GDP for IIQ2020 (https://www.bea.gov/sites/default/files/2020-08/gdp2q20_2nd.pdf). The
average of 7.7 percent in the first four quarters of major cyclical expansions
is in contrast with the rate of growth in the first four quarters of the
expansion from IIIQ2009 to IIQ2010 of only 2.8 percent obtained by dividing GDP
of $15,557.3 billion in IIQ2010 by GDP of $15,134.1 billion in IIQ2009
{[($15,557.3/$15,134.1) -1]100 = 2.8%], or accumulating the quarter on quarter
growth rates (https://cmpassocregulationblog.blogspot.com/2020/08/d-ollar-devaluation-and-yuan.html and earlier https://cmpassocregulationblog.blogspot.com/2020/08/contraction-of-united-states-gdp-at-32_57.html). The
expansion from IQ1983 to IQ1986 was at the average annual growth rate of 5.7 percent, 5.3 percent from
IQ1983 to IIIQ1986, 5.1 percent from IQ1983 to IVQ1986, 5.0 percent from IQ1983
to IQ1987, 5.0 percent from IQ1983 to IIQ1987, 4.9 percent from IQ1983 to
IIIQ1987, 5.0 percent from IQ1983 to IVQ1987, 4.9 percent from IQ1983 to
IIQ1988, 4.8 percent from IQ1983 to IIIQ1988, 4.8 percent from IQ1983 to
IVQ1988, 4.8 percent from IQ1983 to IQ1989, 4.7 percent from IQ1983 to IIQ1989,
4.6 percent from IQ1983 to IIIQ1989, 4.5 percent from IQ1983 to IVQ1989. 4.5
percent from IQ1983 to IQ1990, 4.4 percent from IQ1983 to IIQ1990, 4.3 percent
from IQ1983 to IIIQ1990, 4.0 percent from IQ1983 to IVQ1990, 3.8 percent from
IQ1983 to IQ1991, 3.8 percent from IQ1983 to IIQ1991, 3.8 percent from IQ1983
to IIIQ1991, 3.7 percent from IQ1983 to IVQ1991, 3.7 percent from IQ1983 to
IQ1992, 3.7 percent from IQ1983 to IIQ1992, 3.7 percent from IQ1983 to
IIIQ2019, 3.8 percent from IQ1983 to IVQ1992, 3.7 percent from IQ1983 to
IQ1993, 3.6 percent from IQ1983 to IIQ1993, 3.6 percent from IQ1983 to
IIIQ1993, 3.7 percent from IQ1983 to IVQ1993 and at 7.9 percent from IQ1983 to
IVQ1983 (https://cmpassocregulationblog.blogspot.com/2020/08/d-ollar-devaluation-and-yuan.html and earlier https://cmpassocregulationblog.blogspot.com/2020/08/contraction-of-united-states-gdp-at-32_57.html). The
National Bureau of Economic Research (NBER) dates a contraction of the US from
IQ1990 (Jul) to IQ1991 (Mar) (https://www.nber.org/cycles.html). The
expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP
contracted 1.3 percent from the pre-recession peak of $8983.9 billion of
chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (https://apps.bea.gov/iTable/index_nipa.cfm). The US
maintained growth at 3.0 percent on average over entire cycles with expansions
at higher rates compensating for contractions. Growth at trend in the entire
cycle from IVQ2007 to IIQ2020 and in the global recession with output in the US
reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event would have accumulated to
44.7 percent. GDP in IIQ2020 would be $22,807.6 billion (in constant dollars of
2012) if the US had grown at trend, which is higher by $5525.4 billion than
actual $17,282.2 billion. There are more than five trillion dollars of GDP less
than at trend, explaining the 34.8 million unemployed or underemployed
equivalent to actual unemployment/underemployment of 20.2 percent of the
effective labor force with the largest part originating in the global recession
with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event (https://cmpassocregulationblog.blogspot.com/2020/09/exchange-rate-fluctuations-1.html and earlier https://cmpassocregulationblog.blogspot.com/2020/08/thirty-eight-million-unemployed-or.html). Unemployment is decreasing while employment is increasing in
initial adjustment of the lockdown of economic activity in the global recession
resulting from the COVID-19 event (https://www.bls.gov/cps/employment-situation-covid19-faq-june-2020.pdf). US GDP in IIQ2020 is 24.2 percent lower than at trend. US GDP
grew from $15,762.0 billion in IVQ2007 in constant dollars to $17,282.5
billion in IIQ2020 or 9.6 percent at the average annual equivalent rate of 0.7
percent. Professor John H. Cochrane (2014Jul2) estimates US GDP at more than 10
percent below trend. Cochrane (2016May02) measures GDP growth in the US at
average 3.5 percent per year from 1950 to 2000 and only at 1.76 percent per
year from 2000 to 2015 with only at 2.0 percent annual equivalent in the
current expansion. Cochrane (2016May02) proposes drastic changes in regulation
and legal obstacles to private economic activity. The US missed the opportunity
to grow at higher rates during the expansion and it is difficult to catch up
because growth rates in the final periods of expansions tend to decline. The US
missed the opportunity for recovery of output and employment always afforded in
the first four quarters of expansion from recessions. Zero interest rates and
quantitative easing were not required or present in successful cyclical
expansions and in secular economic growth at 3.0 percent per year and 2.0
percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the
US instead of allegations of secular
stagnation. There is similar behavior in manufacturing. There is classic
research on analyzing deviations of output from trend (see for example
Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term
trend is growth of manufacturing at average 2.9 percent per year from Aug 1919
to Aug 2020. Growth at 2.9 percent per year would raise the NSA index of
manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in
Dec 2007 to 155.5554 in Aug 2020. The actual index NSA in Aug 2020 is 99.2841
which is 36.2 percent below trend. The underperformance of manufacturing in
Mar-Aug 2020 originates partly in the earlier global recession augmented by the
current global recession with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19. Manufacturing grew at the
average annual rate of 3.3 percent between Dec 1986 and Dec 2006. Growth at 3.3
percent per year would raise the NSA index of manufacturing output (SIC,
Standard Industrial Classification) from 108.2987 in Dec 2007 to 163.3909 in
Aug 2020. The actual index NSA in Aug 2020 is 99.2841, which is 39.2 percent
below trend. Manufacturing output grew at average 1.7 percent between Dec 1986
and Aug 2020. Using trend growth of 1.7 percent per year, the index would
increase to 134.0774 in Aug 2020. The output of manufacturing at 99.2841 in Aug
2020 is 26.0 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification
System), manufacturing output fell from the high of 110.5147 in Jun 2007 to the
low of 86.3800 in Apr 2009 or 21.8 percent. The NAICS manufacturing index
increased from 86.3800 in Apr 2009 to 100.4257 in Aug 2020 or 16.3 percent. The
NAICS manufacturing index increased at the annual equivalent rate of 3.5
percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the
NAICS manufacturing output index from 106.6777 in Dec 2007 to 164.9372 in Aug
2020. The NAICS index at 100.4257 in Aug 2020 is 39.1 below trend. The NAICS
manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999
to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output
index from 106.6777 in Dec 2007 to 132.0705 in Aug 2020. The NAICS index at
100.4257 in Aug 2020 is 24.0 percent below trend under this alternative
calculation.
The economy of the US can be summarized in
growth of economic activity or GDP as fluctuating from mediocre growth of 2.6
percent on an annual basis in 2010 to 1.6 percent in 2011, 2.2 percent in 2012,
1.8 percent in 2013, 2.5 percent in 2014 and 3.1 percent in 2015. GDP growth
was 1.7 percent in 2016 and 2.3 percent in 2017. GDP growth was 3.0 percent in
2018 and 2.2 percent in 2019. The following calculations show that actual
growth is around 1.2 percent per year during the expansion phase. The rate of
growth of 1.7 percent in the entire cycle from 2007 to 2019 is well below 3
percent per year in trend from 1870 to 2010, which the economy of the US always
attained for entire cycles in expansions after events such as wars and
recessions (Lucas 2011May). Revisions and enhancements of United States GDP and
personal income accounts by the Bureau of Economic Analysis (BEA) (https://apps.bea.gov/iTable/index_nipa.cfm) provides
valuable information on long-term growth and cyclical behavior. Table Summary
provides relevant data.
Table Summary,
Long-term and Cyclical Growth of GDP, Real Disposable Income and Real
Disposable Income per Capita
|
|
GDP |
|
|
Long-Term |
|
|
|
1929-2019 |
3.2 |
|
|
1947-2019 |
3.2 |
|
|
Whole Cycles |
|
|
|
1980-1989 |
3.5 |
|
|
2006-2019 |
1.7 |
|
|
2007-2019 |
1.7 |
|
|
Cyclical
Contractions ∆% |
|
|
|
IQ1980 to
IIIQ1980, IIIQ1981 to IVQ1982 |
-4.8 |
|
|
IVQ2007 to
IIQ2009 |
-4.0 |
|
|
Cyclical
Expansions Average Annual Equivalent ∆% |
|
|
|
IQ1983 to
IVQ1985 IQ1983-IQ1986
IQ1983-IIIQ1986 IQ1983-IVQ1986 IQ1983-IQ1987 IQ1983-IIQ1987 IQ1983-IIIQ1987 IQ1983 to
IVQ1987 IQ1983 to IQ1988 IQ1983 to
IIQ1988 IQ1983 to
IIIQ1988 IQ1983 to
IVQ1988 IQ1983 to
IQ1989 IQ1983 to
IIQ1989 IQ1983 to
IIIQ1989 IQ1983 to
IVQ1989 IQ1983 to
IQ1990 IQ1983 to
IIQ1990 IQ1983 to
IIIQ1990 IQ1983 to
IVQ1990 |
5.9 5.7 5.3 5.1 5.0 5.0 4.9 5.0 4.9 4.9 4.8 4.8 4.8 4.7 4.6 4.5 4.5 4.4 4.3 4.0 |
|
|
IQ1983 to
IQ1991 IQ1983 to
IIQ1991 IQ1983 to
IIIQ1991 IQ1983 to
IVQ1991 IQ1983 to
IQ1992 IQ1983 to
IIQ1992 IQ1983 to
IIIQ1992 IQ1983 to
IVQ1992 IQ1983 to
IQ1993 IQ1983 to
IIQ1993 IQ1983 to
IIIQ1993 IQ1983 to
IV1993 |
3.8 3.8 3.8 3.7 3.7 3.7 3.7 3.8 3.7 3.6 3.6 3.7 |
|
|
First Four
Quarters IQ1983 to IVQ1983 |
7.9 |
|
|
IIIQ2009 to
IIQ2020 |
1.2 |
|
|
First Four
Quarters IIIQ2009 to IIQ2010 |
2.8 |
|
|
|
Real
Disposable Income |
Real
Disposable Income per Capita |
|
Long-Term |
|
|
|
1929-2019 |
3.2 |
2.0 |
|
1947-1999 |
3.7 |
2.3 |
|
Whole Cycles |
|
|
|
1980-1989 |
3.5 |
2.6 |
|
2006-2019 |
2.2 |
1.5 |
Source: Bureau of Economic Analysis
https://apps.bea.gov/iTable/index_nipa.cfm
The revisions and enhancements of United
States GDP and personal income accounts by the Bureau of Economic Analysis
(BEA) (http://bea.gov/iTable/index_nipa.cfm) also
provide critical information in assessing the current rhythm of US economic
growth. The economy appears to be moving at a pace around 1.2 percent per year.
Table Summary GDP provides the data.
- Average Annual Growth in the Past Thirty-Three Quarters. GDP growth in the four
quarters of 2012, the four quarters of 2013, the four quarters of 2014,
the four quarters of 2015, the four quarters of 2016, the four quarters of
2017, the four quarters of 2018, the four quarters of 2019 and the two
quarters of 2020 accumulated to 8.0 percent. This growth is equivalent to
0.9 percent per year, obtained by dividing GDP in IIQ2020 of $17,282.2
billion by GDP in IVQ2011 of $16,004.1 billion and compounding by 4/34:
{[($17,282.2/$16,004.1)4/34 -1]100 = 0.9 percent}.
- Average Annual Growth in the Past Four Quarters. GDP growth in the four
quarters from IQ2019 to IIQ2020 accumulated to minus 9.1 percent that is
equivalent to minus 31.7 percent in a year. This is obtained by dividing
GDP in IIQ2020 of $17,282.2 billion by GDP in IIQ2019 of $19,020.6 billion
and compounding by 4/4: {[($17,282.2/$19,020.6)4/4 -1]100 =
-9.1%}. The US economy decreased 9.1 percent in IIQ2020 relative to the
same quarter a year earlier in IIQ2019 (See Table 6 at https://www.bea.gov/sites/default/files/2020-08/gdp2q20_2nd.pdf and the complete data
at https://apps.bea.gov/iTable/index_nipa.cfm). Growth was at annual
equivalent 5.5 percent in IIQ2014 and 5.0 percent IIIQ2014 and only at 2.3
percent in IVQ2014. GDP grew at annual equivalent 3.8 percent in IQ2015,
2.7 percent in IIQ2015, 1.5 percent in IIIQ2015 and 0.6 percent in
IVQ2015. GDP grew at annual equivalent 2.3 percent in IQ2016 and at 1.3
percent annual equivalent in IIQ2016. GDP increased at 2.2 percent annual
equivalent in IIIQ2016 and at 2.5 percent in IVQ2016. GDP grew at annual
equivalent 2.3 percent in IQ2017 and at annual equivalent 1.7 percent in IIQ2017.
GDP grew at annual equivalent 2.9 percent in IIIQ2017. GDP grew at annual
equivalent 3.9 percent in IVQ2017. GDP grew at annual equivalent 3.8
percent in IQ2018, increasing at 2.7 percent annual equivalent in IIQ2018.
GDP grew at annual equivalent 2.1 percent in IIIQ2018 and at 1.3 percent
in IVQ2018. GDP grew at annual equivalent 2.9 percent in IQ2019 and at
annual equivalent 1.5 percent in IIQ2019. GDP grew at annual equivalent
2.6 percent in IIIQ2019 and at 2.4 percent annual equivalent in IVQ2019.
Growth was at annual equivalent minus 5.0 percent in IQ2020. Growth was at
annual equivalent minus 31.7 percent in IIQ2020. Another important
revelation of the revisions and enhancements is that GDP was flat at 0.1
in IVQ2012, which is in the borderline of contraction, and negative in
IQ2014. US GDP fell 0.3 percent in IQ2014. The rate of growth of GDP in
the revision of IIIQ2013 is 3.2 percent in seasonally adjusted annual rate
(SAAR).
Table Summary
GDP, US, Real GDP and Percentage Change Relative to IVQ2007 and Prior Quarter,
Billions Chained 2012 Dollars and ∆%
|
|
Real GDP,
Billions Chained 2012 Dollars |
∆% Relative
to IVQ2007 |
∆% Relative
to Prior Quarter |
∆% |
|
IVQ2007 |
15,762.0 |
NA |
0.6 |
2.0 |
|
IVQ2011 |
16,004.1 |
1.5 |
1.2 |
1.6 |
|
IQ2012 |
16,129.5 |
2.3 |
0.8 |
2.7 |
|
IIQ2012 |
16,198.8 |
2.8 |
0.4 |
2.4 |
|
IIIQ2012 |
16,220.7 |
2.9 |
0.1 |
2.5 |
|
IVQ2012 |
16,239.1 |
3.0 |
0.1 |
1.5 |
|
IQ2013 |
16,383.0 |
3.9 |
0.9 |
1.6 |
|
IIQ2013 |
16,403.2 |
4.1 |
0.1 |
1.3 |
|
IIIQ2013 |
16,531.7 |
4.9 |
0.8 |
1.9 |
|
IVQ2013 |
16,663.6 |
5.7 |
0.8 |
2.6 |
|
IQ2014 |
16,616.5 |
5.4 |
-0.3 |
1.4 |
|
IIQ2014 |
16,841.5 |
6.8 |
1.4 |
2.7 |
|
IIIQ2014 |
17,047.1 |
8.2 |
1.2 |
3.1 |
|
IVQ2014 |
17,143.0 |
8.8 |
0.6 |
2.9 |
|
IQ2015 |
17,305.8 |
9.8 |
0.9 |
4.1 |
|
IIQ2015 |
17,422.8 |
10.5 |
0.7 |
3.5 |
|
IIIQ2015 |
17,486.0 |
10.9 |
0.4 |
2.6 |
|
IVQ2015 |
17,514.1 |
11.1 |
0.2 |
2.2 |
|
IQ2016 |
17,613.3 |
11.7 |
0.6 |
1.8 |
|
IIQ2016 |
17,668.2 |
12.1 |
0.3 |
1.4 |
|
IIIQ2016 |
17,764.4 |
12.7 |
0.5 |
1.6 |
|
IVQ2016 |
17,876.2 |
13.4 |
0.6 |
2.1 |
|
IQ2017 |
17,977.3 |
14.1 |
0.6 |
2.1 |
|
IIQ2017 |
18,054.1 |
14.5 |
0.4 |
2.2 |
|
IIIQ2017 |
18,185.6 |
15.4 |
0.7 |
2.4 |
|
IVQ2017 |
18,359.4 |
16.5 |
1.0 |
2.7 |
|
IQ2018 |
18,530.5 |
17.6 |
0.9 |
3.1 |
|
IIQ2018 |
18,654.4 |
18.4 |
0.7 |
3.3 |
|
IIIQ2018 |
18,752.4 |
19.0 |
0.5 |
3.1 |
|
IVQ2018 |
18,813.9 |
19.4 |
0.3 |
2.5 |
|
IQ2019 |
18,950.3 |
20.2 |
0.7 |
2.3 |
|
IIQ2019 |
19,020.6 |
20.7 |
0.4 |
2.0 |
|
IIIQ2019 |
19,141.7 |
21.4 |
0.6 |
2.1 |
|
IVQ2019 |
19,254.0 |
22.2 |
0.6 |
2.3 |
|
IQ2020 |
19,010.8 |
20.6 |
-1.3 |
0.3 |
|
IIQ2020 |
17,282.2 |
9.6 |
-9.1 |
-9.1 |
|
Cumulative ∆%
IQ2012 to IIQ2020 |
8.0 |
|
|
|
|
Annual
Equivalent ∆% |
0.9 |
|
|
Source: US
Bureau of Economic Analysis https://apps.bea.gov/iTable/index_nipa.cfm
Chart GDP of the US Bureau of Economic Analysis provides the rates of growth of GDP at SAAR (seasonally adjusted annual rate) in the 16 quarters from IIIQ2016 to IIQ2020. Growth has been fluctuating. The final data point is minus 31.7 in percent in IIQ2020 in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the lockdown of economic activity in the COVID-19 event.
Chart GDP, Seasonally Adjusted Quarterly Rates of Growth of
United States GDP, ∆%
Source: US Bureau of Economic Analysis
https://www.bea.gov/data/gdp/gross-domestic-product
In fact, it is
evident to the public that this policy will be abandoned if inflation costs
rise. There is concern of the production and employment costs of controlling
future inflation. Even if there is no inflation, QE→∞, or reinvestment of principal in securities
and issue of bank reserves to maintain interest rates below what would be
without central bank intervention, cannot be abandoned because of
the fear of rising interest rates. The FOMC was implementing gradual reduction
of the portfolio of government securities in the balance sheet of the Fed. The
economy would operate in an inferior allocation of resources and suboptimal
growth path, or interior point of the production possibilities frontier where
the optimum of productive efficiency and wellbeing is attained, because of the
distortion of risk/return decisions caused by perpetual financial repression.
Not even a second-best allocation is feasible with the shocks to efficiency of
financial repression in perpetuity.
The statement
of the FOMC at the conclusion of its meeting on Dec 12, 2012, revealed policy
intentions (http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm). The FOMC
updated in the statement at its meeting on Dec 16, 2015 with maintenance of the
current level of the balance sheet and liftoff of interest rates (http://www.federalreserve.gov/newsevents/press/monetary/20151216a.htm) followed by
the statement of Sep 16, 2020 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200916a.htm):
Press Release
September 16,
2020
Federal
Reserve issues FOMC statement
For release at
2:00 p.m. EDT
The Federal
Reserve is committed to using its full range of tools to support the U.S.
economy in this challenging time, thereby promoting its maximum employment and
price stability goals.
The COVID-19
pandemic is causing tremendous human and economic hardship across the United
States and around the world. Economic activity and employment have picked up in
recent months but remain well below their levels at the beginning of the year.
Weaker demand and significantly lower oil prices are holding down consumer
price inflation. Overall financial conditions have improved in recent months,
in part reflecting policy measures to support the economy and the flow of
credit to U.S. households and businesses.
The path of the
economy will depend significantly on the course of the virus. The ongoing public
health crisis will continue to weigh on economic activity, employment, and
inflation in the near term, and poses considerable risks to the economic
outlook over the medium term.
The Committee
seeks to achieve maximum employment and inflation at the rate of 2 percent over
the longer run. With inflation running persistently below this longer-run goal,
the Committee will aim to achieve inflation moderately above 2 percent for some
time so that inflation averages 2 percent over time and longer-term inflation expectations
remain well anchored at 2 percent. The Committee expects to maintain an
accommodative stance of monetary policy until these outcomes are achieved. The
Committee decided to keep the target range for the federal funds rate at 0 to ¼
percent and expects it will be appropriate to maintain this target range until
labor market conditions have reached levels consistent with the Committee's
assessments of maximum employment and inflation has risen to 2 percent and is
on track to moderately exceed 2 percent for some time. In addition, over coming
months the Federal Reserve will increase its holdings of Treasury securities
and agency mortgage-backed securities at least at the current pace to sustain
smooth market functioning and help foster accommodative financial conditions,
thereby supporting the flow of credit to households and businesses.
In assessing
the appropriate stance of monetary policy, the Committee will continue to
monitor the implications of incoming information for the economic outlook. The Committee
would be prepared to adjust the stance of monetary policy as appropriate if
risks emerge that could impede the attainment of the Committee's goals. The
Committee's assessments will take into account a wide range of information,
including readings on public health, labor market conditions, inflation
pressures and inflation expectations, and financial and international
developments.
Voting for the
monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice
Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker;
Loretta J. Mester; and Randal K. Quarles.
Voting against
the action were Robert S. Kaplan, who expects that it will be appropriate to
maintain the current target range until the Committee is confident that the
economy has weathered recent events and is on track to achieve its maximum
employment and price stability goals as articulated in its new policy strategy
statement, but prefers that the Committee retain greater policy rate
flexibility beyond that point; and Neel Kashkari, who prefers that the
Committee indicate that it expects to maintain the current target range
until core inflation has reached 2 percent on a sustained basis.
Implementation
Note issued September 16, 2020
There are
several important issues in this statement.
- Mandate. The FOMC pursues a policy of attaining its “dual
mandate:” (https://www.federalreserve.gov/aboutthefed.htm): “The Federal
Reserve System is the central bank of the United States. It performs five
general functions to promote the effective operation of the U.S. economy
and, more generally, the public interest. The Federal Reserve:
- conducts the nation’s
monetary policy to promote maximum employment, stable prices, and moderate
long-term interest rates in the U.S. economy;
- promotes the stability
of the financial system and seeks to minimize and contain systemic risks
through active monitoring and engagement in the U.S. and abroad;
- promotes the safety and
soundness of individual financial institutions and monitors their impact
on the financial system as a whole;
- fosters payment and
settlement system safety and efficiency through services to the banking
industry and the U.S. government that facilitate U.S.-dollar transactions
and payments; and
- promotes consumer
protection and community development through consumer-focused supervision
and examination, research and analysis of emerging consumer issues and
trends, community economic development activities, and the administration
of consumer laws and regulations.”
- Unchanged Policy Interest Rates: “The
ongoing public health crisis will continue to weigh on economic activity,
employment, and inflation in the near term, and poses considerable risks
to the economic outlook over the medium term. The Committee seeks to
achieve maximum employment and inflation at the rate of 2 percent over the
longer run. With inflation running persistently below this longer-run
goal, the Committee will aim to achieve inflation moderately above 2
percent for some time so that inflation averages 2 percent over time and
longer-term inflation expectations remain well anchored at 2 percent. The
Committee expects to maintain an accommodative stance of monetary policy
until these outcomes are achieved. The Committee decided to keep the
target range for the federal funds rate at 0 to 1/4 percent and expects it
will be appropriate to maintain this target range until labor market
conditions have reached levels consistent with the Committee's assessments
of maximum employment and inflation has risen to 2 percent and is on track
to moderately exceed 2 percent for some time.”
- New Advance Guidance. “The Committee decided to keep the target range
for the federal funds rate at 0 to ¼ percent and expects it will be
appropriate to maintain this target range until labor market conditions
have reached levels consistent with the Committee's assessments of maximum
employment and inflation has risen to 2 percent and is on track to
moderately exceed 2 percent for some time. In addition, over coming months
the Federal Reserve will increase its holdings of Treasury securities and
agency mortgage-backed securities at least at the current pace to sustain
smooth market functioning and help foster accommodative financial
conditions, thereby supporting the flow of credit to households and
businesses. In assessing the appropriate stance of monetary policy, the
Committee will continue to monitor the implications of incoming
information for the economic outlook. The Committee would be prepared to
adjust the stance of monetary policy as appropriate if risks emerge that
could impede the attainment of the Committee's goals. The Committee's assessments
will take into account a wide range of information, including readings on
public health, labor market conditions, inflation pressures and inflation
expectations, and financial and international developments.” (emphasis
added).
- New Quantitative Easing and Other Measures: “In addition, over
coming months the Federal Reserve will increase its holdings of Treasury
securities and agency mortgage-backed securities at least at the current
pace to sustain smooth market functioning and help foster accommodative
financial conditions, thereby supporting the flow of credit to households
and businesses.”
- Forecast Dependent Policy. In the Opening Remarks to the Press Conference on Jan 30, 2019, the Chairman of the Federal Reserve Board, Jerome H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190130.pdf): “Today, the FOMC decided that the cumulative effects of those developments over the last several months warrant a patient, wait-and-see approach regarding future policy changes. In particular, our statement today says, “In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate.” This change was not driven by a major shift in the baseline outlook for the economy. Like many forecasters, we still see “sustained expansion of economic activity, strong labor market conditions, and inflation near … 2 percent” as the likeliest case. But the cross-currents I mentioned suggest the risk of a less-favorable outlook. In addition, the case for raising rates has weakened somewhat. The traditional case for rate increases is to protect the economy from risks that arise when rates are too low for too long, particularly the risk of too-high inflation. Over the past few months, that risk appears to have diminished. Inflation readings have been muted, and the recent drop in oil prices is likely to Page 3 of 5 push headline inflation lower still in coming months. Further, as we noted in our post-meeting statement, while survey-based measures of inflation expectations have been stable, financial market measures of inflation compensation have moved lower. Similarly, the risk of financial imbalances appears to have receded, as a number of indicators that showed elevated levels of financial risk appetite last fall have moved closer to historical norms. In this environment, we believe we can best support the economy by being patient in evaluating the outlook before making any future adjustment to policy.” In the opening remarks to the Mar 20, 2019, the Chairman of the Federal Reserve Board, Jerome H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190320.pdf): “In discussing the Committee’s projections, it is useful to note what those projections are, as well as what they are not. The SEP includes participants’ individual projections of the most likely economic scenario along with their views of the appropriate path of the federal funds rate in that scenario. Views about the most likely scenario form one input into our policy discussions. We also discuss other plausible scenarios, including the risk of more worrisome outcomes. These and other scenarios and many other considerations go into policy, but are not reflected in projections of the most likely case. Thus, we always emphasize that the interest rate projections in the SEP are not a Committee decision. They are not a Committee plan. As Chair Yellen noted some years ago, the FOMC statement, rather than the dot plot, is the device that the Committee uses to express its opinions about the likely path of rates.”
The Federal Open Market Committee (FOMC)
decided to lower the target range of the federal funds rate by 0.50 percent to
1.0 to 1¼ percent on Mar 3, 2020 in a decision outside the calendar meetings (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200303a.htm):
Focus is shifting from tapering quantitative easing by the Federal Open Market Committee (FOMC). There is sharp distinction between the two measures of unconventional monetary policy: (1) fixing of the overnight rate of fed funds now currently at 0 to ¼ percent and (2) outright purchase of Treasury and agency securities and mortgage-backed securities for the balance sheet of the Federal Reserve. Markets overreacted to the so-called “paring” of outright purchases to $25 billion of securities per month for the balance sheet of the Fed.
What is truly
important is the fixing of the overnight fed funds at 0 to ¼ percent (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200916a.htm): “The Committee
decided to keep the target range for the federal funds rate at 0 to ¼ percent
and expects it will be appropriate to maintain this target range until labor
market conditions have reached levels consistent with the Committee's
assessments of maximum employment and inflation has risen to 2 percent and is
on track to moderately exceed 2 percent for some time. In addition, over coming
months the Federal Reserve will increase its holdings of Treasury securities
and agency mortgage-backed securities at least at the current pace to sustain
smooth market functioning and help foster accommodative financial conditions,
thereby supporting the flow of credit to households and businesses. In
assessing the appropriate stance of monetary policy, the Committee will continue
to monitor the implications of incoming information for the economic outlook.
The Committee would be prepared to adjust the stance of monetary policy as
appropriate if risks emerge that could impede the attainment of the Committee's
goals. The Committee's assessments will take into account a wide range of
information, including readings on public health, labor market conditions,
inflation pressures and inflation expectations, and financial and international
developments.” (emphasis added).” There are multiple new policy measures, including purchases of Treasury
securities and mortgage-backed securities for the balance sheet of the Fed (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200610a.htm): “To support the flow of credit to households and businesses, over
coming months the Federal Reserve will increase its holdings of Treasury
securities and agency residential and commercial mortgage-backed securities at
least at the current pace to sustain smooth market functioning, thereby
fostering effective transmission of monetary policy to broader financial
conditions. In addition, the Open Market Desk will continue to offer
large-scale overnight and term repurchase agreement operations. The Committee
will closely monitor developments and is prepared to adjust its plans as
appropriate.”In the Opening Remarks to the Press
Conference on Oct 30, 2019, the Chairman of the Federal Reserve Board, Jerome
H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20191030.pdf): “We see the current stance of
monetary policy as likely to remain appropriate as long as incoming information
about the economy remains broadly consistent with our outlook of moderate
economic growth, a strong labor market, and inflation near our symmetric 2
percent objective. We believe monetary policy is in a good place to achieve
these outcomes. Looking ahead, we will be monitoring the effects of our policy
actions, along with other information bearing on the outlook, as we assess the
appropriate path of the target range for the fed funds rate. Of course, if
developments emerge that cause a material reassessment of our outlook, we would
respond accordingly. Policy is not on a preset course.” In the Opening Remarks to the Press Conference on Jan 30, 2019, the
Chairman of the Federal Reserve Board, Jerome H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190130.pdf): “Today, the FOMC decided that
the cumulative effects of those developments over the last several months
warrant a patient, wait-and-see approach regarding future policy changes. In
particular, our statement today says, “In light of global economic and
financial developments and muted inflation pressures, the Committee will be
patient as it determines what future adjustments to the target range for the
federal funds rate may be appropriate.” This change was not driven by a major
shift in the baseline outlook for the economy. Like many forecasters, we
still see “sustained expansion of economic activity, strong labor market
conditions, and inflation near … 2 percent” as the likeliest case. But the
cross-currents I mentioned suggest the risk of a less-favorable outlook. In
addition, the case for raising rates has
weakened somewhat. The traditional case for rate increases is to protect
the economy from risks that arise when rates are too low for too long,
particularly the risk of too-high inflation. Over the past few months, that
risk appears to have diminished. Inflation readings have been muted, and the recent
drop in oil prices is likely to Page 3 of 5 push headline inflation lower still
in coming months. Further, as we noted in our post-meeting statement, while
survey-based measures of inflation expectations have been stable, financial
market measures of inflation compensation have moved lower. Similarly, the risk
of financial imbalances appears to have receded, as a number of indicators that
showed elevated levels of financial risk appetite last fall have moved closer
to historical norms. In this environment, we believe we can best support the
economy by being patient in evaluating the outlook before making any future
adjustment to policy.” The FOMC is initiating the “normalization” or
reduction of the balance sheet of securities held outright for monetary policy
(https://www.federalreserve.gov/newsevents/pressreleases/monetary20190130c.htm) with
significant changes (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190320.pdf). In the opening remarks to the Mar 20, 2019, the Chairman of the Federal
Reserve Board, Jerome H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190320.pdf): “In discussing the Committee’s
projections, it is useful to note what those projections are, as well as what
they are not. The SEP includes participants’ individual projections of the most
likely economic scenario along with their views of the appropriate path of the
federal funds rate in that scenario. Views about the most likely scenario form
one input into our policy discussions. We also discuss other plausible
scenarios, including the risk of more worrisome outcomes. These and other
scenarios and many other considerations go into policy, but are not reflected
in projections of the most likely case. Thus, we always emphasize that the
interest rate projections in the SEP are not a Committee decision. They are not
a Committee plan. As Chair Yellen noted some years ago, the FOMC statement,
rather than the dot plot, is the device that the Committee uses to express its
opinions about the likely path of rates.”
In the Introductory Statement on Jul 25,
2019, in Frankfurt am Main, the President of the European Central Bank, Mario
Draghi, stated (https://www.ecb.europa.eu/press/pressconf/2019/html/ecb.is190725~547f29c369.en.html): “Based on our regular economic and monetary analyses, we decided
to keep the key ECB interest rates unchanged.
We expect them to remain at their present or lower levels at least through the
first half of 2020, and in any case for as long as necessary to ensure the
continued sustained convergence of inflation to our aim over the medium term.
We intend to continue reinvesting, in full, the principal
payments from maturing securities purchased under the asset purchase programme
for an extended period of time past the date when we start raising the key ECB
interest rates, and in any case for as long as necessary to maintain favourable
liquidity conditions and an ample degree of monetary accommodation.” At its meeting on September 12, 2019, the Governing
Council of the ECB (European Central Bank), decided to (https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190912~08de50b4d2.en.html):
(1) decrease the deposit facility by 10 basis points to minus 0.50 percent
while maintaining at 0.00 the main refinancing operations rate and at 0.25 percent
the marginal lending facility rate; (2) restart net purchases of securities at
the monthly rate of €20 billion beginning on Nov 1, 2019; (3) reinvest
principal payments from maturing securities; (4) adapt long-term refinancing
operations to maintain “favorable bank lending conditions;” and (5) exempt part
of the “negative deposit facility rate” on bank excess liquidity.
The Federal
Open Market Committee (FOMC) decided to lower the target range of the federal
funds rate by 0.50 percent to 1.0 to 1¼ percent on Mar 3, 2020 in a decision
outside the calendar meetings (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200303a.htm):
March 03, 2020
Federal Reserve issues FOMC statement
For release at
10:00 a.m. EST
The
fundamentals of the U.S. economy remain strong. However, the coronavirus poses
evolving risks to economic activity. In light of these risks and in support of
achieving its maximum employment and price stability goals, the Federal Open
Market Committee decided today to lower the target range for the federal funds
rate by 1/2 percentage point, to 1 to 1‑1/4 percent. The Committee is closely
monitoring developments and their implications for the economic outlook and
will use its tools and act as appropriate to support the economy.
Voting for the
monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice
Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker;
Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.
For media
inquiries, call 202-452-2955.
Implementation
Note issued March 3, 2020
In his classic
restatement of the Keynesian demand function in terms of “liquidity preference
as behavior toward risk,” James Tobin (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1981/tobin-bio.html) identifies
the risks of low interest rates in terms of portfolio allocation (Tobin 1958,
86):
“The assumption
that investors expect on balance no change in the rate of interest has been
adopted for the theoretical reasons explained in section 2.6 rather than for
reasons of realism. Clearly investors do form expectations of changes in
interest rates and differ from each other in their expectations. For the
purposes of dynamic theory and of analysis of specific market situations, the
theories of sections 2 and 3 are complementary rather than competitive. The
formal apparatus of section 3 will serve just as well for a non-zero expected
capital gain or loss as for a zero expected value of g. Stickiness of interest
rate expectations would mean that the expected value of g is a function of the
rate of interest r, going down when r goes down and rising when r goes up. In
addition to the rotation of the opportunity locus due to a change in r itself,
there would be a further rotation in the same direction due to the accompanying
change in the expected capital gain or loss. At low interest rates
expectation of capital loss may push the opportunity locus into the negative
quadrant, so that the optimal position is clearly no consols, all cash. At
the other extreme, expectation of capital gain at high interest rates would
increase sharply the slope of the opportunity locus and the frequency of no
cash, all consols positions, like that of Figure 3.3. The stickier the
investor's expectations, the more sensitive his demand for cash will be to
changes in the rate of interest (emphasis added).”
Tobin (1969)
provides more elegant, complete analysis of portfolio allocation in a general
equilibrium model. The major point is equally clear in a portfolio consisting
of only cash balances and a perpetuity or consol. Let g be the capital
gain, r the rate of interest on the consol and re the
expected rate of interest. The rates are expressed as proportions. The price of
the consol is the inverse of the interest rate, (1+re). Thus,
g = [(r/re) – 1]. The critical analysis of
Tobin is that at extremely low interest rates there is only expectation of
interest rate increases, that is, dre>0, such that there
is expectation of capital losses on the consol, dg<0. Investors move
into positions combining only cash and no consols. Valuations of risk
financial assets would collapse in reversal of long positions in carry trades
with short exposures in a flight to cash. There is no exit from a central bank
created liquidity trap without risks of financial crash and another global
recession. The net worth of the economy depends on interest rates. In theory,
“income is generally defined as the amount a consumer unit could consume (or
believe that it could) while maintaining its wealth intact” (Friedman 1957,
10). Income, Y, is a flow that is obtained by applying a rate of return,
r, to a stock of wealth, W, or Y = rW (Friedman
1957). According to a subsequent statement: “The basic idea is simply that
individuals live for many years and that therefore the appropriate constraint
for consumption is the long-run expected yield from wealth r*W.
This yield was named permanent income: Y* = r*W” (Darby
1974, 229), where * denotes permanent. The simplified relation of income and
wealth can be restated as:
W = Y/r
(1)
Equation (1)
shows that as r goes to zero, r→0, W grows without bound, W→∞.
Unconventional monetary policy lowers interest rates to increase the present
value of cash flows derived from projects of firms, creating the impression of
long-term increase in net worth. An attempt to reverse unconventional monetary
policy necessarily causes increases in interest rates, creating the opposite
perception of declining net worth. As r→∞, W = Y/r
→0. There is no exit from unconventional monetary policy without increasing
interest rates with resulting pain of financial crisis and adverse effects on
production, investment and employment.
How long is
“considerable time”? At the press conference following the meeting on Mar 19,
2014, Chair Yellen answered a question of Jon Hilsenrath of the Wall Street
Journal explaining “In particular, the Committee has endorsed the view that
it anticipates that will be a considerable period after the asset purchase
program ends before it will be appropriate to begin to raise rates. And of
course on our present path, well, that's not utterly preset. We would be
looking at next, next fall. So, I think that's important guidance” (http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20140319.pdf). Many focused
on “next fall,” ignoring that the path of increasing rates is not “utterly
preset.”
At the press
conference following the meeting on Dec 17, 2014, Chair Yellen answered a
question by Jon Hilseranth of the Wall
Street Journal explaining “patience” (http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20141217.pdf):
“So I did say
that this statement that the committee can be patient should be interpreted as
meaning that it is unlikely to begin the normalization process, for at least
the next couple of meetings. Now that doesn't point to any preset or
predetermined time at which normalization is -- will begin. There are a range
of views on the committee, and it will be dependent on how incoming data bears
on the progress, the economy is making. First of all, I want to emphasize that
no meeting is completely off the table in the sense that if we do see faster
progress toward our objectives than we currently expect, then it is possible
that the process of normalization would occur sooner than we now anticipated.
And of course the converse is also true. So at this point, we think it unlikely
that it will be appropriate, that we will see conditions for at least the next
couple of meetings that will make it appropriate for us to decide to begin
normalization. A number of committee participants have indicated that in their
view, conditions could be appropriate by the middle of next year. But there is
no preset time.”
Chair Yellen explained the removal of the
word “patience” from the advanced guidance at the press conference following
the FOMC meeting on Mar 18, 2015(http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20150318.pdf):
“In other words,
just because we removed the word “patient” from the statement doesn’t mean we
are going to be impatient. Moreover, even after the initial increase in the
target funds rate, our policy is likely to remain highly accommodative to
support continued progress toward our objectives of maximum employment and 2
percent inflation.”
At a speech on
Mar 31, 2014, Chair Yellen analyzed labor market conditions as follows (http://www.federalreserve.gov/newsevents/speech/yellen20140331a.htm):
“And based on
the evidence available, it is clear to me that the U.S. economy is still
considerably short of the two goals assigned to the Federal Reserve by the
Congress. The first of those goals is maximum sustainable employment, the
highest level of employment that can be sustained while maintaining a stable
inflation rate. Most of my colleagues on the Federal Open Market Committee and
I estimate that the unemployment rate consistent with maximum sustainable
employment is now between 5.2 percent and 5.6 percent, well below the 6.7
percent rate in February.
Let me explain
what I mean by that word "slack" and why it is so important.
Slack means
that there are significantly more people willing and capable of filling a job
than there are jobs for them to fill. During a period of little or no slack,
there still may be vacant jobs and people who want to work, but a large share
of those willing to work lack the skills or are otherwise not well suited for
the jobs that are available. With 6.7 percent unemployment, it might seem that
there must be a lot of slack in the U.S. economy, but there are reasons why
that may not be true.”
Yellen
(2014Aug22) provides comprehensive review of the theory and measurement of
labor markets. Monetary policy pursues a policy of attaining its “dual mandate”
of (http://www.federalreserve.gov/aboutthefed/mission.htm):
“Conducting the
nation's monetary policy by influencing the monetary and credit conditions in
the economy in pursuit of maximum employment, stable prices, and moderate
long-term interest rates”
Yellen
(2014Aug22) finds that the unemployment rate is not sufficient in determining
slack:
“One
convenient way to summarize the information contained in a large number of
indicators is through the use of so-called factor models. Following this
methodology, Federal Reserve Board staff developed a labor market conditions
index from 19 labor market indicators, including four I just discussed. This
broadly based metric supports the conclusion that the labor market has improved
significantly over the past year, but it also suggests that the decline in the
unemployment rate over this period somewhat overstates the improvement in
overall labor market conditions.”
Yellen
(2014Aug22) restates that the FOMC determines monetary policy on newly
available information and interpretation of labor markets and inflation and
does not follow a preset path:
“But
if progress in the labor market continues to be more rapid than anticipated by
the Committee or if inflation moves up more rapidly than anticipated, resulting
in faster convergence toward our dual objectives, then increases in the federal
funds rate target could come sooner than the Committee currently expects and
could be more rapid thereafter. Of course, if economic performance turns out to
be disappointing and progress toward our goals proceeds more slowly than we
expect, then the future path of interest rates likely would be more
accommodative than we currently anticipate. As I have noted many times,
monetary policy is not on a preset path. The Committee will be closely monitoring
incoming information on the labor market and inflation in determining the
appropriate stance of monetary policy.”
Yellen (2014Aug22) states that “Historically, slack has
accounted for only a small portion of the fluctuations in inflation. Indeed,
unusual aspects of the current recovery may have shifted the lead-lag
relationship between a tightening labor market and rising inflation pressures
in either direction.”
The minutes of
the meeting of the Federal Open Market Committee (FOMC) on Sep 16-17, 2014,
reveal concern with global economic conditions (http://www.federalreserve.gov/monetarypolicy/fomcminutes20140917.htm):
“Most
viewed the risks to the outlook for economic activity and the labor market as
broadly balanced. However, a number of participants noted that economic growth
over the medium term might be slower than they expected if foreign economic
growth came in weaker than anticipated, structural productivity continued to
increase only slowly, or the recovery in residential construction continued to
lag.”
There is
similar concern in the minutes of the meeting of the FOMC on Dec 16-17, 2014 (http://www.federalreserve.gov/monetarypolicy/fomcminutes20141217.htm):
“In
their discussion of the foreign economic outlook, participants noted that the
implications of the drop in crude oil prices would differ across regions,
especially if the price declines affected inflation expectations and financial
markets; a few participants said that the effect on overseas employment and
output as a whole was likely to be positive. While some participants had
lowered their assessments of the prospects for global economic growth, several
noted that the likelihood of further responses by policymakers abroad had
increased. Several participants indicated that they expected slower economic
growth abroad to negatively affect the U.S. economy, principally through lower
net exports, but the net effect of lower oil prices on U.S. economic activity
was anticipated to be positive.”
Chair Yellen
analyzes the view of inflation (http://www.federalreserve.gov/newsevents/speech/yellen20140416a.htm):
“Inflation, as
measured by the price index for personal consumption expenditures, has slowed
from an annual rate of about 2-1/2 percent in early 2012 to less than 1 percent
in February of this year. This rate is well below the Committee's 2 percent
longer-run objective. Many advanced economies are observing a similar softness
in inflation.
To some extent,
the low rate of inflation seems due to influences that are likely to be
temporary, including a deceleration in consumer energy prices and outright
declines in core import prices in recent quarters. Longer-run inflation
expectations have remained remarkably steady, however. We anticipate that, as
the effects of transitory factors subside and as labor market gains continue,
inflation will gradually move back toward 2 percent.”
There is a
critical phrase in the statement of Sep 19, 2013 (http://www.federalreserve.gov/newsevents/press/monetary/20130918a.htm): “but
mortgage rates have risen further.” Did the increase of mortgage rates
influence the decision of the FOMC not to taper? Is FOMC “communication” and
“guidance” successful? Will the FOMC increase purchases of mortgage-backed
securities if mortgage rates increase?
A competing event is the high level of valuations of risk
financial assets (https://cmpassocregulationblog.blogspot.com/2018/01/twenty-three-million-unemployed-or.html and earlier https://cmpassocregulationblog.blogspot.com/2017/12/twenty-one-million-unemployed-or.html and earlier http://cmpassocregulationblog.blogspot.com/2017/01/unconventional-monetary-policy-and.html and earlier http://cmpassocregulationblog.blogspot.com/2016/01/unconventional-monetary-policy-and.html and earlier http://cmpassocregulationblog.blogspot.com/2015/01/peaking-valuations-of-risk-financial.html and earlier http://cmpassocregulationblog.blogspot.com/2014/01/theory-and-reality-of-secular.html). Matt Jarzemsky, writing on “Dow industrials set record,” on
Mar 5, 2013, published in the Wall Street Journal (http://professional.wsj.com/article/SB10001424127887324156204578275560657416332.html), analyzes that the DJIA broke the closing high of 14,164.53
set on Oct 9, 2007, and subsequently also broke the intraday high of 14,198.10
reached on Oct 11, 2007. The DJIA closed at 27,173.96 on Sep 25, 2020, which is
higher by 91.8 percent than the value of 14,164.53 reached on Oct 9, 2007 and
higher by 91.4 percent than the value of 14,198.10 reached on Oct 11, 2007.
Values of risk financial assets had been approaching or exceeding historical
highs before effects on markets in the global recession, with output in the
US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event.
Perhaps one of the most critical statements on
policy is the answer to a question of Peter Barnes by Chair Janet Yellen at the
press conference following the meeting on Jun 18, 2014 (page 19 at http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20140618.pdf):
So
I don't have a sense--the committee
doesn't try to gauge what is the right level of equity prices. But we do
certainly monitor a number of different metrics that give us a feeling for
where valuations are relative to things like earnings or dividends, and look at
where these metrics stand in comparison with previous history to get a sense of
whether or not we're moving to valuation levels that are outside of historical
norms, and I still don't see that. I still don't see that for equity prices
broadly” (emphasis added).
In a speech at the IMF on Jul 2, 2014,
Chair Yellen analyzed the link between monetary policy and financial risks (http://www.federalreserve.gov/newsevents/speech/yellen20140702a.htm):
“Monetary
policy has powerful effects on risk taking. Indeed, the accommodative policy
stance of recent years has supported the recovery, in part, by providing
increased incentives for households and businesses to take on the risk of
potentially productive investments. But such risk-taking can go too far,
thereby contributing to fragility in the financial system. This possibility
does not obviate the need for monetary policy to focus primarily on price
stability and full employment--the costs to society in terms of deviations from
price stability and full employment that would arise would likely be
significant. In the private sector, key vulnerabilities included high levels of
leverage, excessive dependence on unstable short-term funding, weak
underwriting of loans, deficiencies in risk measurement and risk management,
and the use of exotic financial instruments that redistributed risk in
nontransparent ways.”
Yellen (2014Jul14) warned again at the
Committee on Banking, Housing and Urban Affairs on Jul 15, 2014:
“The Committee
recognizes that low interest rates may provide incentives for some investors to
“reach for yield,” and those actions could increase vulnerabilities in the
financial system to adverse events. While prices of real estate, equities, and
corporate bonds have risen appreciably and valuation metrics have increased,
they remain generally in line with historical norms. In some sectors, such as lower-rated corporate debt, valuations appear
stretched and issuance has been brisk. Accordingly, we are closely monitoring
developments in the leveraged loan market and are working to enhance the
effectiveness of our supervisory guidance. More broadly, the financial
sector has continued to become more resilient, as banks have continued to boost
their capital and liquidity positions, and growth in wholesale short-term
funding in financial markets has been modest” (emphasis added).
Greenspan (1996) made similar warnings:
“Clearly,
sustained low inflation implies less uncertainty about the future, and lower
risk premiums imply higher prices of stocks and other earning assets. We can
see that in the inverse relationship exhibited by price/earnings ratios and the
rate of inflation in the past. But how do we know when irrational exuberance
has unduly escalated asset values, which then become subject to unexpected and
prolonged contractions as they have in Japan over the past decade? And how do
we factor that assessment into monetary policy? We as central bankers need not
be concerned if a collapsing financial asset bubble does not threaten to impair
the real economy, its production, jobs, and price stability. Indeed, the sharp
stock market break of 1987 had few negative consequences for the economy. But
we should not underestimate or become complacent about the complexity of the
interactions of asset markets and the economy. Thus, evaluating shifts in
balance sheets generally, and in asset prices particularly, must be an integral
part of the development of monetary policy” (emphasis added).
Bernanke
(2010WP) and Yellen (2011AS) reveal the emphasis of monetary policy on the
impact of the rise of stock market valuations in stimulating consumption by
wealth effects on household confidence. What is the success in evaluating
deviations of valuations of risk financial assets from “historical norms”? What
are the consequences on economic activity and employment of deviations of
valuations of risk financial assets from those “historical norms”? What are the
policy tools and their effectiveness in returning valuations of risk financial
assets to their “historical norms”?
The key policy
consisted in maintaining fed funds rate between 0 and ¼ percent. An increase in
fed funds rates could cause flight out of risk financial markets worldwide.
There is no exit from this policy without major financial market repercussions.
There are high costs and risks of this policy because indefinite financial
repression induces carry trades with high leverage, risks and illiquidity.
The Communiqué of the Istanbul meeting of
G20 Finance Ministers and Central Bank Governors on February 10, 2015, sanctions
the need of unconventional monetary policy with warning on collateral effects (http://www.g20.utoronto.ca/2015/150210-finance.html):
“We
agree that consistent with central banks' mandates, current economic conditions
require accommodative monetary policies in some economies. In this regard, we
welcome that central banks take appropriate monetary policy action. The recent
policy decision by the ECB aims at fulfilling its price stability mandate, and
will further support the recovery in the euro area. We also note that some
advanced economies with stronger growth prospects are moving closer to
conditions that would allow for policy normalization. In an environment of
diverging monetary policy settings and rising financial market volatility,
policy settings should be carefully calibrated and clearly communicated to
minimize negative spillovers.”
Professor Raguram G Rajan, former
governor of the Reserve Bank of India, which is India’s central bank, warned
about risks in high valuations of asset prices in an interview with Christopher
Jeffery of Central Banking Journal on
Aug 6, 2014 (http://www.centralbanking.com/central-banking-journal/interview/2358995/raghuram-rajan-on-the-dangers-of-asset-prices-policy-spillovers-and-finance-in-india). Professor
Rajan demystifies in the interview “competitive easing” by major central banks
as equivalent to competitive devaluation.
Rajan (2005) anticipated the risks of the world financial crisis. Professor
John B. Taylor (2016Dec 7, 2016Dec20), in Testimony to the Subcommittee on
Monetary Policy and Trade Committee on Financial Services, on Dec 7, 2016,
analyzes the adverse effects of unconventional monetary policy:
“My research and that of others over
the years shows that these policies were not effective, and may have been
counterproductive. Economic growth was consistently below the Fed’s forecasts
with the policies, and was much weaker than in earlier U.S. recoveries from
deep recessions. Job growth has been insufficient to raise the percentage of
the population that is working above pre-recession levels. There is a growing
consensus that the extra low interest rates and unconventional monetary policy
have reached diminishing or negative returns. Many have argued that these
policies widen the income distribution, adversely affect savers, and increase
the volatility of the dollar exchange rate. Experienced market participants
have expressed concerns about bubbles, imbalances, and distortions caused by
the policies. The unconventional policies have also raised public policy
concerns about the Fed being transformed into a multipurpose institution,
intervening in particular sectors and allocating credit, areas where Congress
may have a role, but not a limited-purpose independent agency of government.”
Professor John
B. Taylor (2014Jul15, 2014Jun26) building on advanced research (Taylor 2007,
2008Nov, 2009, 2012FP, 2012Mar27, 2012Mar28, 2012JMCB, 2015, 2012 Oct 25;
2013Oct28, 2014 Jan01, 2014Jan3, 2014Jun26, 2014Jul15, 2015, 2016Dec7,
2016Dec20 2018Nov19 http://www.johnbtaylor.com/) finds that a
monetary policy rule would function best in promoting an environment of low
inflation and strong economic growth with stability of financial markets. There
is strong case for using rules instead of discretionary authorities in monetary
policy (http://cmpassocregulationblog.blogspot.com/2017/01/rules-versus-discretionary-authorities.html and earlier http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html).
The key policy
is maintaining fed funds rate between 2 and 2¼ percent. Accelerated increase in
fed funds rates could cause flight out of risk financial markets worldwide.
There is no exit from this policy without major financial market repercussions.
There are high costs and risks of this policy because indefinite financial
repression induces carry trades with high leverage, risks and illiquidity.
The FOMC
provides guidelines on the process of normalization of monetary policy at the
meeting on Dec 16, 2015 (http://www.federalreserve.gov/newsevents/press/monetary/20151216a1.htm):
“The Federal Reserve has made the following decisions to implement
the monetary policy stance announced by the Federal Open Market Committee in
its statement on December
16, 2015:
- The
Board of Governors of the Federal Reserve System voted unanimously to
raise the interest rate paid on required and excess reserve balances to
0.50 percent, effective December 17, 2015.
- As
part of its policy decision, the Federal Open Market Committee voted to
authorize and direct the Open Market Desk at the Federal Reserve Bank of
New York, until instructed otherwise, to execute transactions in the
System Open Market Account in accordance with the following domestic
policy directive:1
"Effective December 17, 2015, the Federal Open Market
Committee directs the Desk to undertake open market operations as necessary to
maintain the federal funds rate in a target range of 1/4 to 1/2 percent,
including: (1) overnight reverse repurchase operations (and reverse repurchase
operations with maturities of more than one day when necessary to accommodate
weekend, holiday, or similar trading conventions) at an offering rate of 0.25
percent, in amounts limited only by the value of Treasury securities held
outright in the System Open Market Account that are available for such
operations and by a per-counterparty limit of $30 billion per day; and (2) term
reverse repurchase operations to the extent approved in the resolution on term
RRP operations approved by the Committee at its March 17-18, 2015, meeting.
The Committee directs the Desk to continue rolling over maturing
Treasury securities at auction and to continue reinvesting principal payments
on all agency debt and agency mortgage-backed securities in agency
mortgage-backed securities. The Committee also directs the Desk to engage in
dollar roll and coupon swap transactions as necessary to facilitate settlement
of the Federal Reserve's agency mortgage-backed securities transactions."
More information regarding open market operations may be found on
the Federal Reserve Bank of New York's website.
- In
a related action, the Board of Governors of the Federal Reserve System
voted unanimously to approve a 1/4 percentage point increase in the
discount rate (the primary credit rate) to 1.00 percent, effective
December 17, 2015. In taking this action, the Board approved requests
submitted by the Boards of Directors of the Federal Reserve Banks of
Boston, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis,
Kansas City, Dallas, and San Francisco.
This information will be updated as appropriate to reflect
decisions of the Federal Open Market Committee or the Board of Governors regarding
details of the Federal Reserve's operational tools and approach used to
implement monetary policy.”
In the
Semiannual Monetary Policy Report to Congress on Feb 24, 2015, Chair Yellen
analyzes the timing of interest rate increases (http://www.federalreserve.gov/newsevents/testimony/yellen20150224a.htm):
“The
FOMC's assessment that it can be patient in beginning to normalize policy means
that the Committee considers it unlikely that economic conditions will warrant
an increase in the target range for the federal funds rate for at least the
next couple of FOMC meetings. If economic conditions continue to improve, as
the Committee anticipates, the Committee will at some point begin considering
an increase in the target range for the federal funds rate on a
meeting-by-meeting basis. Before then, the Committee will change its forward
guidance. However, it is important to emphasize that a modification of the
forward guidance should not be read as indicating that the Committee will
necessarily increase the target range in a couple of meetings. Instead the
modification should be understood as reflecting the Committee's judgment that
conditions have improved to the point where it will soon be the case that a
change in the target range could be warranted at any meeting. Provided that
labor market conditions continue to improve and further improvement is
expected, the Committee anticipates that it will be appropriate to raise the target
range for the federal funds rate when, on the basis of incoming data, the
Committee is reasonably confident that inflation will move back over the medium
term toward our 2 percent objective.”
In testimony on
the Semiannual Monetary Policy Report to the Congress before the Committee on
Financial Services, US House of Representatives, on Feb 11, 2014, Chair Janet
Yellen states (http://www.federalreserve.gov/newsevents/testimony/yellen20140211a.htm):
“Turning to
monetary policy, let me emphasize that I expect a great deal of continuity in
the FOMC's approach to monetary policy. I served on the Committee as we
formulated our current policy strategy and I strongly support that strategy,
which is designed to fulfill the Federal Reserve's statutory mandate of maximum
employment and price stability. If incoming information broadly supports
the Committee's expectation of ongoing improvement in labor market conditions
and inflation moving back toward its longer-run objective, the Committee will
likely reduce the pace of asset purchases in further measured steps at future
meetings. That said, purchases are not on a preset course, and the Committee's
decisions about their pace will remain contingent on its outlook for the labor
market and inflation as well as its assessment of the likely efficacy and costs
of such purchases. In December of last year and again this January, the
Committee said that its current expectation--based on its assessment of a broad
range of measures of labor market conditions, indicators of inflation pressures
and inflation expectations, and readings on financial developments--is that it
likely will be appropriate to maintain the current target range for the federal
funds rate well past the time that the unemployment rate declines below 6-1/2
percent, especially if projected inflation continues to run below the 2 percent
goal. I am committed to achieving both parts of our dual mandate: helping
the economy return to full employment and returning inflation to 2 percent
while ensuring that it does not run persistently above or below that level
(emphasis added).”
At the
confirmation hearing on nomination for Chair of the Board of Governors of the
Federal Reserve System, Vice Chair Yellen (2013Nov14 http://www.federalreserve.gov/newsevents/testimony/yellen20131114a.htm), states needs
and intentions of policy:
“We have made
good progress, but we have farther to go to regain the ground lost in the
crisis and the recession. Unemployment is down from a peak of 10 percent, but
at 7.3 percent in October, it is still too high, reflecting a labor market and
economy performing far short of their potential. At the same time, inflation
has been running below the Federal Reserve's goal of 2 percent and is expected
to continue to do so for some time.
For these
reasons, the Federal Reserve is using its monetary policy tools to promote a
more robust recovery. A strong recovery will ultimately enable the Fed to
reduce its monetary accommodation and reliance on unconventional policy tools
such as asset purchases. I believe that supporting the recovery today is the
surest path to returning to a more normal approach to monetary policy.”
In testimony
before the Committee on the Budget of the US Senate on May 8, 2004, Chair Yellen
provides analysis of the current economic situation and outlook (http://www.federalreserve.gov/newsevents/testimony/yellen20140507a.htm):
“The economy has continued to recover from the steep recession of
2008 and 2009. Real gross domestic product (GDP) growth stepped up to an
average annual rate of about 3-1/4 percent over the second half of last year, a
faster pace than in the first half and during the preceding two years. Although
real GDP growth is currently estimated to have paused in the first quarter of
this year, I see that pause as mostly reflecting transitory factors, including
the effects of the unusually cold and snowy winter weather. With the harsh winter
behind us, many recent indicators suggest that a rebound in spending and
production is already under way, putting the overall economy on track for solid
growth in the current quarter. One cautionary note, though, is that readings on
housing activity--a sector that has been recovering since 2011--have remained
disappointing so far this year and will bear watching.
Conditions in the labor market have continued to improve. The
unemployment rate was 6.3 percent in April, about 1-1/4 percentage points below
where it was a year ago. Moreover, gains in payroll employment averaged nearly
200,000 jobs per month over the past year. During the economic recovery so far,
payroll employment has increased by about 8-1/2 million jobs since its low
point, and the unemployment rate has declined about 3-3/4 percentage points
since its peak.
While conditions in the labor market have improved appreciably,
they are still far from satisfactory. Even with recent declines in the
unemployment rate, it continues to be elevated. Moreover, both the share of the
labor force that has been unemployed for more than six months and the number of
individuals who work part time but would prefer a full-time job are at
historically high levels. In addition, most measures of labor compensation have
been rising slowly--another signal that a substantial amount of slack remains
in the labor market.
Inflation has been quite low even as the economy has continued to
expand. Some of the factors contributing to the softness in inflation over the
past year, such as the declines seen in non-oil import prices, will probably be
transitory. Importantly, measures of longer-run inflation expectations have
remained stable. That said, the Federal Open Market Committee (FOMC) recognizes
that inflation persistently below 2 percent--the rate that the Committee judges
to be most consistent with its dual mandate--could pose risks to economic
performance, and we are monitoring inflation developments closely.
Looking ahead, I expect that economic activity will expand at a
somewhat faster pace this year than it did last year, that the unemployment
rate will continue to decline gradually, and that inflation will begin to move
up toward 2 percent. A faster rate of economic growth this year should be
supported by reduced restraint from changes in fiscal policy, gains in
household net worth from increases in home prices and equity values, a firming
in foreign economic growth, and further improvements in household and business
confidence as the economy continues to strengthen. Moreover, U.S. financial
conditions remain supportive of growth in economic activity and employment.”
The President
of the ECB Mario Draghi stated in a speech at the conference “The ECB and its
Watchers XX,” in Frankfurt am Main, on Mar 27, 2019 (https://www.ecb.europa.eu/press/key/date/2019/html/ecb.sp190327~2b454e4326.en.html): “We will continue monitoring how
banks can maintain healthy earning conditions while net interest margins are
compressed. And, if necessary, we need to reflect on possible measures that can
preserve the favourable implications of negative rates for the economy, while
mitigating the side effects, if any. That said, low bank profitability is not
an inevitable consequence of negative rates. ECB analysis finds that the
best-performing banks in the euro area in terms of return on equity between
2009 and 2017 share three key features: they have been able to significantly
reduce their cost-to-income ratios; they have embarked on large-scale
investments in information technology; and they have been able to diversify
their revenue sources in a low interest rate environment.” At its meeting on September 12, 2019,
the Governing Council of the ECB (European Central Bank), decided to (https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190912~08de50b4d2.en.html): (1)
decrease the deposit facility by 10 basis points to minus 0.50 percent while
maintaining at 0.00 the main refinancing operations rate and at 0.25 percent
the marginal lending facility rate; (2) restart net purchases of securities at
the monthly rate of €20 billion beginning on Nov 1, 2019; (3) reinvest
principal payments from maturing securities; (4) adapt long-term refinancing
operations to maintain “favorable bank lending conditions;” and (5) exempt part
of the “negative deposit facility rate” on bank excess liquidity. Tom Fairless and Brian Blackstone,
“ECB’s Draghi hints at drawbacks of negative rates,” Wall Street Journal, Mar 27, 2019, argue that while negative
interest rates may encourage spending and investing they create adverse effects
such as banks paying for reserves and holders of government bonds paying to
hold them such as the current negative yields of ten-year bonds of Germany.
Extremely low interest rates also encouraged artificial booms in real estate,
which was one of the causes of the financial crisis and global recession
(Taylor 2018Nov20, 3-4). Unconventional monetary policy of extremely low
interest rates and bloated central bank balance sheet is almost impossible to
reverse without causing financial crisis and recession.
In his classic
restatement of the Keynesian demand function in terms of “liquidity preference
as behavior toward risk,” James Tobin (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1981/tobin-bio.html) identifies
the risks of low interest rates in terms of portfolio allocation (Tobin 1958,
86):
“The assumption
that investors expect on balance no change in the rate of interest has been
adopted for the theoretical reasons explained in section 2.6 rather than for
reasons of realism. Clearly investors do form expectations of changes in
interest rates and differ from each other in their expectations. For the
purposes of dynamic theory and of analysis of specific market situations, the theories
of sections 2 and 3 are complementary rather than competitive. The formal
apparatus of section 3 will serve just as well for a non-zero expected capital
gain or loss as for a zero expected value of g. Stickiness of interest rate
expectations would mean that the expected value of g is a function of the rate
of interest r, going down when r goes down and rising when r goes up. In
addition to the rotation of the opportunity locus due to a change in r itself,
there would be a further rotation in the same direction due to the accompanying
change in the expected capital gain or loss. At low interest rates
expectation of capital loss may push the opportunity locus into the negative
quadrant, so that the optimal position is clearly no consols, all cash. At the
other extreme, expectation of capital gain at high interest rates would
increase sharply the slope of the opportunity locus and the frequency of no
cash, all consols positions, like that of Figure 3.3. The stickier the
investor's expectations, the more sensitive his demand for cash will be to
changes in the rate of interest (emphasis added).”
Tobin (1969)
provides more elegant, complete analysis of portfolio allocation in a general
equilibrium model. The major point is equally clear in a portfolio consisting
of only cash balances and a perpetuity or consol. Let g be the capital
gain, r the rate of interest on the consol and re the
expected rate of interest. The rates are expressed as proportions. The price of
the consol is the inverse of the interest rate, (1+re). Thus,
g = [(r/re) – 1]. The critical analysis of
Tobin is that at extremely low interest rates there is only expectation of
interest rate increases, that is, dre>0, such that there
is expectation of capital losses on the consol, dg<0. Investors move
into positions combining only cash and no consols. Valuations of risk
financial assets would collapse in reversal of long positions in carry trades
with short exposures in a flight to cash. There is no exit from a central bank
created liquidity trap without risks of financial crash and another global
recession. The net worth of the economy depends on interest rates. In theory,
“income is generally defined as the amount a consumer unit could consume (or
believe that it could) while maintaining its wealth intact” (Friedman 1957,
10). Income, Y, is a flow that is obtained by applying a rate of return,
r, to a stock of wealth, W, or Y = rW (Ibid).
According to a subsequent statement: “The basic idea is simply that individuals
live for many years and that therefore the appropriate constraint for
consumption is the long-run expected yield from wealth r*W. This
yield was named permanent income: Y* = r*W” (Darby 1974,
229), where * denotes permanent. The simplified relation of income and wealth
can be restated as:
W = Y/r
(10
Equation (1)
shows that as r goes to zero, r→0, W grows without bound, W→∞.
Unconventional monetary policy lowers interest rates to increase the present
value of cash flows derived from projects of firms, creating the impression of
long-term increase in net worth. An attempt to reverse unconventional monetary
policy necessarily causes increases in interest rates, creating the opposite
perception of declining net worth. As r→∞, W = Y/r
→0. There is no exit from unconventional monetary policy without increasing
interest rates with resulting pain of financial crisis and adverse effects on
production, investment and employment.
In delivering
the biannual report on monetary policy (Board of Governors 2013Jul17), Chairman
Bernanke (2013Jul17) advised Congress that:
“Instead, we
are providing additional policy accommodation through two distinct yet
complementary policy tools. The first tool is expanding the Federal Reserve's
portfolio of longer-term Treasury securities and agency mortgage-backed
securities (MBS); we are currently purchasing $40 billion per month in agency
MBS and $45 billion per month in Treasuries. We are using asset purchases and
the resulting expansion of the Federal Reserve's balance sheet primarily to
increase the near-term momentum of the economy, with the specific goal of
achieving a substantial improvement in the outlook for the labor market in a
context of price stability. We have made some progress toward this goal, and,
with inflation subdued, we intend to continue our purchases until a substantial
improvement in the labor market outlook has been realized. We are relying on
near-zero short-term interest rates, together with our forward guidance that
rates will continue to be exceptionally low--our second tool--to help maintain
a high degree of monetary accommodation for an extended period after asset
purchases end, even as the economic recovery strengthens and unemployment
declines toward more-normal levels. In appropriate combination, these two tools
can provide the high level of policy accommodation needed to promote a stronger
economic recovery with price stability.
The Committee's
decisions regarding the asset purchase program (and the overall stance of
monetary policy) depend on our assessment of the economic outlook and of the
cumulative progress toward our objectives. Of course, economic forecasts must
be revised when new information arrives and are thus necessarily provisional.”
Friedman (1953)
argues there are three lags in effects of monetary policy: (1) between the need
for action and recognition of the need; (2) the recognition of the need and
taking of actions; and (3) taking of action and actual effects. Friedman (1953)
finds that the combination of these lags with insufficient knowledge of the
current and future behavior of the economy causes discretionary economic policy
to increase instability of the economy or standard deviations of real income σy
and prices σp. Policy attempts to circumvent the lags by policy
impulses based on forecasts. We are all naïve about forecasting. Data are
available with lags and revised to maintain high standards of estimation.
Policy simulation models estimate economic relations with structures prevailing
before simulations of policy impulses such that parameters change as discovered
by Lucas (1977). Economic agents adjust their behavior in ways that cause
opposite results from those intended by optimal control policy as discovered by
Kydland and Prescott (1977). Advance guidance attempts to circumvent
expectations by economic agents that could reverse policy impulses but is of
dubious effectiveness. There is strong case for using rules instead of
discretionary authorities in monetary policy (http://cmpassocregulationblog.blogspot.com/2017/01/rules-versus-discretionary-authorities.html and earlier http://cmpassocregulationblog.blogspot.com/2012/06/rules-versus-discretionary-authorities.html).
The key policy
is maintaining the fed funds rate between 1¾ and 2 percent with gradual
increases subsequently if needed. Accelerated increase in fed funds rates could
cause flight out of risk financial markets worldwide. There is no exit from
this policy without major financial market repercussions. Indefinite financial
repression induces carry trades with high leverage, risks and illiquidity.
Unconventional
monetary policy drives wide swings in allocations of positions into risk
financial assets that generate instability instead of intended pursuit of
prosperity without inflation. There is insufficient knowledge and imperfect
tools to maintain the gap of actual relative to potential output constantly at
zero while restraining inflation in an open interval of (1.99, 2.0). Symmetric
targets appear to have been abandoned in favor of a self-imposed single jobs
mandate of easing monetary policy even with the economy growing at or close to
potential output that is actually a target of growth forecast. The impact on
the overall economy and the financial system of errors of policy are magnified
by large-scale policy doses of trillions of dollars of quantitative easing and
zero interest rates. The US economy has been experiencing financial repression
as a result of negative real rates of interest during nearly a decade and
programmed in monetary policy statements until 2015 or, for practical purposes,
forever. The essential calculus of risk/return in capital budgeting and
financial allocations has been distorted. If economic perspectives are doomed
until 2015 such as to warrant zero interest rates and open-ended bond-buying by
“printing” digital bank reserves (http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html; see Shultz et
al 2012), rational investors and consumers will not invest and consume until
just before interest rates are likely to increase. Monetary policy statements
on intentions of zero interest rates for another three years or now virtually
forever discourage investment and consumption or aggregate demand that can
increase economic growth and generate more hiring and opportunities to increase
wages and salaries. The doom scenario used to justify monetary policy
accentuates adverse expectations on discounted future cash flows of potential
economic projects that can revive the economy and create jobs. If it were
possible to project the future with the central tendency of the monetary policy
scenario and monetary policy tools do exist to reverse this adversity, why the
tools have not worked before and even prevented the financial crisis? If there
is such thing as “monetary policy science”, why it has such poor record and
current inability to reverse production and employment adversity? There is no
excuse of arguing that additional fiscal measures are needed because they were
deployed simultaneously with similar ineffectiveness. Jon Hilsenrath, writing
on “New view into Fed’s response to crisis,” on Feb 21, 2014, published in the
Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702303775504579396803024281322?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzes
1865 pages of transcripts of eight formal and six emergency policy meetings at
the Fed in 2008 (http://www.federalreserve.gov/monetarypolicy/fomchistorical2008.htm). If there
were an infallible science of central banking, models and forecasts would
provide accurate information to policymakers on the future course of the
economy in advance. Such forewarning is essential to central bank science
because of the long lag between the actual impulse of monetary policy and the
actual full effects on income and prices many months and even years ahead
(Romer and Romer 2004, Friedman 1961, 1953, Culbertson 1960, 1961, Batini and
Nelson 2002). The transcripts of the Fed meetings in 2008 (http://www.federalreserve.gov/monetarypolicy/fomchistorical2008.htm) analyzed by
Jon Hilsenrath demonstrate that Fed policymakers frequently did not understand
the current state of the US economy in 2008 and much less the direction of
income and prices. The conclusion of Friedman (1953) is that monetary impulses
increase financial and economic instability because of lags in anticipating
needs of policy, taking policy decisions and effects of decisions. This is a
fortiori true when untested unconventional monetary policy in gargantuan doses
shocks the economy and financial markets.
In remarkable
anticipation in 2005, Professor Raghuram G. Rajan (2005) warned of low
liquidity and high risks of central bank policy rates approaching the zero
bound (Pelaez and Pelaez, Regulation of Banks and Finance (2009b),
218-9). Professor Rajan excelled in a distinguished career as an academic
economist in finance and was chief economist of the International Monetary Fund
(IMF). Shefali Anand and Jon Hilsenrath, writing on Oct 13, 2013, on “India’s
central banker lobbies Fed,” published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702304330904579133530766149484?KEYWORDS=Rajan), interviewed
Raghuram G Rajan, who is the current Governor of the Reserve Bank of India,
which is India’s central bank (http://www.rbi.org.in/scripts/AboutusDisplay.aspx). In this
interview, Rajan argues that central banks should avoid unintended consequences
on emerging market economies of inflows and outflows of capital triggered by
monetary policy. Portfolio reallocations induced by combination of zero
interest rates and risk events stimulate carry trades that generate wide swings
in world capital flows. Professor Rajan, in an interview with Kartik Goyal of
Bloomberg (http://www.bloomberg.com/news/2014-01-30/rajan-warns-of-global-policy-breakdown-as-emerging-markets-slide.html), warns of
breakdown of global policy coordination. Professor Raguram G Rajan, former
governor of the Reserve Bank of India, which is India’s central bank, warned
about risks in high valuations of asset prices in an interview with Christopher
Jeffery of Central Banking Journal on Aug 6, 2014 (http://www.centralbanking.com/central-banking-journal/interview/2358995/raghuram-rajan-on-the-dangers-of-asset-prices-policy-spillovers-and-finance-in-india). Professor
Rajan demystifies in the interview “competitive easing” by major central banks
as equivalent to competitive devaluation.
The Swiss
National Bank (SNB) announced on Jan 15, 2015, the termination of its peg of
the exchange rate of the Swiss franc to the euro (http://www.snb.ch/en/mmr/speeches/id/ref_20150115_tjn/source/ref_20150115_tjn.en.pdf):
“The Swiss
National Bank (SNB) has decided to discontinue the minimum exchange rate of
CHF 1.20 per
euro with immediate effect and to cease foreign currency purchases associated
with enforcing it.”
The SNB also lowered interest rates to
nominal negative percentages (http://www.snb.ch/en/mmr/speeches/id/ref_20150115_tjn/source/ref_20150115_tjn.en.pdf):
“At the same
time as discontinuing the minimum exchange rate, the SNB will be lowering the
interest rate for balances held on sight deposit accounts to –0.75% from 22
January. The exemption thresholds remain unchanged. Further lowering the
interest rate makes Swiss-franc investments considerably less attractive and
will mitigate the effects of the decision to discontinue the minimum exchange
rate. The target range for the three-month Libor is being lowered by 0.5
percentage points to between –1.25% and –0.25%.”
The Swiss franc rate relative to the euro
(CHF/EUR) appreciated 18.7 percent on Jan 15, 2015. The Swiss franc rate
relative to the dollar (CHF/USD) appreciated 17.7 percent. Central banks are
taking measures in anticipation of the quantitative easing by the European
Central Bank.
On Jan 22, 2015, the European Central Bank
(ECB) decided to implement an “expanded asset purchase program” with combined
asset purchases of €60 billion per month “until at least Sep 2016 (http://www.ecb.europa.eu/press/pr/date/2015/html/pr150122_1.en.html). The objective of the program is that (http://www.ecb.europa.eu/press/pr/date/2015/html/pr150122_1.en.html):
“Asset
purchases provide monetary stimulus to the economy in a context where key ECB
interest rates are at their lower bound. They further ease monetary and
financial conditions, making access to finance cheaper for firms and
households. This tends to support investment and consumption, and ultimately
contributes to a return of inflation rates towards 2%.”
The President of the ECB, Mario Draghi,
explains the coordination of asset purchases with NCBs (National Central Banks)
of the euro area and risk sharing (http://www.ecb.europa.eu/press/pressconf/2015/html/is150122.en.html):
“In
March 2015 the Eurosystem will start to purchase euro-denominated
investment-grade securities issued by euro area governments and agencies and
European institutions in the secondary market. The purchases of securities
issued by euro area governments and agencies will be based on the Eurosystem
NCBs’ shares in the ECB’s capital key. Some additional eligibility criteria
will be applied in the case of countries under an EU/IMF adjustment programme.
As regards the additional asset purchases, the Governing Council retains
control over all the design features of the programme and the ECB will
coordinate the purchases, thereby safeguarding the singleness of the
Eurosystem’s monetary policy. The Eurosystem will make use of decentralised
implementation to mobilise its resources. With regard to the sharing of
hypothetical losses, the Governing Council decided that purchases of securities
of European institutions (which will be 12% of the additional asset purchases,
and which will be purchased by NCBs) will be subject to loss sharing. The rest
of the NCBs’ additional asset purchases will not be subject to loss sharing.
The ECB will hold 8% of the additional asset purchases. This implies that 20%
of the additional asset purchases will be subject to a regime of risk sharing.”
The President
of the ECB, Mario Draghi, rejected the possibility of seigniorage in the new
asset purchase program, or central bank financing of fiscal expansion (http://www.ecb.europa.eu/press/pressconf/2015/html/is150122.en.html):
“As
I just said, it would be a big mistake if countries were to consider that the
presence of this programme might be an incentive to fiscal expansion. They
would undermine the confidence, so it’s not directed to monetary financing at
all. Actually, it’s been designed as to avoid any monetary financing.”
The President of the ECB, Mario Draghi,
does not find effects of monetary policy in inflating asset prices (http://www.ecb.europa.eu/press/pressconf/2015/html/is150122.en.html):
“On
the first question, we monitor closely any potential instance of risk to
financial stability. So we're very alert to that risk. So far we don't see
bubbles. There may be some local episodes of certain specific markets where prices
are going up fast. But to have a bubble, besides having that, one should also
identify, detect an increase, dramatic increase in leverage or in bank credit,
and we don't see that now. However, we, as I said, we are alert. If bubbles are
of a local nature, they should be addressed by local instruments, namely
macro-prudential instruments rather than by monetary policy.”
The DAX index of German equities increased
1.3 percent on Jan 22, 2015 and 2.1 percent on Jan 23, 2015. The euro
depreciated from EUR 1.1611/USD (EUR 0.8613/USD) on Wed Jan 21, 2015, to EUR
1.1206/USD (EUR 0.8924/USD) on Fri Jan 23, 2015, or 3.6 percent. Yellen
(2011AS, 6) admits that Fed monetary policy results in dollar devaluation with
the objective of increasing net exports, which was the policy that Joan
Robinson (1947) labeled as “beggar-my-neighbor” remedies for unemployment. Risk
aversion erodes devaluation of the dollar.
Dan Strumpf and
Pedro Nicolaci da Costa, writing on “Fed’s Yellen: Stock Valuations ‘Generally
are Quite High,’” on May 6, 2015, published in the Wall Street Journal (http://www.wsj.com/articles/feds-yellen-cites-progress-on-bank-regulation-1430918155?tesla=y ), quote Chair
Yellen at open conversation with Christine Lagarde, Managing Director of the
IMF, finding “equity-market valuations” as “quite high” with “potential
dangers” in bond valuations. The DJIA fell 0.5 percent on May 6, 2015, after
the comments and then increased 0.5 percent on May 7, 2015 and 1.5 percent on
May 8, 2015.
|
Fri May 1 |
Mon 4 |
Tue 5 |
Wed 6 |
Thu 7 |
Fri 8 |
|
DJIA 18024.06 -0.3% 1.0% |
18070.40 0.3% 0.3% |
17928.20 -0.5% -0.8% |
17841.98 -1.0% -0.5% |
17924.06 -0.6% 0.5% |
18191.11 0.9% 1.5% |
There are two approaches in theory considered by Bordo
(2012Nov20) and Bordo and Lane (2013). The first approach is in the
classical works of Milton Friedman and Anna Jacobson Schwartz (1963a, 1987) and
Karl Brunner and Allan H. Meltzer (1973). There is a similar approach in Tobin
(1969). Friedman and Schwartz (1963a, 66) trace the effects of expansionary
monetary policy into increasing initially financial asset prices: “It seems
plausible that both nonbank and bank holders of redundant balances will turn first
to securities comparable to those they have sold, say, fixed-interest coupon,
low-risk obligations. But as they seek to purchase these they will tend to bid
up the prices of those issues. Hence they, and also other holders not involved
in the initial central bank open-market transactions, will look farther afield:
the banks, to their loans; the nonbank holders, to other categories of
securities-higher risk fixed-coupon obligations, equities, real property, and
so forth.”
The second approach is by the Austrian School arguing
that increases in asset prices can become bubbles if monetary policy allows
their financing with bank credit. Professor Michael D. Bordo provides clear
thought and empirical evidence on the role of “expansionary monetary policy” in
inflating asset prices (Bordo2012Nov20, Bordo and Lane 2013). Bordo and Lane
(2013) provide revealing narrative of historical episodes of expansionary
monetary policy. Bordo and Lane (2013)
conclude that policies of depressing interest rates below the target rate or
growth of money above the target influences higher asset prices, using a panel
of 18 OECD countries from 1920 to 2011. Bordo (2012Nov20) concludes: “that
expansionary money is a significant trigger” and “central banks should follow
stable monetary policies…based on well understood and credible monetary rules.”
Taylor (2007, 2009) explains the housing boom and financial crisis in terms of
expansionary monetary policy. Professor Martin Feldstein (2016), at Harvard
University, writing on “A Federal Reserve oblivious to its effects on financial
markets,” on Jan 13, 2016, published in the Wall
Street Journal (http://www.wsj.com/articles/a-federal-reserve-oblivious-to-its-effect-on-financial-markets-1452729166), analyzes how
unconventional monetary policy drove values of risk financial assets to high
levels. Quantitative easing and zero interest rates distorted calculation of
risks with resulting vulnerabilities in financial markets.
Another hurdle
of exit from zero interest rates is “competitive easing” that Professor
Raghuram Rajan, governor of the Reserve Bank of India, characterizes as
disguised “competitive devaluation” (http://www.centralbanking.com/central-banking-journal/interview/2358995/raghuram-rajan-on-the-dangers-of-asset-prices-policy-spillovers-and-finance-in-india). The fed has
been considering increasing interest rates. The European Central Bank (ECB)
announced, on Mar 5, 2015, the beginning on Mar 9, 2015 of its quantitative
easing program denominated as Public Sector Purchase Program (PSPP), consisting
of “combined monthly purchases of EUR 60 bn [billion] in public and private
sector securities” (http://www.ecb.europa.eu/mopo/liq/html/pspp.en.html). Expectation
of increasing interest rates in the US together with euro rates close to zero
or negative cause revaluation of the dollar (or devaluation of the euro and of
most currencies worldwide). US corporations suffer currency translation losses
of their foreign transactions and investments (http://www.fasb.org/jsp/FASB/Pronouncement_C/SummaryPage&cid=900000010318) while the US
becomes less competitive in world trade (Pelaez and Pelaez, Globalization and the State, Vol. I
(2008a), Government Intervention in
Globalization (2008c)). The DJIA fell 1.5 percent on Mar 6, 2015 and the
dollar revalued 2.2 percent from Mar 5 to Mar 6, 2015. The euro has devalued 36.7
percent relative to the dollar from the high on Jul 15, 2008 to Sep 25, 2020.
|
Fri 27 Feb |
Mon 3/2 |
Tue 3/3 |
Wed 3/4 |
Thu 3/5 |
Fri 3/6 |
|
USD/ EUR 1.1197 1.6% 0.0% |
1.1185 0.1% 0.1% |
1.1176 0.2% 0.1% |
1.1081 1.0% 0.9% |
1.1030 1.5% 0.5% |
1.0843 3.2% 1.7% |
Chair Yellen explained the removal
of the word “patience” from the advanced guidance at the press conference
following the FOMC meeting on Mar 18, 2015 (http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20150318.pdf):
“In other
words, just because we removed the word “patient” from the statement doesn’t
mean we are going to be impatient. Moreover, even after the initial increase in
the target funds rate, our policy is likely to remain highly accommodative to
support continued progress toward our objectives of maximum employment and 2
percent inflation.”
Exchange rate
volatility is increasing in response of “impatience” in financial markets with
monetary policy guidance and measures:
|
Fri Mar 6 |
Mon 9 |
Tue 10 |
Wed 11 |
Thu 12 |
Fri 13 |
|
USD/ EUR 1.0843 3.2% 1.7% |
1.0853 -0.1% -0.1% |
1.0700 1.3% 1.4% |
1.0548 2.7% 1.4% |
1.0637 1.9% -0.8% |
1.0497 3.2% 1.3% |
|
Fri Mar 13 |
Mon 16 |
Tue 17 |
Wed 18 |
Thu 19 |
Fri 20 |
|
USD/ EUR 1.0497 3.2% 1.3% |
1.0570 -0.7% -0.7% |
1.0598 -1.0% -0.3% |
1.0864 -3.5% -2.5% |
1.0661 -1.6% 1.9% |
1.0821 -3.1% -1.5% |
|
Fri Apr 24 |
Mon 27 |
Tue 28 |
Wed 29 |
Thu 30 |
May Fri 1 |
|
USD/ EUR 1.0874 -0.6% -0.4% |
1.0891 -0.2% -0.2% |
1.0983 -1.0% -0.8% |
1.1130 -2.4% -1.3% |
1.1223 -3.2% -0.8% |
1.1199 -3.0% 0.2% |
In a speech at
Brown University on May 22, 2015, Chair Yellen stated (http://www.federalreserve.gov/newsevents/speech/yellen20150522a.htm):
“For
this reason, if the economy continues to improve as I expect, I think it will
be appropriate at some point this year to take the initial step to raise the
federal funds rate target and begin the process of normalizing monetary policy.
To support taking this step, however, I will need to see continued improvement
in labor market conditions, and I will need to be reasonably confident that
inflation will move back to 2 percent over the medium term. After we begin
raising the federal funds rate, I anticipate that the pace of normalization is
likely to be gradual. The various headwinds that are still restraining the
economy, as I said, will likely take some time to fully abate, and the pace of
that improvement is highly uncertain.”
The US dollar
appreciated 3.8 percent relative to the euro in the week of May 22, 2015:
|
Fri May 15 |
Mon 18 |
Tue 19 |
Wed 20 |
Thu 21 |
Fri 22 |
|
USD/ EUR 1.1449 -2.2% -0.3% |
1.1317 1.2% 1.2% |
1.1150 2.6% 1.5% |
1.1096 3.1% 0.5% |
1.1113 2.9% -0.2% |
1.1015 3.8% 0.9% |
The Managing
Director of the International Monetary Fund (IMF), Christine Lagarde, warned on
Jun 4, 2015, that: (http://blog-imfdirect.imf.org/2015/06/04/u-s-economy-returning-to-growth-but-pockets-of-vulnerability/):
“The Fed’s
first rate increase in almost 9 years is being carefully prepared and
telegraphed. Nevertheless, regardless of the timing, higher US policy rates
could still result in significant market volatility with financial stability
consequences that go well beyond US borders. I weighing these risks, we think
there is a case for waiting to raise rates until there are more tangible signs
of wage or price inflation than are currently evident. Even after the first
rate increase, a gradual rise in the federal fund rates will likely be
appropriate.”
The President
of the European Central Bank (ECB), Mario Draghi, warned on Jun 3, 2015 that (http://www.ecb.europa.eu/press/pressconf/2015/html/is150603.en.html):
“But certainly
one lesson is that we should get used to periods of higher volatility. At very
low levels of interest rates, asset prices tend to show higher volatility…the
Governing Council was unanimous in its assessment that we should look through
these developments and maintain a steady monetary policy stance.”
The Chair of the Board of Governors
of the Federal Reserve System, Janet L. Yellen, stated on Jul 10, 2015 that (http://www.federalreserve.gov/newsevents/speech/yellen20150710a.htm):
“Based on my
outlook, I expect that it will be appropriate at some point later this year to
take the first step to raise the federal funds rate and thus begin normalizing
monetary policy. But I want to emphasize that the course of the economy and
inflation remains highly uncertain, and unanticipated developments could delay
or accelerate this first step. I currently anticipate that the appropriate pace
of normalization will be gradual, and that monetary policy will need to be
highly supportive of economic activity for quite some time. The projections of
most of my FOMC colleagues indicate that they have similar expectations for the
likely path of the federal funds rate. But, again, both the course of the
economy and inflation are uncertain. If progress toward our employment and
inflation goals is more rapid than expected, it may be appropriate to remove
monetary policy accommodation more quickly. However, if progress toward our
goals is slower than anticipated, then the Committee may move more slowly in
normalizing policy.”
There is
essentially the same view in the Testimony of Chair Yellen in delivering the
Semiannual Monetary Policy Report to the Congress on Jul 15, 2015 (http://www.federalreserve.gov/newsevents/testimony/yellen20150715a.htm).
At the press conference after the
meeting of the FOMC on Sep 17, 2015, Chair Yellen states (http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20150917.pdf 4):
“The outlook
abroad appears to have become more uncertain of late, and heightened concerns
about growth in China and other emerging market economies have led to notable
volatility in financial markets. Developments since our July meeting, including
the drop in equity prices, the further appreciation of the dollar, and a
widening in risk spreads, have tightened overall financial conditions to some
extent. These developments may restrain U.S. economic activity somewhat and are
likely to put further downward pressure on inflation in the near term. Given
the significant economic and financial interconnections between the United
States and the rest of the world, the situation abroad bears close watching.”
Some equity markets fell on Fri Sep
18, 2015:
|
Fri Sep 11 |
Mon 14 |
Tue 15 |
Wed 16 |
Thu 17 |
Fri 18 |
|
DJIA 16433.09 2.1% 0.6% |
16370.96 -0.4% -0.4% |
16599.85 1.0% 1.4% |
16739.95 1.9% 0.8% |
16674.74 1.5% -0.4% |
16384.58 -0.3% -1.7% |
|
Nikkei 225 18264.22 2.7% -0.2% |
17965.70 -1.6% -1.6% |
18026.48 -1.3% 0.3% |
18171.60 -0.5% 0.8% |
18432.27 0.9% 1.4% |
18070.21 -1.1% -2.0% |
|
DAX 10123.56 0.9% -0.9% |
10131.74 0.1% 0.1% |
10188.13 0.6% 0.6% |
10227.21 1.0% 0.4% |
10229.58 1.0% 0.0% |
9916.16 -2.0% -3.1% |
Frank H. Knight (1963, 233), in Risk, uncertainty and profit,
distinguishes between measurable risk
and unmeasurable uncertainty. Chair
Yellen, in a lecture on “Inflation dynamics and monetary policy,” on Sep 24,
2015 (http://www.federalreserve.gov/newsevents/speech/yellen20150924a.htm), states that
(emphasis added):
·
“The economic outlook, of course, is highly uncertain”
·
“Considerable
uncertainties also surround the outlook for economic activity”
·
“Given the highly
uncertain nature of the outlook…”
Is there a
“science” or even “art” of central banking under this extreme uncertainty in
which policy does not generate higher volatility of money, income, prices and
values of financial assets?
Lingling Wei, writing on Oct 23,
2015, on China’s central bank moves to spur economic growth,” published in the Wall Street Journal (http://www.wsj.com/articles/chinas-central-bank-cuts-rates-1445601495), analyzes the
reduction by the People’s Bank of China (http://www.pbc.gov.cn/ http://www.pbc.gov.cn/english/130437/index.html) of borrowing
and lending rates of banks by 50 basis points and reserve requirements of banks
by 50 basis points. Paul Vigna, writing on Oct 23, 2015, on “Stocks rally out
of correction territory on latest central bank boost,” published in the Wall
Street Journal (http://blogs.wsj.com/moneybeat/2015/10/23/stocks-rally-out-of-correction-territory-on-latest-central-bank-boost/), analyzes the
rally in financial markets following the statement on Oct 22, 2015, by the
President of the European Central Bank (ECB) Mario Draghi of consideration of
new quantitative measures in Dec 2015 (https://www.youtube.com/watch?v=0814riKW25k&rel=0) and the
reduction of bank lending/deposit rates and reserve requirements of banks by
the People’s Bank of China on Oct 23, 2015. The dollar revalued 2.8 percent
from Oct 21 to Oct 23, 2015, following the intended easing of the European
Central Bank. The DJIA rose 2.8 percent from Oct 21 to Oct 23 and the DAX index
of German equities rose 5.4 percent from Oct 21 to Oct 23, 2015.
|
Fri Oct 16 |
Mon 19 |
Tue 20 |
Wed 21 |
Thu 22 |
Fri 23 |
|
USD/ EUR 1.1350 0.1% 0.3% |
1.1327 0.2% 0.2% |
1.1348 0.0% -0.2% |
1.1340 0.1% 0.1% |
1.1110 2.1% 2.0% |
1.1018 2.9% 0.8% |
|
DJIA 17215.97 0.8% 0.4% |
17230.54 0.1% 0.1% |
17217.11 0.0% -0.1% |
17168.61 -0.3% -0.3% |
17489.16 1.6% 1.9% |
17646.70 2.5% 0.9% |
|
Dow Global 2421.58 0.3% 0.6% |
2414.33 -0.3% -0.3% |
2411.03 -0.4% -0.1% |
2411.27 -0.4% 0.0% |
2434.79 0.5% 1.0% |
2458.13 1.5% 1.0% |
|
DJ Asia
Pacific 1402.31 1.1% 0.3% |
1398.80 -0.3% -0.3% |
1395.06 -0.5% -0.3% |
1402.68 0.0% 0.5% |
1396.03 -0.4% -0.5% |
1415.50 0.9% 1.4% |
|
Nikkei 225 18291.80 -0.8% 1.1% |
18131.23 -0.9% -0.9% |
18207.15 -0.5% 0.4% |
18554.28 1.4% 1.9% |
18435.87 0.8% -0.6% |
18825.30 2.9% 2.1% |
|
Shanghai 3391.35 6.5% 1.6% |
3386.70 -0.1% -0.1% |
3425.33 1.0% 1.1% |
3320.68 -2.1% -3.1% |
3368.74 -0.7% 1.4% |
3412.43 0.6% 1.3% |
|
DAX 10104.43 0.1% 0.4% |
10164.31 0.6% 0.6% |
10147.68 0.4% -0.2% |
10238.10 1.3% 0.9% |
10491.97 3.8% 2.5% |
10794.54 6.8% 2.9% |
Ben Leubsdorf, writing on “Fed’s
Yellen: December is “Live Possibility” for First Rate Increase,” on Nov 4,
2015, published in the Wall Street
Journal (http://www.wsj.com/articles/feds-yellen-december-is-live-possibility-for-first-rate-increase-1446654282) quotes Chair
Yellen that a rate increase in “December would be a live possibility.” The
remark of Chair Yellen was during a hearing on supervision and regulation
before the Committee on Financial Services, US House of Representatives (http://www.federalreserve.gov/newsevents/testimony/yellen20151104a.htm) and a day
before the release of the employment situation report for Oct 2015 (Section I).
The dollar revalued 2.4 percent during the week. The euro has devalued 36.7 percent relative
to the dollar from the high on Jul 15, 2008 to Sep 25, 2020.
|
Fri Oct 30 |
Mon 2 |
Tue 3 |
Wed 4 |
Thu 5 |
Fri 6 |
|
USD/ EUR 1.1007 0.1% -0.3% |
1.1016 -0.1% -0.1% |
1.0965 0.4% 0.5% |
1.0867 1.3% 0.9% |
1.0884 1.1% -0.2% |
1.0742 2.4% 1.3% |
The release on Nov 18, 2015 of the
minutes of the FOMC (Federal Open Market Committee) meeting held on Oct 28,
2015 (http://www.federalreserve.gov/monetarypolicy/fomcminutes20151028.htm) states:
“Most
participants anticipated that, based on their assessment of the current
economic situation and their outlook for economic activity, the labor market,
and inflation, these conditions [for interest rate increase] could well be met
by the time of the next meeting. Nonetheless, they emphasized that the actual
decision would depend on the implications for the medium-term economic outlook
of the data received over the upcoming intermeeting period… It
was noted that beginning the normalization process relatively soon would make
it more likely that the policy
trajectory after liftoff could be shallow.”
Markets could have interpreted a
symbolic increase in the fed funds rate at the meeting of the FOMC on Dec
15-16, 2015 (http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm) followed by
“shallow” increases, explaining the sharp increase in stock market values and
appreciation of the dollar after the release of the minutes on Nov 18, 2015:
|
Fri Nov 13 |
Mon 16 |
Tue 17 |
Wed 18 |
Thu 19 |
Fri 20 |
|
USD/ EUR 1.0774 -0.3% 0.4% |
1.0686 0.8% 0.8% |
1.0644 1.2% 0.4% |
1.0660 1.1% -0.2% |
1.0735 0.4% -0.7% |
1.0647 1.2% 0.8% |
|
DJIA 17245.24 -3.7% -1.2% |
17483.01 1.4% 1.4% |
17489.50 1.4% 0.0% |
17737.16 2.9% 1.4% |
17732.75 2.8% 0.0% |
17823.81 3.4% 0.5% |
|
DAX 10708.40 -2.5% -0.7% |
10713.23 0.0% 0.0% |
10971.04 2.5% 2.4% |
10959.95 2.3% -0.1% |
11085.44 3.5% 1.1% |
11119.83 3.8% 0.3% |
In testimony before The Joint Economic
Committee of Congress on Dec 3, 2015 (http://www.federalreserve.gov/newsevents/testimony/yellen20151203a.htm), Chair Yellen
reiterated that the FOMC (Federal Open Market Committee) “anticipates that even
after employment and inflation are near mandate-consistent levels, economic
condition may, for some time, warrant keeping the target federal funds rate
below the Committee views as normal in the longer run.” Todd Buell and Katy
Burne, writing on “Draghi says ECB could step up stimulus efforts if
necessary,” on Dec 4, 2015, published in the Wall Street Journal (http://www.wsj.com/articles/draghi-says-ecb-could-step-up-stimulus-efforts-if-necessary-1449252934), analyze that
the President of the European Central Bank (ECB), Mario Draghi, reassured
financial markets that the ECB will increase stimulus if required to raise
inflation the euro area to targets. The USD depreciated 3.1 percent on Thu Dec
3, 2015 after weaker than expected measures by the European Central Bank. DJIA
fell 1.4 percent on Dec 3 and increased 2.1 percent on Dec 4. DAX fell 3.6 percent
on Dec 3.
|
Fri Nov 27 |
Mon 30 |
Tue 1 |
Wed 2 |
Thu 3 |
Fri 4 |
|
USD/ EUR 1.0594 0.5% 0.2% |
1.0565 0.3% 0.3% |
1.0634 -0.4% -0.7% |
1.0616 -0.2% 0.2% |
1.0941 -3.3% -3.1% |
1.0885 -2.7% 0.5% |
|
DJIA 17798.49 -0.1% -0.1% |
17719.92 -0.4% -0.4% |
17888.35 0.5% 1.0% |
17729.68 -0.4% -0.9% |
17477.67 -1.8% -1.4% |
17847.63 0.3% 2.1% |
|
DAX 11293.76 1.6% -0.2% |
11382.23 0.8% 0.8% |
11261.24 -0.3% -1.1% |
11190.02 -0.9% -0.6% |
10789.24 -4.5% -3.6% |
10752.10 -4.8% -0.3% |
At the press conference following
the meeting of the FOMC on Dec 16, 2015, Chair Yellen states (http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20151216.pdf
page 8):
“And we
recognize that monetary policy operates with lags. We would like to be able to
move in a prudent, and as we've emphasized, gradual manner. It's been a long
time since the Federal Reserve has raised interest rates, and I think it's
prudent to be able to watch what the impact is on financial conditions and
spending in the economy and moving in a timely fashion enables us to do this.”
The implication
of this statement is that the state of the art is not accurate in analyzing the
effects of monetary policy on financial markets and economic activity. The US
dollar appreciated and equities fluctuated:
|
Fri Dec 11 |
Mon 14 |
Tue 15 |
Wed 16 |
Thu 17 |
Fri 18 |
|
USD/ EUR 1.0991 -1.0% -0.4% |
1.0993 0.0% 0.0% |
1.0932 0.5% 0.6% |
1.0913 0.7% 0.2% |
1.0827 1.5% 0.8% |
1.0868 1.1% -0.4% |
|
DJIA 17265.21 -3.3% -1.8% |
17368.50 0.6% 0.6% |
17524.91 1.5% 0.9% |
17749.09 2.8% 1.3% |
17495.84 1.3% -1.4% |
17128.55 -0.8% -2.1% |
|
DAX 10340.06 -3.8% -2.4% |
10139.34 -1.9% -1.9% |
10450.38 -1.1% 3.1% |
10469.26 1.2% 0.2% |
10738.12 3.8% 2.6% |
10608.19 2.6% -1.2% |
On January 29, 2016, the Policy Board of the Bank of Japan introduced a
new policy to attain the “price stability target of 2 percent at the earliest
possible time” (https://www.boj.or.jp/en/announcements/release_2016/k160129a.pdf). The new framework consists of three dimensions: quantity, quality and
interest rate. The interest rate dimension consists of rates paid to
current accounts that financial institutions hold at the Bank of Japan of three
tiers zero, positive and minus 0.1 percent. The quantitative dimension
consists of increasing the monetary base at the annual rate of 80 trillion yen.
The qualitative dimension consists of purchases by the Bank of Japan of
Japanese government bonds (JGBs), exchange traded funds (ETFs) and Japan real
estate investment trusts (J-REITS). The yen devalued sharply relative to the
dollar and world equity markets soared after the new policy announced on Jan
29, 2016:
|
Fri 22 |
Mon 25 |
Tue 26 |
Wed 27 |
Thu 28 |
Fri 29 |
|
JPY/ USD 118.77 -1.5% -0.9% |
118.30 0.4% 0.4% |
118.42 0.3% -0.1% |
118.68 0.1% -0.2% |
118.82 0.0% -0.1% |
121.13 -2.0% -1.9% |
|
DJIA 16093.51 0.7% 1.3% |
15885.22 -1.3% -1.3% |
16167.23 0.5% 1.8% |
15944.46 -0.9% -1.4% |
16069.64 -0.1% 0.8% |
16466.30 2.3% 2.5% |
|
Nikkei 16958.53 -1.1% 5.9% |
17110.91 0.9% 0.9% |
16708.90 -1.5% -2.3% |
17163.92 1.2% 2.7% |
17041.45 0.5% -0.7% |
17518.30 3.3% 2.8% |
|
Shanghai 2916.56 0.5% 1.3 |
2938.51 0.8% 0.8% |
2749.79 -5.7% -6.4% |
2735.56 -6.2% -0.5% |
2655.66 -8.9% -2.9% |
2737.60 -6.1% 3.1% |
|
DAX 9764.88 2.3% 2.0% |
9736.15 -0.3% -0.3% |
9822.75 0.6% 0.9% |
9880.82 1.2% 0.6% |
9639.59 -1.3% -2.4% |
9798.11 0.3% 1.6% |
In testimony on
the Semiannual Monetary Policy Report to the Congress on Feb 10-11, 2016, Chair
Yellen (http://www.federalreserve.gov/newsevents/testimony/yellen20160210a.htm) states: “U.S.
real gross domestic product is estimated to have increased about 1-3/4 percent
in 2015. Over the course of the year, subdued foreign growth and the
appreciation of the dollar restrained net exports. In the fourth quarter of
last year, growth in the gross domestic product is reported to have slowed more
sharply, to an annual rate of just 3/4 percent; again, growth was held back by
weak net exports as well as by a negative contribution from inventory
investment.”
Jon Hilsenrath,
writing on “Yellen Says Fed Should Be Prepared to Use Negative Rates if
Needed,” on Feb 11, 2016, published in the Wall
Street Journal (http://www.wsj.com/articles/yellen-reiterates-concerns-about-risks-to-economy-in-senate-testimony-1455203865), analyzes the
statement of Chair Yellen in Congress that the FOMC (Federal Open Market
Committee) is considering negative interest rates on bank reserves. The Wall Street Journal provides yields of
two and ten-year sovereign bonds with negative interest rates on shorter
maturities where central banks pay negative interest rates on excess bank
reserves:
|
Sovereign
Yields 2/12/16 |
Japan |
Germany |
USA |
|
2 Year |
-0.168 |
-0.498 |
0.694 |
|
10 Year |
0.076 |
0.262 |
1.744 |
On Mar 10,
2016, the European Central Bank (ECB) announced (1) reduction of the
refinancing rate by 5 basis points to 0.00 percent; decrease the marginal
lending rate to 0.25 percent; reduction of the deposit facility rate to 0,40
percent; increase of the monthly purchase of assets to €80 billion; include
nonbank corporate bonds in assets eligible for purchases; and new long-term
refinancing operations (https://www.ecb.europa.eu/press/pr/date/2016/html/pr160310.en.html). The
President of the ECB, Mario Draghi, stated in the press conference (https://www.ecb.europa.eu/press/pressconf/2016/html/is160310.en.html): “How low can
we go? Let me say that rates will stay low, very low, for a long period of
time, and well past the horizon of our purchases…We don’t anticipate that it
will be necessary to reduce rates further. Of course, new facts can change the
situation and the outlook.”
The dollar devalued relative to the
euro and open stock markets traded lower after the announcement on Mar 10,
2016, but stocks rebounded on Mar 11:
|
Fri 4 |
Mon 7 |
Tue 8 |
Wed 9 |
Thu10 |
Fri 11 |
|
USD/ EUR 1.1006 -0.7% -0.4% |
1.1012 -0.1% -0.1% |
1.1013 -0.1% 0.0% |
1.0999 0.1% 0.1% |
1.1182 -1.6% -1.7% |
1.1151 -1.3% 0.3% |
|
DJIA 17006.77 2.2% 0.4% |
17073.95 0.4% 0.4% |
16964.10 -0.3% -0.6% |
17000.36 0.0% 0.2% |
16995.13 -0.1% 0.0% |
17213.31 1.2% 1.3% |
|
DAX 9824.17 3.3% 0.7% |
9778.93 -0.5% 0.5% |
9692.82 -1.3% -0.9% |
9723.09 -1.0% 0.3% |
9498.15 -3.3% -2.3% |
9831.13 0.1% 3.5% |
At the press
conference after the FOMC meeting on Sep 21, 2016, Chair Yellen states (http://www.federalreserve.gov/mediacenter/files/FOMCpresconf20160921.pdf ): “However,
the economic outlook is inherently uncertain.” In the address to the Jackson
Hole symposium on Aug 26, 2016, Chair Yellen states: “I believe the case for an
increase in in federal funds rate has strengthened in recent months…And, as
ever, the economic outlook is uncertain, and so monetary policy is not on a
preset course” (http://www.federalreserve.gov/newsevents/speech/yellen20160826a.htm). In a speech
at the World Affairs Council of Philadelphia, on Jun 6, 2016 (http://www.federalreserve.gov/newsevents/speech/yellen20160606a.htm), Chair Yellen
finds that “there is considerable uncertainty about the economic outlook.” There
are fifteen references to this uncertainty in the text of 18 pages
double-spaced. In the Semiannual Monetary Policy Report to the Congress on Jun
21, 2016, Chair Yellen states (http://www.federalreserve.gov/newsevents/testimony/yellen20160621a.htm), “Of course,
considerable uncertainty about the economic outlook remains.” Frank H. Knight (1963, 233), in Risk, uncertainty and profit,
distinguishes between measurable risk
and unmeasurable uncertainty. Is
there a “science” or even “art” of central banking under this extreme
uncertainty in which policy does not generate higher volatility of money,
income, prices and values of financial assets? What is truly important is the fixing of the overnight fed funds
at 0 to ¼ percent (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200429a.htm): “The ongoing
public health crisis will weigh heavily on economic activity, employment, and
inflation in the near term, and poses considerable risks to the economic
outlook over the medium term. In light of these developments, the Committee
decided to maintain the target range for the federal funds rate at 0 to 1/4
percent. The Committee expects to maintain this target range until it is
confident that the economy has weathered recent events and is on track to
achieve its maximum employment and price stability goals.” In the Opening Remarks to the Press Conference on Oct 30, 2019, the
Chairman of the Federal Reserve Board, Jerome H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20191030.pdf): “We
see the current stance of monetary policy as likely to remain appropriate as
long as incoming information about the economy remains broadly consistent with
our outlook of moderate economic growth, a strong labor market, and inflation
near our symmetric 2 percent objective. We believe monetary policy is in a good
place to achieve these outcomes. Looking ahead, we will be monitoring the
effects of our policy actions, along with other information bearing on the
outlook, as we assess the appropriate path of the target range for the fed
funds rate. Of course, if developments emerge that cause a material
reassessment of our outlook, we would respond accordingly. Policy is not on a
preset course.” In the Opening Remarks to the Press
Conference on Jan 30, 2019, the Chairman of the Federal Reserve Board, Jerome
H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190130.pdf): “Today,
the FOMC decided that the cumulative effects of those developments over the
last several months warrant a patient, wait-and-see approach regarding future
policy changes. In particular, our statement today says, “In light of global economic
and financial developments and muted inflation pressures, the Committee will be
patient as it determines what future adjustments to the target range for the
federal funds rate may be appropriate.” This change was not driven by a major
shift in the baseline outlook for the economy. Like many forecasters, we
still see “sustained expansion of economic activity, strong labor market
conditions, and inflation near … 2 percent” as the likeliest case. But the
cross-currents I mentioned suggest the risk of a less-favorable outlook. In
addition, the case for raising rates has
weakened somewhat. The traditional case for rate increases is to protect
the economy from risks that arise when rates are too low for too long,
particularly the risk of too-high inflation. Over the past few months, that
risk appears to have diminished. Inflation readings have been muted, and the
recent drop in oil prices is likely to Page 3 of 5 push headline inflation
lower still in coming months. Further, as we noted in our post-meeting statement,
while survey-based measures of inflation expectations have been stable,
financial market measures of inflation compensation have moved lower.
Similarly, the risk of financial imbalances appears to have receded, as a
number of indicators that showed elevated levels of financial risk appetite
last fall have moved closer to historical norms. In this environment, we
believe we can best support the economy by being patient in evaluating the
outlook before making any future adjustment to policy.” The FOMC was initiating the “normalization” or
reduction of the balance sheet of securities held outright for monetary policy
(https://www.federalreserve.gov/newsevents/pressreleases/monetary20190130c.htm) with
significant changes (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190320.pdf). In the opening remarks to the Mar 20, 2019, the Chairman of the Federal
Reserve Board, Jerome H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190320.pdf): “In
discussing the Committee’s projections, it is useful to note what those
projections are, as well as what they are not. The SEP includes participants’
individual projections of the most likely economic scenario along with their
views of the appropriate path of the federal funds rate in that scenario. Views
about the most likely scenario form one input into our policy discussions. We
also discuss other plausible scenarios, including the risk of more worrisome
outcomes. These and other scenarios and many other considerations go into
policy, but are not reflected in projections of the most likely case. Thus, we
always emphasize that the interest rate projections in the SEP are not a
Committee decision. They are not a Committee plan. As Chair Yellen noted some
years ago, the FOMC statement, rather than the dot plot, is the device that the
Committee uses to express its opinions about the likely path of rates.”
In the Introductory Statement on Jul 25,
2019, in Frankfurt am Main, the President of the European Central Bank, Mario
Draghi, stated (https://www.ecb.europa.eu/press/pressconf/2019/html/ecb.is190725~547f29c369.en.html): “Based on our regular economic and monetary analyses, we decided
to keep the key ECB interest rates unchanged.
We expect them to remain at their present or lower levels at least through the
first half of 2020, and in any case for as long as necessary to ensure the
continued sustained convergence of inflation to our aim over the medium term.
We intend to continue reinvesting, in full, the
principal payments from maturing securities purchased under the asset purchase
programme for an extended period of time past the date when we start raising
the key ECB interest rates, and in any case for as long as necessary to
maintain favourable liquidity conditions and an ample degree of monetary
accommodation.” At its meeting on September 12,
2019, the Governing Council of the ECB (European Central Bank), decided to (https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190912~08de50b4d2.en.html): (1)
decrease the deposit facility by 10 basis points to minus 0.50 percent while
maintaining at 0.00 the main refinancing operations rate and at 0.25 percent
the marginal lending facility rate; (2) restart net purchases of securities at
the monthly rate of €20 billion beginning on Nov 1, 2019; (3) reinvest
principal payments from maturing securities; (4) adapt long-term refinancing
operations to maintain “favorable bank lending conditions;” and (5) exempt part
of the “negative deposit facility rate” on bank excess liquidity.
|
Real
Disposable Personal Income |
Real Personal
Consumption Expenditures |
Prices of
Personal Consumption Expenditures |
PCE Prices
Excluding Food and Energy |
|
∆%12M |
∆%12M |
∆%12M |
∆%12M |
|
6/2017 |
6/2017 |
6/2017 |
6/2017 |
|
1.2 |
2.4 |
1.4 |
1.5 |
In presenting the Semiannual
Monetary Policy Report to Congress on Jul 17, 2018, the Chairman of the Board
of Governors of the Federal Reserve System, Jerome H. Powell, stated (https://www.federalreserve.gov/newsevents/testimony/powell20180717a.htm): “With a
strong job market, inflation close to our objective, and the risks to the
outlook roughly balanced, the FOMC believes that--for now--the best way forward
is to keep gradually raising the federal funds rate. We are aware that, on the
one hand, raising interest rates too slowly may lead to high inflation or
financial market excesses. On the other hand, if we raise rates too rapidly,
the economy could weaken and inflation could run persistently below our
objective. The Committee will continue to weigh a wide range of relevant
information when deciding what monetary policy will be appropriate. As always,
our actions will depend on the economic outlook, which may change as we receive
new data.”
At an address to The Clearing House and The Bank Policy
Institute Annual Conference (https://www.federalreserve.gov/newsevents/speech/clarida20181127a.htm), in New York City, on Nov 27, 2018, the Vice Chairman of the
Fed, Richard H. Clarida, analyzes the data dependence of monetary policy. An
important hurdle is critical unobserved parameters of monetary policy (https://www.federalreserve.gov/newsevents/speech/clarida20181127a.htm): “But what if key parameters that describe the
long-run destination of the economy are unknown? This is
indeed the relevant case that the FOMC and other monetary policymakers face in
practice. The two most important unknown parameters needed to conduct‑‑and
communicate‑‑monetary policy are the rate of unemployment consistent with
maximum employment, u*, and the riskless real rate of interest
consistent with price stability, r*. As a result, in the real
world, monetary policy should, I believe, be data dependent in a second sense:
that incoming data can reveal at each FOMC meeting signals that will enable it
to update its estimates of r*
and u* in order to obtain its best estimate of where the
economy is heading.” Current
robust economic growth, employment creation and inflation close to the Fed’s 2
percent objective suggest continuing “gradual policy normalization.” Incoming
data can be used to update u* and r* in
designing monetary policy that attains price stability and maximum employment.
Clarida also finds that the current expansion will be the longest in history if
it continues into 2019. In an address at The Economic Club of New York, New
York City, Nov 28, 2018 (https://www.federalreserve.gov/newsevents/speech/powell20181128a.htm), the Chairman of
the Fed, Jerome H. Powell, stated (https://www.federalreserve.gov/newsevents/speech/powell20181128a.htm): “For seven years during the crisis and
its painful aftermath, the Federal Open Market Committee (FOMC) kept our policy
interest rate unprecedentedly low--in fact, near zero--to support the economy
as it struggled to recover. The health of the economy gradually but steadily
improved, and about three years ago the FOMC judged that the interests of
households and businesses, of savers and borrowers, were no longer best served
by such extraordinarily low rates. We therefore began to raise our policy rate
gradually toward levels that are more normal in a healthy economy. Interest
rates are still low by historical standards, and they remain just below the
broad range of estimates of the level that would be neutral for the economy‑‑that
is, neither speeding up nor slowing down growth. My FOMC colleagues and I, as
well as many private-sector economists, are forecasting continued solid growth,
low unemployment, and inflation near 2 percent.” The market
focused on policy rates “just below the broad range of estimates of the
level that would be neutral for the economy—that is, neither speeding up nor
slowing down growth.” There was a relief rally in the stock market of the
United States:
|
Fri 23 |
Mon 26 |
Tue 27 |
Wed 28 |
Thu 29 |
Fri 30 |
|
USD/EUR 1.1339 0.7% 0.6% |
1.1328 0.1% 0.1% |
1.1293 0.4% 0.3% |
1.1368 -0.3% -0.7% |
1.1394 -0.5% -0.2% |
1.1320 0.2% 0.6% |
|
DJIA 24285.95 -4.4% -0.7% |
24640.24 1.5% 1.5% |
24748.73 1.9% 0.4% |
25366.43 4.4% 2.5% |
25338.84 4.3% -0.1% |
25538.46 5.2% 0.8% |
At a meeting of the American Economic Association in Atlanta
on Friday, January 4, 2019, the Chairman of the Fed, Jerome H. Powell, stated
that the Fed would be “patient” with interest rate increases, adjusting policy
“quickly and flexibly” if required (https://www.aeaweb.org/webcasts/2019/us-federal-reserve-joint-interview). Treasury
yields declined and stocks jumped.
|
Fri 28 |
Mon 31 |
Tue 1 |
Wed 2 |
Thu 3 |
Fri 4 |
|
10Y Note 2.736 |
2.683 |
2.683 |
2.663 |
2.560 |
2.658 |
|
2Y Note 2.528 |
2.500 |
2.500 |
2.488 |
2.387 |
2.480 |
|
DJIA 23062.40 2.7% -0.3% |
23327.46 1.1% 1.1% |
23327.46 1.1% 0.0% |
23346.24 1.2% 0.1% |
22686.22 -1.6% -2.8% |
23433.16 1.6% 3.3% |
|
Dow Global 2718.19 1.3% 0.8% |
2734.40 0.6% 0.6% |
2734.40 0.6% 0.0% |
2729.74 0.4% -0.2% |
2707.29 -0.4% -0.8% |
2773.12 2.0% 2.4% |
In the Opening Remarks to the Press Conference on Jan 30, 2019, the
Chairman of the Federal Reserve Board, Jerome H. Powell, stated (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190130.pdf): “Today, the FOMC
decided that the cumulative effects of those developments over the last several
months warrant a patient, wait-and-see approach regarding future policy
changes. In particular, our statement today says, “In light of global economic
and financial developments and muted inflation pressures, the Committee will be
patient as it determines what future adjustments to the target range for the
federal funds rate may be appropriate.” This change was not driven by a major
shift in the baseline outlook for the economy. Like many forecasters, we
still see “sustained expansion of economic activity, strong labor market
conditions, and inflation near … 2 percent” as the likeliest case. But the
cross-currents I mentioned suggest the risk of a less-favorable outlook. In
addition, the case for raising rates has
weakened somewhat. The traditional case for rate increases is to protect
the economy from risks that arise when rates are too low for too long,
particularly the risk of too-high inflation. Over the past few months, that
risk appears to have diminished. Inflation readings have been muted, and the
recent drop in oil prices is likely to Page 3 of 5 push headline inflation
lower still in coming months. Further, as we noted in our post-meeting
statement, while survey-based measures of inflation expectations have been
stable, financial market measures of inflation compensation have moved lower.
Similarly, the risk of financial imbalances appears to have receded, as a
number of indicators that showed elevated levels of financial risk appetite
last fall have moved closer to historical norms. In this environment, we
believe we can best support the economy by being patient in evaluating the
outlook before making any future adjustment to policy.” The FOMC is initiating the “normalization” or
reduction of the balance sheet of securities held outright for monetary policy
(https://www.federalreserve.gov/newsevents/pressreleases/monetary20190130c.htm).
|
Fri 25 |
Mon 28 |
Tue 29 |
Wed 30 |
Thu 31 |
Fri 1 |
|
DJIA 24737.20 0.1% 0.7% |
24528.22 -0.8% -0.8% |
24579.96 -0.6% 0.2% |
25014.86 1.1% 1.8% |
24999.67 1.1% -0.1% |
25063.89 1.3% 0.3% |
|
Dow Global 2917.27 0.5% 1.0% |
2899.74 -0.6% -0.6% |
2905.29 -0.4% 0.2% |
2927.10 0.3% 0.8% |
2945.73 1.0% 0.6% |
2947.87 1.0% 0.1% |
|
DJ Asia
Pacific NA |
NA |
NA |
NA |
NA |
NA |
|
Nikkei 20773.56 0.5% 1.0% |
20649.00 -0.6% -0.6% |
20664.64 -0.5% 0.1% |
20556.54 -1.0% -0.5% |
20773.49 0.0% 1.1% |
20788.39 0.1% 0.1% |
|
Shanghai 2601.72 0.2% 0.4% |
2596.98 -0.2% -0.2% |
2594.25 -0.3% -0.1% |
2575.58 -1.0% -0.7% |
2584.57 -0.7% 0.3% |
2618.23 0.6% 1.3% |
|
DAX 11281.79 0.7% 1.4% |
11210.31 -0.6% -0.6% |
11218.83 -0.6% 0.1% |
11181.66 -0.9% -0.3% |
11173.10 -1.0% -0.1% |
11180.66 -0.9% 0.1% |
|
BOVESPA 97677.19 1.6% 0.0% |
95443.88 -2.3% -2.3% |
95639.33 -2.1% 0.2% |
96996.21 -0.7% 1.4% |
97393.75 -0.3% 0.4% |
97861.27 0.2% 0.5% |
Frank H. Knight (1963, 233), in Risk, uncertainty and profit,
distinguishes between measurable risk
and unmeasurable uncertainty. The FOMC
statement on Jun 19, 2019 analyzes uncertainty in the outlook (https://www.federalreserve.gov/newsevents/pressreleases/monetary20190619a.htm): “The
Committee continues to view sustained expansion of economic activity, strong
labor market conditions, and inflation near the Committee's symmetric 2 percent
objective as the most likely outcomes, but uncertainties about this outlook
have increased. In light of these uncertainties and muted inflation pressures,
the Committee will closely monitor the implications of incoming information for
the economic outlook and will act as appropriate to sustain the expansion, with
a strong labor market and inflation near its symmetric 2 percent objective.” In the
Semiannual Monetary Policy Report to the Congress, on Jul 10, 2019, Chair
Jerome H. Powell states (https://www.federalreserve.gov/newsevents/testimony/powell20190710a.htm): “Since
our May meeting, however, these crosscurrents have reemerged, creating greater uncertainty.
Apparent progress on trade turned to greater uncertainty, and our
contacts in business and agriculture report heightened concerns over trade
developments. Growth indicators from around the world have disappointed on net,
raising concerns that weakness in the global economy will continue to affect
the U.S. economy. These concerns may have contributed to the drop in business
confidence in some recent surveys and may have started to show through to
incoming data.
”(emphasis
added). European Central Bank President, Mario Draghi, stated at a meeting on
“Twenty Years of the ECB’s Monetary Policy,” in Sintra, Portugal, on Jun 18,
2019, that (https://www.ecb.europa.eu/press/key/date/2019/html/ecb.sp190618~ec4cd2443b.en.html): “In this
environment, what matters is that monetary policy remains committed to its objective and does not resign itself to
too-low inflation. And, as I emphasised at our last monetary policy
meeting, we are committed, and are not resigned to having a low rate of
inflation forever or even for now. In the absence of improvement, such that the
sustained return of inflation to our aim is threatened, additional stimulus
will be required. In our recent deliberations, the members of the Governing
Council expressed their conviction in pursuing our aim of inflation close to 2%
in a symmetric fashion. Just as our policy framework has evolved in the past to
counter new challenges, so it can again. In the coming weeks, the Governing
Council will deliberate how our instruments can be adapted commensurate to the
severity of the risk to price stability.” At its meeting on September 12, 2019,
the Governing Council of the ECB (European Central Bank), decided to (https://www.ecb.europa.eu/press/pr/date/2019/html/ecb.mp190912~08de50b4d2.en.html): (1)
decrease the deposit facility by 10 basis points to minus 0.50 percent while
maintaining at 0.00 the main refinancing operations rate and at 0.25 percent
the marginal lending facility rate; (2) restart net purchases of securities at
the monthly rate of €20 billion beginning on Nov 1, 2019; (3) reinvest
principal payments from maturing securities; (4) adapt long-term refinancing
operations to maintain “favorable bank lending conditions;” and (5) exempt part
of the “negative deposit facility rate” on bank excess liquidity. The harmonized index of consumer prices of
the euro zone increased 1.2 percent in the 12 months ending in May 2019 and the
PCE inflation excluding food and energy increased 1.6 percent in the 12 months
ending in Apr 2019. Inflation below 2 percent with symmetric targets in both
the United States and the euro zone together with apparently weakening economic
activity could lead to interest rate cuts. Stock markets jumped worldwide in
renewed risk appetite during the week of Jun 19, 2019 in part because of
anticipation of major central bank rate cuts and also because of domestic
factors:
|
Fri 14 |
Mon 17 |
Tue 18 |
Wed 19 |
Thu 20 |
Fri 21 |
|
DJIA 26089.61 0.4% -0.1% |
26112.53 0.1% 0.1% |
26465.54 1.4% 1.4% |
26504.00 1.6% 0.1% |
26753.17 2.5% 0.9% |
26719.13 2.4% -0.1% |
|
Dow Global 2998.79 0.2% -0.4% |
2999.93 0.0% 0.0% |
3034.59 1.2% 1.2% |
3050.80 1.7% 0.5% |
3077.81 2.6% 0.9% |
3081.62 2.8% 0.1% |
|
DJ Asia
Pacific NA |
NA |
NA |
NA |
NA |
NA |
|
Nikkei 21116.89 1.1% 0.4% |
21124.00 0.0% 0.0% |
20972.71 -0.7% -0.7% |
21333.87 1.0% 1.7% |
21462.86 1.6% 0.6% |
21258.64 0.7% -1.0% |
|
Shanghai 2881.97 1.9% -1.0% |
2887.62 0.2% 0.2% |
2890.16 0.3% 0.1% |
2917.80 1.2% 1.0% |
2987.12 3.6% 2.4% |
3001.98 4.2% 0.5% |
|
DAX 12096.40 0.4% -0.6% |
12085.82 -0.1% -0.1% |
12331.75 1.9% 2.0% |
12308.53 1.8% -0.2% |
12355.39 2.1% 0.4% |
12339.92 2.0% -0.1% |
|
BOVESPA 98040.06 0.2% -0.7% |
97623.25 -0.4% -0.4% |
99404.39 1.4% 1.8% |
100303.41 2.3% 0.9% |
100303.41 2.3% 0.0% |
102012.64 4.1% 1.7% |
Professor
Ronald I. McKinnon (2013Oct27), writing on “Tapering without tears—how to end
QE3,” on Oct 27, 2013, published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702304799404579153693500945608?KEYWORDS=Ronald+I+McKinnon), finds that
the major central banks of the world have fallen into a
“near-zero-interest-rate trap.” World economic conditions are weak such that
exit from the zero interest rate trap could have adverse effects on production,
investment and employment. The maintenance of interest rates near zero creates
long-term near stagnation. The proposal of Professor McKinnon is credible,
coordinated increase of policy interest rates toward 2 percent. Professor John
B. Taylor at Stanford University, writing on “Economic failures cause political
polarization,” on Oct 28, 2013, published in the Wall Street Journal (https://www.hoover.org/research/economic-failure-causes-political-polarization), analyzes that
excessive risks induced by near zero interest rates in 2003-2004 caused the
financial crash. Monetary policy continued in similar paths during and after
the global recession with resulting political polarization worldwide.
Table IA-1 provides annual equivalent rates of
inflation for producer price indexes followed in this blog of countries and
regions that account for close to three quarters of world output. The behavior
of the US producer price index in 2011 and into 2012-2018 shows neatly multiple
waves. (1) In Jan-Apr 2011, without risk aversion, US producer prices rose at
the annual equivalent rate of 11.1 percent. (2) During risk aversion, producer
prices increased in the US at the annual equivalent rate of 0.6 percent in
May-Jun 2011. (3) From Jul to Sep 2011, under alternating episodes of risk
aversion, producer prices increased at the annual equivalent rate of 4.1
percent. (4) Under the pressure of risk aversion because of the European debt
crisis, US producer prices changed at the annual equivalent rate of 0.0 percent
in Oct-Dec 2011. (5) Inflation of producer prices returned with 3.2 percent
annual equivalent in Jan-Mar 2012. (6) With return of risk aversion from the
European debt crisis, producer prices fell at the annual equivalent rate of 4.1
percent in Apr-May 2012. (7) New positions in commodity futures even with
continuing risk aversion caused annual equivalent inflation of minus 1.2
percent in Jun-Jul 2012. (8) Relaxed risk aversion because of announcement of
sovereign bond buying by the European Central Bank (https://www.ecb.europa.eu/press/pr/date/2012/html/pr120906_1.en.html) induced carry
trades that resulted in annual equivalent producer price inflation in the US of
13.4 percent in Aug-Sep 2012. (9) Renewed risk aversion caused unwinding of
carry trades of zero interest rates to commodity futures exposures with annual
equivalent inflation of minus 2.4 percent in Oct-Dec 2012. (10) In Jan-Feb
2013, producer prices rose at the annual equivalent rate of 7.4 percent with
more relaxed risk aversion at the margin. (11) Return of risk aversion resulted
in annual equivalent inflation of minus 7.0 percent in Mar-Apr 2013 with
worldwide portfolio reallocation toward equities and high-yield bonds and away
from commodity exposures. (12) Inflation of producer prices returned at 2.7
percent in annual equivalent in May-Aug 2013. (13) Continuing reallocation of
investment portfolios away from commodities into equities is causing downward
pressure on prices. In Sep-Nov 2013, the US producer price index increased at
the annual equivalent rate of 0.8 percent. (14) Renewed carry trades caused
annual equivalent inflation of 5.7 percent in US producer prices in Dec
2013-Feb 2014. (15) Annual equivalent inflation of producer prices was 3.7
percent in Mar 2014. (16) Annual equivalent inflation of producer prices moved
at 0.9 percent in Apr-Jul 2014. (17) Annual equivalent inflation of producer
prices fell at 2.7 percent in Aug-Nov 2014. (18) Annual equivalent inflation
fell at 17.6 percent in Dec 2014-Jan 2015. (19) Annual equivalent inflation of
producer prices increased at 1.2 percent in Feb 2015. (20) Annual equivalent
inflation of producer prices increased at 4.9 percent in Mar 2015. (21)
Producer prices in the US fell at annual equivalent 8.1 percent in Apr 2015.
(22) US producer prices increased at annual equivalent 10.7 percent in May-Jun
2015. (23) US producer prices fell at 1.2 percent annual equivalent in Jul
2015. (24) US producer prices fell at 7.4 percent annual equivalent in Aug-Oct
2015. (25) US producer prices increased at annual equivalent 1.2 percent in Nov
2015. (26) US producer prices fell at 6.6 percent in Dec 2015-Feb 2016. (27) US
producer prices increased at 3.7 percent annual equivalent in Mar-May 2016.
(28) US producer prices increased at 8.7 percent annual equivalent in Jun 2016.
(29) US producer prices fell at 1.2 percent annual equivalent in Jul 2016. (30)
US producer prices fell at 3.5 percent annual equivalent in Aug 2016. (31)
Producer prices in the US increased at annual equivalent 6.2 percent in Sep-Oct
2016. (32) US producer prices decreased at 3.5 percent in Nov 2016. (33) US
producer prices increased at annual equivalent 11.4 percent in Dec 2016. (34)
US producer prices increased at 8.7 percent in Jan 2017. (35) US producer
prices increased at 3.7 percent annual equivalent in Feb 2017. (36) US producer
prices increased at annual equivalent 1.2 percent in Mar 2017. (37) US producer
prices increased at annual equivalent 4.9 percent in Apr 2017. (38) US producer
prices fell at 9.2 percent annual equivalent in May 2017. (39) US producer
prices increased at annual equivalent 2.4 percent in Jun 2017. (39) US producer
prices fell at 1.2 percent annual equivalent in Jul 2017. (40) US producer
prices increased at 8.7 percent annual equivalent in Aug-Sep 2017. (41)
Producer prices in the US increased at 6.8 percent annual equivalent in Oct-Nov
2017. (42) US producer prices increased at annual equivalent 1.2 percent in Dec
2017. (43) US producer prices increased at annual equivalent 3.7 percent in Jan
2018. (44) Producer prices in the US increased at annual equivalent 2.4 percent
in Feb 2018. (45) US producer prices increased at annual equivalent 2.4 percent
in Mar 2018. (46) US Producer prices fell at annual equivalent 3.5 percent in
Apr 2018. (47) Producer prices increased at annual equivalent 8.7 percent in
May 2018. (48) US producer prices increased at annual equivalent 1.8 percent in
Jun-Jul 2018. (49) Producer prices decreased at annual equivalent 1.8 percent
in Aug-Sep 2018. (50) US producer prices increased at annual equivalent 8.7
percent in Oct 2018. (51) US producer prices fell at annual equivalent 7.7
percent in Nov 2018-Jan 2019. (52) Producer prices in the US increased at
annual equivalent 8.3 percent in Feb-Apr 2019. (53) US producer prices
decreased at annual equivalent 3.0 percent in May-Jun 2019. (54) Producer
prices in the US increased at annual equivalent 3.7 percent in Jul 2019. (55)
US producer prices fell at annual equivalent 2.4 percent in Aug-Sep 2019. (56)
Producer prices increased at annual equivalent 4.9 percent in Oct-Dec 2019.
(57) US producer prices changed at annual equivalent 0.0 percent in Jan 2020.
(58) Producer prices decreased at annual equivalent 20.3 percent in Feb-Apr
2020. (59) US producer prices increased at annual equivalent 34.5 percent in
May 2020. (60) Producer prices increased at annual equivalent 2.8 percent in
Jun-Aug 2020. Resolution of the European
debt crisis if there is not an unfavorable growth event with political
development in China would result in jumps of valuations of risk financial
assets. Increases in commodity prices would cause the same high producer price
inflation experienced in Jan-Apr 2011 and Aug-Sep 2012. An episode of exploding
commodity prices could ignite inflationary expectations that would result in an
inflation phenomenon of costly resolution. There are ten producer-price indexes
in Table IA-1 for seven countries (two for the US and two for the UK) and one
region (euro area) showing very similar behavior. Zero interest rates without
risk aversion cause increases in commodity prices that in turn increase input
prices at a faster pace than output prices. Producer price inflation rose at
very high rates during the first part of 2011 for the US, Japan, China, Euro
Area, Germany, France, Italy and the UK when risk aversion was contained. With
the increase in risk aversion in May and Jun 2011, inflation moderated because
carry trades were unwound. Producer price inflation returned after Jul 2011,
with alternating bouts of risk aversion. In the final months of the year
producer price inflation collapsed because of the disincentive to exposures in
commodity futures resulting from fears of resolution of the European debt
crisis. There is renewed worldwide inflation in the early part of 2012 with
subsequent collapse because of another round of sharp risk aversion and
relative portfolio reallocation away from commodities and into equities and
high-yield bonds. Sharp worldwide jump in producer prices occurred recently
because of near zero interest rates by reinvestment of principal in securities
and issue of trillion of dollars of bank reserves in perpetuity or QE→∞
in almost continuous time with temporarily relaxed risk aversion. The FOMC
decided gradual reduction of the volume of securities held outright in the
Fed’s balance sheet subsequently returning to QE→∞. Alternating
episodes of increase and decrease of inflation introduce uncertainty in
household planning that frustrates consumption and home buying. Producer prices
were moderating or falling in the final months of 2012 because of renewed risk
aversion that causes unwinding of carry trades from zero interest rates to
commodity futures exposures. In the first months of 2013, new carry trades
caused higher worldwide inflation. Inflation of producer prices returned in the
US and Japan in Dec 2013-Jan 2014. Lower inflation recently originates in
portfolio reallocations away from commodity exposures into equities.
Unconventional monetary policy fails in stimulating the overall real economy,
merely introducing undesirable instability because monetary authorities cannot
control allocation of floods of money at zero interest rates to carry trades
into risk financial assets. The economy is constrained in a suboptimal
allocation of resources that monetary policy perpetuates along a continuum of
short-term periods. The result is long-term or dynamic inefficiency in the form
of a trajectory of economic activity that is lower than what would be attained
with rules instead of discretionary authorities in monetary policy (https://cmpassocregulationblog.blogspot.com/2020/02/recovery-without-hiring-in-lost.html and earlier https://cmpassocregulationblog.blogspot.com/2019/12/increase-in-valuations-of-risk_14.html). Inflation of
producer prices returned in the US and Japan in Dec 2013-Jan 2014 and fell in
Mar 2014 as part of the general instability of economic and financial
variables. Inflation returned in Apr-Jun 2014 with reallocations of portfolios
toward commodities during various geopolitical events. Inflation is subdued in
Jul-2014-Apr 2015 with reallocations of portfolios away from commodities,
returning in May-Jun 2015 for some countries. Prices fell in multiple countries
in Jul-Oct 2015 with mixed behavior in Nov-Dec 2015 and into Jan-Mar 2016.
There is higher inflation in many countries and areas in Mar-Jun 2016. Prices
fell in various indexes in Jul 2016 with increases in some price indexes in
Aug-Sep 2016 and Oct 2016 with mixed behavior in Nov 2016. Prices increased in
Dec 2016 and Jan 2017, with increases mostly at lower rates in Feb 2017. Prices
decreased in some indexes in Mar 2017 and increased in Apr 2017, decreasing in May-Jul 2017.
Prices increased in Aug-Nov 2017, increasing in Dec 2017 in multiple indexes.
Some indexes increased in Jan-Feb 2018 while others decreased. Some indexes
increased in Mar 2018 and some decreased in Apr 2018. Some prices increased in May-Jul 2018 and
some declined in Aug-Sep 2018 with exceptions of increases. Prices increased in
Oct 2018. Some prices decreased in Nov 2018. Several prices decreased in Dec
2018 to Jan 2019. Prices increased in Feb-Apr 2019. Several prices decreased in
May-Jun 2019. Some prices increased in Jul 2019 and several decreased in Aug
2019. Some prices decreased in Sep 2019. Several prices increased in Oct 2019.
There were mixed increases and decreases in Nov 2019. Some prices increased in
Dec 2019 to Jan 2020. Several prices decreased in Feb-Apr 2020. Some prices
increased in May-Jun 2020. Several prices increased in Jun-Aug 2020.
Table IA-1,
Annual Equivalent Rates of Producer Price Indexes
|
Index 2011-2020 |
AE ∆% |
|
US Producer Finished Goods Price Index |
|
|
AE ∆% Jun-Aug 2020 |
2.8 |
|
AE ∆% May 2020 |
34.5 |
|
AE ∆% Feb-Apr 2020 |
-20.3 |
|
AE ∆% Jan 2020 |
0.0 |
|
AE ∆% Oct-Dec 2019 |
4.9 |
|
AE ∆% Aug-Sep 2019 |
-2.4 |
|
AE ∆% Jul 2019 |
3.7 |
|
AE ∆% May-Jun 2019 |
-3.0 |
|
AE ∆% Feb-Apr 2019 |
8.3 |
|
AE ∆% Nov 2018-Jan 2019 |
-7.7 |
|
AE ∆% Oct 2018 |
8.7 |
|
AE ∆% Aug-Sep 2018 |
1.8 |
|
AE ∆% Jun-Jul 2018 |
1.8 |
|
AE ∆% May 2018 |
8.7 |
|
AE ∆% Apr 2018 |
-3.5 |
|
AE ∆% Mar 2018 |
2.4 |
|
AE ∆% Feb 2018 |
2.4 |
|
AE ∆% Jan 2018 |
3.7 |
|
AE ∆% Dec 2017 |
1.2 |
|
AE ∆% Oct-Nov 2017 |
6.8 |
|
AE ∆% Aug-Sep 2017 |
8.7 |
|
AE ∆% Jul 2017 |
-1.2 |
|
AE ∆% Jun 2017 |
2.4 |
|
AE ∆% May 2017 |
-9.2 |
|
AE ∆% Apr 2017 |
4.9 |
|
AE ∆% Mar 2017 |
1.2 |
|
AE ∆% Feb 2017 |
3.7 |
|
AE ∆% Jan 2017 |
8.7 |
|
AE ∆% Dec 2016 |
11.4 |
|
AE ∆% Nov 2016 |
-3.5 |
|
AE ∆% Sep-Oct 2016 |
6.2 |
|
AE ∆% Aug 2016 |
-3.5 |
|
AE ∆% Jul 2016 |
-1.2 |
|
AE ∆% Jun 2016 |
8.7 |
|
AE ∆% Mar-May 2016 |
3.7 |
|
AE ∆% Dec 2015-Feb 2016 |
-6.6 |
|
AE ∆% Nov 2015 |
1.2 |
|
AE ∆% Aug-Oct 2015 |
-7.4 |
|
AE ∆% Jul 2015 |
-1.2 |
|
AE ∆% May-Jun 2015 |
10.7 |
|
AE ∆% Apr 2015 |
-8.1 |
|
AE ∆% Mar 2015 |
4.9 |
|
AE ∆% Feb 2015 |
1.2 |
|
AE ∆% Dec 2014-Jan 2015 |
-17.6 |
|
AE ∆% Aug-Nov 2014 |
-2.7 |
|
AE ∆% Apr-Jul 2014 |
0.9 |
|
AE ∆% Mar 2014 |
3.7 |
|
AE ∆% Dec 2013-Feb 2014 |
5.7 |
|
AE ∆% Sep-Nov 2013 |
0.8 |
|
AE ∆% May-Aug 2013 |
2.7 |
|
AE ∆% Mar-Apr 2013 |
-7.0 |
|
AE ∆% Jan-Feb 2013 |
7.4 |
|
AE ∆% Oct-Dec 2012 |
-2.4 |
|
AE ∆% Aug-Sep 2012 |
13.4 |
|
AE ∆% Jun-Jul 2012 |
-1.2 |
|
AE ∆% Apr-May 2012 |
-4.1 |
|
AE ∆% Jan-Mar 2012 |
3.2 |
|
AE ∆% Oct-Dec 2011 |
0.0 |
|
AE ∆% Jul-Sep 2011 |
4.1 |
|
AE ∆% May-Jun 2011 |
0.6 |
|
AE ∆% Jan-Apr 2011 |
11.1 |
|
US Final Demand Producer Price Index |
|
|
AE ∆% Jul-Aug 2020 |
5.5 |
|
AE ∆% Jun 2020 |
-2.4 |
|
AE ∆% May 2020 |
10.0 |
|
AE ∆% Feb-Apr 2020 |
-8.5 |
|
AE ∆% Dec-Jan 2020 |
3.7 |
|
AE ∆% Oct-Nov 2019 |
1.2 |
|
AE ∆% Sep 2019 |
-3.5 |
|
AE ∆% Jun-Aug 2019 |
0.8 |
|
AE ∆% May 2019 |
2.4 |
|
AE ∆% Feb-Apr 2019 |
4.1 |
|
AE ∆% Dec 2018-Jan 2019 |
-2.4 |
|
AE ∆% Nov 2018 |
-1.2 |
|
AE ∆% Sep-Oct 2018 |
5.5 |
|
AE ∆% Jul-Aug 2018 |
1.2 |
|
AE ∆% Apr-Jun 2018 |
3.2 |
|
AE ∆% Jan-Mar 2018 |
4.1 |
|
AE ∆% Dec 2017 |
0.0 |
|
AE ∆% Aug-Nov 2017 |
4.9 |
|
AE ∆% Jul 2017 |
1.2 |
|
AE ∆% May-Jun 2017 |
0.4 |
|
AE ∆% Apr 2017 |
4.9 |
|
AE ∆% Mar 2017 |
2.4 |
|
AE ∆% Feb 2017 |
0.0 |
|
AE ∆% Jan 2017 |
4.9 |
|
AE ∆% Nov-Dec 2016 |
3.0 |
|
AE ∆% Oct 2016 |
2.4 |
|
AE ∆% Sep 2016 |
4.9 |
|
AE ∆% Aug 2016 |
-2.4 |
|
AE ∆% Jul 2016 |
-1.2 |
|
AE ∆% Apr-Jun 2016 |
3.7 |
|
AE ∆% Feb-Mar 2016 |
-1.8 |
|
AE ∆% Jan 2016 |
4.9 |
|
AE ∆% Dec 2015 |
-1.2 |
|
AE ∆% Nov 2015 |
1.2 |
|
AE ∆% Sep-Oct 2015 |
-4.1 |
|
AE ∆% Aug 2015 |
-2.4 |
|
AE ∆% May-Jul 2015 |
3.7 |
|
AE ∆% Apr 2015 |
-2.4 |
|
AE ∆% Mar 2015 |
2.4 |
|
AE ∆% Jan-Feb 2015 |
-6.4 |
|
AE ∆% Nov-Dec 2014 |
-3.0 |
|
AE ∆% Oct 2014 |
2.4 |
|
AE ∆% Aug-Sep 2014 |
-1.2 |
|
AE ∆% Mar-Jul 2014 |
2.4 |
|
AE ∆% Dec 2013-Feb 2014 |
2.4 |
|
AE ∆% Sep-Nov 2013 |
1.6 |
|
AE ∆% May-Aug 2013 |
1.8 |
|
AE ∆% Mar-Apr 2013 |
-1.2 |
|
AE ∆% Jan-Feb 2013 |
3.0 |
|
AE ∆% Oct-Dec 2012 |
0.8 |
|
AE ∆% Aug-Sep 2012 |
6.2 |
|
AE ∆% Jun-Jul 2012 |
-2.4 |
|
AE ∆% Apr-May 2012 |
1.2 |
|
AE ∆% Jan-Mar 2012 |
3.7 |
|
AE ∆% Oct-Dec 2011 |
-0.8 |
|
AE ∆% Jul-Sep 2011 |
3.2 |
|
AE ∆% May-Jun 2011 |
2.4 |
|
AE ∆% Jan-Apr 2011 |
7.4 |
|
Japan Corporate Goods Price Index |
|
|
AE ∆% Jun-Aug 2020 |
6.2 |
|
AE ∆% Feb-May 2020 |
-9.7 |
|
AE ∆% Nov 2019-Jan 2020 |
1.2 |
|
AE ∆% Oct-2019 |
14.0 |
|
AE ∆% Jul-Sep 2019 |
-1.2 |
|
AE ∆% May-Jun 2019 |
-4.1 |
|
AE ∆% Feb-Apr 2019 |
4.1 |
|
AE ∆% Nov 2018-Jan 2019 |
-5.8 |
|
AE ∆% Sep-Oct 2018 |
3.7 |
|
AE ∆% Aug 2018 |
0.0 |
|
AE ∆% Apr-Jul 2018 |
4.9 |
|
AE ∆% Feb-Mar 2018 |
-0.6 |
|
AE ∆% Dec 2017-Jan 2018 |
3.0 |
|
AE ∆% Sep-Nov 2017 |
4.5 |
|
AE ∆% Jul-Aug 2017 |
1.8 |
|
AE ∆% May-Jun 2017 |
0.6 |
|
AE ∆% Feb-Apr 2017 |
2.8 |
|
AE ∆% Nov 2016-Jan 2017 |
7.0 |
|
AE ∆% Aug-Oct 2016 |
-1.2 |
|
AE ∆% Jun-Jul 2016 |
-0.6 |
|
AE ∆% May 2016 |
0.0 |
|
AE ∆% Feb-Apr 2016 |
-3.2 |
|
AE ∆% Dec 2015-Jan 2016 |
-8.6 |
|
AE ∆% Nov 2015 |
0.0 |
|
AE ∆% Aug-Oct 2015 |
-7.0 |
|
AE ∆% Jun-Jul 2015 |
-3.0 |
|
AE ∆% Mar-May 2015 |
1.6 |
|
AE ∆% Jan-Feb 2015 |
-7.6 |
|
AE ∆% Aug-Dec 2014 |
-4.5 |
|
AE ∆% Apr-Jul 2014 |
11.6 |
|
AE ∆% Feb-Mar 2014 |
-1.2 |
|
AE ∆% Dec 2013-Jan 2014 |
3.0 |
|
AE ∆% Oct-Nov 2013 |
-0.6 |
|
AE ∆% Dec 2012-Sep 2013 |
3.3 |
|
AE ∆% Oct-Nov 2012 |
-3.0 |
|
AE ∆% Aug-Sep 2012 |
2.4 |
|
AE ∆% May-Jul 2012 |
-5.1 |
|
AE ∆% Feb-Apr 2012 |
2.0 |
|
AE ∆% Dec 2011-Jan 2012 |
-0.6 |
|
AE ∆% Jul-Nov 2011 |
-2.1 |
|
AE ∆% May-Jun 2011 |
-1.2 |
|
AE ∆% Jan-Apr 2011 |
5.5 |
|
China Producer Price Index |
|
|
AE ∆% Aug 2020 |
-3.5 |
|
AE ∆% Jun-Jul 2020 |
4.9 |
|
AE ∆% Feb-May 2020 |
-9.2 |
|
AE ∆% Nov 2019-Jan 2020 |
-0.4 |
|
AE ∆% Sep-Oct 2019 |
1.2 |
|
AE ∆% Jun-Aug 2019 |
-2.4 |
|
AE ∆% Mar-May 2019 |
2.4 |
|
AE ∆% Nov 2018-Feb 2019 |
-5.6 |
|
AE ∆% Aug-Oct 2018 |
5.7 |
|
AE ∆% May-Jul 2018 |
3.2 |
|
AE ∆% Feb-Apr 2018 |
-2.0 |
|
AE ∆% Jan 2018 |
3.7 |
|
AE ∆% Aug-Dec 2017 |
9.8 |
|
AE ∆% Jul 2017 |
2.4 |
|
AE ∆% Apr-Jun 2017 |
-3.5 |
|
AE ∆% Jan-Mar 2017 |
7.0 |
|
AE ∆% Nov-Dec 2016 |
20.3 |
|
AE ∆% Sep-Oct 2016 |
11.3 |
|
AE ∆% Jul-Aug 2016 |
2.4 |
|
AE ∆% Jun 2016 |
-2.4 |
|
AE ∆% Mar-May 2016 |
7.0 |
|
AE ∆% Jan-Feb 2016 |
-4.7 |
|
AE ∆% Sep-Dec 2015 |
-5.6 |
|
AE ∆% Jun-Aug 2015 |
-7.3 |
|
AE ∆% Mar-May 2015 |
-2.0 |
|
AE ∆% Jan-Feb 2015 |
-10.3 |
|
AE ∆% Nov-Dev 2014 |
-6.4 |
|
AE ∆% Oct 2013-Oct 2014 |
-2.2 |
|
AE ∆% Aug-Sep 2013 |
1.8 |
|
AE ∆% Mar-Jul 2013 |
-4.9 |
|
AE ∆% Jan-Feb 2013 |
2.4 |
|
AE ∆% Nov-Dec 2012 |
-1.2 |
|
AE ∆% Oct 2012 |
2.4 |
|
AE ∆% May-Sep 2012 |
-5.8 |
|
AE ∆% Feb-Apr 2012 |
2.4 |
|
AE ∆% Dec 2011-Jan 2012 |
-2.4 |
|
AE ∆% Jul-Nov 2011 |
-3.1 |
|
AE ∆% Jan-Jun 2011 |
6.4 |
|
Euro Zone Industrial Producer Prices |
|
|
AE ∆% Jun-Jul 2020 |
8.1 |
|
AE ∆% Feb-May 2020 |
-13.5 |
|
AE ∆% Dec-Jan 2019 |
1.8 |
|
AE ∆% Sep-Nov 2019 |
1.8 |
|
AE ∆% Aug 2019 |
-5.8 |
|
AE ∆% Jul 2019 |
1.2 |
|
AE ∆% Jun 2019 |
-7.0 |
|
AE ∆% Mar-May 2019 |
-2.0 |
|
AE ∆% Jan-Feb 2019 |
2.4 |
|
AE ∆% Nov-Dec 2018 |
-6.4 |
|
AE ∆% Jul-Oct 2018 |
7.8 |
|
AE ∆% May-Jun 2018 |
8.1 |
|
AE ∆% Feb-Apr 2018 |
0.0 |
|
AE ∆% Dec-Jan 2017 |
3.7 |
|
AE ∆% Sep-Nov 2017 |
5.3 |
|
AE ∆% Aug 2017 |
3.7 |
|
AE ∆% May-Jul 2017 |
-1.6 |
|
AE ∆% Feb-Apr 2017 |
-1.2 |
|
AE ∆% Dec 2016-Jan 2017 |
11.3 |
|
AE ∆% Oct-Nov 2016 |
5.5 |
|
AE ∆% Sep 2016 |
2.4 |
|
AE ∆% Aug 2016 |
-2.4 |
|
AE ∆% Jul 2016 |
4.9 |
|
AE ∆% May-Jun 2016 |
7.4 |
|
7AE ∆% Apr 2016 |
-4.7 |
|
AE ∆% Mar 2016 |
3.7 |
|
AE ∆% Dec 2015-Feb 2016 |
-9.2 |
|
AE ∆% Oct-Nov 2015 |
-3.0 |
|
AE ∆% Jul-Sep 2015 |
-5.1 |
|
AE ∆% Apr-Jun 2015 |
0.0 |
|
AE ∆% Feb-Mar 2015 |
4.9 |
|
AE ∆% Dec 2014-Jan 2015 |
-11.9 |
|
AE ∆% Oct-Nov 2014 |
-3.5 |
|
AE ∆% Sep 2014 |
2.4 |
|
AE ∆% Jul-Aug 2014 |
-3.0 |
|
AE ∆% Jun 2014 |
2.4 |
|
AE ∆% Jan-May 2014 |
-2.6 |
|
AE ∆% Dec 2013 |
2.4 |
|
AE ∆% Oct-Nov 2013 |
-3.0 |
|
AE ∆% Jul-Sep 2013 |
1.2 |
|
AE ∆% Mar-Jun 2013 |
-3.8 |
|
AE ∆% Jan-Feb 2013 |
3.7 |
|
AE ∆% Nov-Dec 2012 |
-3.0 |
|
AE ∆% Sep-Oct 2012 |
0.6 |
|
AE ∆% Jul-Aug 2012 |
7.4 |
|
AE ∆% Apr-Jun 2012 |
-2.0 |
|
AE ∆% Jan-Mar 2012 |
7.4 |
|
AE ∆% Oct-Dec 2011 |
0.4 |
|
AE ∆% Jul-Sep 2011 |
2.8 |
|
AE ∆% May-Jun 2011 |
-0.6 |
|
AE ∆% Jan-Apr 2011 |
11.3 |
|
Germany Producer Price Index |
|
|
AE ∆% Feb 2019 |
-1.2 NSA -2.4 SA |
|
AE ∆% Jan 2019 |
4.9 NSA 2.4 SA |
|
AE ∆% Dec 2018 |
-4.7 NSA -1.2 SA |
|
AE ∆% Nov 2018 |
1.2 NSA 2.4 SA |
|
AE ∆% Sep-Oct 2018 |
4.9 NSA 4.3 SA |
|
AE ∆% Jun-Aug 2018 |
3.7 NSA 3.7 SA |
|
AE ∆% Apr-May 2018 |
5.5 NSA 4.9 SA |
|
AE ∆% Mar-2018 |
1.2 NSA 2.4 SA |
|
AE ∆% Feb 2018 |
-1.2 NSA 1.2 SA |
|
AE ∆% Jan 2018 |
6.2 NSA 2.4 SA |
|
AE ∆% Nov-Dec 2017 |
1.8 NSA 1.8 SA |
|
AE ∆% Sep-Oct 2017 |
3.0 NSA 2.4 SA |
|
AE ∆% Jul-Aug 2017 |
1.8 NSA 2.4 SA |
|
AE ∆% May-Jun 2017 |
-0.6 NSA -0.6 SA |
|
AE ∆% Apr 2017 |
3.7 NSA 2.4 SA |
|
AE ∆% Feb-Mar 2017 |
1.8 NSA 3.7 SA |
|
AE ∆% Oct 2016-Jan 2017 |
5.9 NSA 4.9 SA |
|
AE ∆% Aug-Sep 2016 |
-1.2 NSA 0.6 SA |
|
AE ∆% May-Jul 2016 |
3.7 NSA 2.0 SA |
|
AE ∆% Apr 2016 |
2.4 NSA -0.0 SA |
|
AE ∆% Mar 2016 |
-1.2 NSA -1.2 SA |
|
AE ∆% Dec 2015-Feb
2016 |
-5.5 NSA -3.5 SA |
|
AE ∆% Nov 2015 |
-3.5 NSA -3.5 SA |
|
AE ∆% Aug-Oct 2015 |
-4.7 NSA -3.5 SA |
|
AE ∆% May-Jul 2015 |
-0.4 NSA -2.0 SA |
|
AE ∆% Feb-Apr 2015 |
1.2 NSA -0.4 SA |
|
AE ∆% Oct 2014-Jan
2015 |
-4.1 NSA -2.4 SA |
|
AE ∆% Jan-Sep 2014 |
-1.2 NSA -1.5 SA |
|
AE ∆% Dec 2013 |
1.2 NSA 2.4 SA |
|
AE ∆% Oct-Nov 2013 |
-1.8 NSA –1.8 SA |
|
AE ∆% Sep 2013 |
3.7 NSA – 0.0 SA |
|
AE ∆% May-Aug 2013 |
-1.8 NSA –1.2 SA |
|
AE ∆% Feb-Apr 2013 |
-2.4 NSA –2.0 SA |
|
AE ∆% Jan 2013 |
7.4 NSA 2.4 SA |
|
AE ∆% Oct-Dec 2012 |
-0.8 NSA 0.8 SA |
|
AE ∆% Aug-Sep 2012 |
4.3 NSA 2.4 SA |
|
AE ∆% May-Jul 2012 |
-2.8 NSA -0.4 SA |
|
AE ∆% Feb-Apr 2012 |
4.9 NSA 2.4 SA |
|
AE ∆% Dec 2011-Jan 2012 |
0.0 NSA –1.2 SA |
|
AE ∆% Oct-Nov 2011 |
0.6 NSA 1.8 SA |
|
AE ∆% Jul-Sep 2011 |
2.0 NSA 2.8 SA |
|
AE ∆% May-Jun 2011 |
0.6 NSA 3.7 SA |
|
AE ∆% Jan-Apr 2011 |
10.0 NSA 5.9 SA |
|
France Producer Price Index for the French
Market |
|
|
AE ∆% Jun-Jul 2020 |
6.8 |
|
AE ∆% Mar-May 2020 |
-16.3 |
|
AE ∆% Jan-Feb 2020 |
-5.3 |
|
AE ∆% Dec 2019 |
1.2 |
|
AE ∆% Nov 2019 |
18.2 |
|
AE ∆% Aug-Oct 2019 |
0.0 |
|
AE ∆% Jul 2019 |
4.9 |
|
AE ∆% Apr-Jun 2019 |
-7.7 |
|
AE ∆% Mar 2019 |
-1.2 |
|
AE ∆% Jan-Feb 2019 |
4.9 |
|
AE ∆% Dec 2018 |
-12.4 |
|
AE ∆% Aug-Nov 2018 |
5.2 |
|
AE ∆% Jul 2018 |
7.4 |
|
AE ∆% Jun 2018 |
0.0 |
|
AE ∆% May 2018 |
8.7 |
|
AE ∆% Apr 2018 |
-9.2 |
|
AE ∆% Feb-Mar 2018 |
1.2 |
|
AE ∆% Dec 2017-Jan 2018 |
1.8 |
|
AE ∆% Nov 2017 |
22.4 |
|
AE ∆% Aug-Oct 2017 |
4.5 |
|
AE ∆% Jul 2017 |
1.2 |
|
AE ∆% Apr-Jun 2017 |
-4.7 |
|
AE ∆% Feb-Mar 2017 |
-4.1 |
|
AE ∆% Oct 2016-Jan 2017 |
9.4 |
|
AE ∆% Sep 2016 |
3.7 |
|
AE ∆% Jul-Aug 2016 |
0.0 |
|
AE ∆% May-Jun 2016 |
5.5 |
|
AE ∆% Apr 2016 |
-7.0 |
|
AE ∆% Mar 2016 |
2.4 |
|
AE ∆% Feb 2016 |
-4.7 |
|
AE ∆% Dec 2015-Jan 2016 |
-12.4 |
|
AE ∆% Sep-Nov 2015 |
1.2 |
|
AE ∆% Aug 2015 |
-12.4 |
|
AE ∆% Jun-Jul 2015 |
-0.6 |
|
AE ∆% Apr-May 2015 |
-4.1 |
|
AE ∆% Feb-Mar 2015 |
6.8 |
|
AE ∆% Oct 2014-Jan 2015 |
-5.6 |
|
AE ∆% Sep 2014 |
7.4 |
|
AE ∆% Jan-Aug 2014 |
-4.0 |
|
AE ∆% Nov-Dec 2013 |
5.5 |
|
AE ∆% Oct 2013 |
-2.4 |
|
AE ∆% Jul-Sep 2013 |
4.5 |
|
AE ∆% Apr-Jun 2013 |
-10.7 |
|
AE ∆% Jan-Mar 2013 |
5.3 |
|
AE ∆% Nov-Dec 2012 |
-4.1 |
|
AE ∆% Jul-Oct 2012 |
7.4 |
|
AE ∆% Apr-Jun 2012 |
-4.3 |
|
AE ∆% Jan-Mar 2012 |
5.7 |
|
AE ∆% Oct-Dec 2011 |
2.8 |
|
AE ∆% Jul-Sep 2011 |
3.2 |
|
AE ∆% May-Jun 2011 |
-1.8 |
|
AE ∆% Jan-Apr 2011 |
10.0 |
|
Italy Producer Price Index |
|
|
AE ∆% Jun 2020 |
8.7 |
|
AE ∆% May 2020 |
-3.5 |
|
AE ∆% Mar-Apr 2020 |
-25.3 |
|
AE ∆% Jan-Feb 2020 |
-5.3 |
|
AE ∆% Nov 2019-Dec 2019 |
-1.8 |
|
AE ∆% Sep-Oct 2019 |
0.6 |
|
AE ∆% Jun-Aug 2019 |
-5.1 |
|
AE ∆% May 2019 |
1.2 |
|
AE ∆% Jan-Apr 2019 |
-5.3 |
|
AE ∆% Nov-Dec 2018 |
-7.5 |
|
AE ∆% Jun-Oct 2018 |
12.4 |
|
AE ∆% May 2018 |
12.7 |
|
AE ∆% Apr 2018 |
-8.1 |
|
AE ∆% Jan-Mar 2018 |
5.3 |
|
AE ∆% Dec 2017 |
0.0 |
|
AE ∆% Sep-Nov 2017 |
3.2 |
|
AE ∆% Aug 2017 |
6.2 |
|
AE ∆% Jun-Jul 2017 |
-1.2 |
|
AE ∆% May 2017 |
-3.5 |
|
AE ∆% Apr 2017 |
1.2 |
|
AE ∆% Mar 2017 |
-2.4 |
|
AE ∆% Dec 2016-Feb 2017 |
8.3 |
|
AE ∆% Nov 2016 |
-1.2 |
|
AE ∆% Aug-Oct 2016 |
-2.0 |
|
AE ∆% May-Jul 2016 |
11.8 |
|
AE ∆% Apr 2016 |
-9.2 |
|
AE ∆% Mar 2016 |
2.4 |
|
AE ∆% Dec 2015-Feb 2016 |
-7.3 |
|
AE ∆% Oct-Nov 2015 |
-4.7 |
|
AE ∆% Jun-Sep 2015 |
-4.4 |
|
AE ∆% May 2015 |
3.7 |
|
AE ∆% Apr 2015 |
-2.4 |
|
AE ∆% Feb-Mar 2015 |
3.7 |
|
AE ∆% Dec 2014-Jan 2015 |
-14.0 |
|
AE ∆% Oct-Nov 2014 |
-3.5 |
|
AE ∆% Sep 2014 |
1.2 |
|
AE ∆% Jul-Aug 2014 |
-3.5 |
|
AE ∆% Jun 2014 |
2.4 |
|
AE ∆% Oct 2013-May 2014 |
-2.7 |
|
AE ∆% Jun-Sep 2013 |
0.3 |
|
AE ∆% Apr-May 2013 |
-3.5 |
|
AE ∆% Feb-Mar 2013 |
1.2 |
|
AE ∆% Sep 2012-Jan 2013 |
-5.2 |
|
AE ∆% Jul-Aug 2012 |
9.4 |
|
AE ∆% May-Jun 2012 |
-0.6 |
|
AE ∆% Mar-Apr 2012 |
6.8 |
|
AE ∆% Jan-Feb 2012 |
8.1 |
|
AE ∆% Oct-Dec 2011 |
2.0 |
|
AE ∆% Jul-Sep 2011 |
4.9 |
|
AE ∆% May-Jun 2011 |
1.8 |
|
AE ∆% Jan-April 2011 |
10.7 |
|
UK Output Prices |
|
|
∆% Aug 2020 |
0.0 |
|
∆% Jun-Jul 2020 |
3.7 |
|
∆% Apr-May 2020 |
-5.8 |
|
∆% Feb-Mar 2020 |
-1.8 |
|
∆% Jan 2020 |
2.4 |
|
∆% Dec 2019 |
-1.2 |
|
∆% Aug-Nov 2019 |
-1.2 |
|
∆% Jul 2019 |
3.7 |
|
∆% Jun 2019 |
-1.2 |
|
∆% Mar-May 2019 |
2.8 |
|
∆% Jan-Feb 2019 |
1.8 |
|
∆% Dec 2018 |
-3.5 |
|
∆% Sep-Nov 2018 |
2.8 |
|
∆% Jul-Aug 2018 |
1.8 |
|
∆% Jun 2018 |
3.7 |
|
∆% Mar-May 2018 |
4.9 |
|
∆% Jan-Feb 2018 |
1.8 |
|
∆% Nov-Dec 2017 |
4.3 |
|
∆% Aug-Oct 2017 |
3.7 |
|
∆% May-Jul 2017 |
1.2 |
|
∆% Mar-Apr 2017 |
4.9 |
|
∆% Feb 2017 |
2.4 |
|
∆% Jan 2017 |
7.4 |
|
∆% Nov-Dec 2016 |
2.4 |
|
∆% Aug-Oct 2016 |
4.9 |
|
∆% May-Jul 2016 |
2.4 |
|
∆% Feb-Apr 2016 |
4.1 |
|
∆% Jan 2016 |
-1.2 |
|
∆% Sep-Dec 2015 |
-2.4 |
|
∆% Aug 2015 |
-5.8 |
|
∆% Jun-Jul 2015 |
-1.2 |
|
∆% Feb-May 2015 |
1.5 |
|
AE ∆% Nov 2014-Jan 2015 |
-4.3 |
|
AE ∆% Sep-Oct 2014 |
-4.7 |
|
AE ∆% Apr-Aug 2014 |
-0.7 |
|
AE ∆% Jan-Mar 2014 |
2.0 |
|
AE ∆% Sep-Dec 2013 |
-1.5 |
|
AE ∆% Jun-Aug 2013 |
2.0 |
|
AE ∆% Apr-May 2013 |
-0.6 |
|
AE ∆% Jan-Mar 2013 |
4.9 |
|
AE ∆% Nov-Dec 2012 |
-2.4 |
|
AE ∆% Jul-Oct 2012 |
3.0 |
|
AE ∆% May-Jun 2012 |
-3.5 |
|
AE ∆% Feb-Apr 2012 |
5.3 |
|
AE ∆% Nov 2011-Jan-2012 |
1.2 |
|
AE ∆% May-Oct 2011 |
1.6 |
|
AE ∆% Jan-Apr 2011 |
10.0 |
|
UK Input Prices |
|
|
AE ∆% Aug 2020 |
-4.7 |
|
AE ∆% May-Jul 2020 |
22.8 |
|
AE ∆% Feb-Apr 2020 |
-34.9 |
|
AE ∆% Nov 2019-Jan 2020 |
8.3 |
|
AE ∆% Aug-Oct 2019 |
-8.8 |
|
AE ∆% Jul 2019 |
8.7 |
|
AE ∆% Jun 2019 |
-9.2 |
|
AE ∆% May 2019 |
0.0 |
|
AE ∆% Apr 2019 |
26.8 |
|
AE ∆% Mar 2019 |
-10.3 |
|
AE ∆% Feb 2019 |
12.7 |
|
AE ∆% Nov 2018-Jan 2019 |
-17.3 |
|
AE ∆% Aug-Oct 2018 |
15.8 |
|
AE ∆% Jun-Jul 2018 |
1.8 |
|
AE ∆% Apr-May 2018 |
24.5 |
|
AE ∆% Mar 2018 |
1.2 |
|
AE ∆% Feb 2018 |
-4.7 |
|
AE ∆% Dec 2017-Jan 2018 |
3.7 |
|
AE ∆% Aug-Nov 2017 |
18.5 |
|
AE ∆% May-Jul 2017 |
-3.9 |
|
AE ∆% Mar-Apr 2017 |
-6.4 |
|
AE ∆% Feb 2017 |
0.0 |
|
AE ∆% Dec 2016-Jan 2017 |
25.3 |
|
AE ∆% Nov 2016 |
-7.0 |
|
AE ∆% Oct 2016 |
67.7 |
|
AE ∆% Sep 2016 |
4.9 |
|
AE ∆% Aug 2016 |
3.7 |
|
AE ∆% May-Jul 2016 |
32.9 |
|
AE ∆% Feb-Apr 2016 |
12.2 |
|
AE ∆% Jan 2016 |
-14.5 |
|
AE ∆% Oct-Dec 2015 |
-7.4 |
|
AE ∆% Sep 2015 |
6.2 |
|
AE ∆% May-Aug 2015 |
-19.9 |
|
AE ∆% Feb-Apr 2015 |
6.6 |
|
AE ∆% Dec 2014-Jan 2015 |
-34.4 |
|
AE ∆% Jun-Nov 2014 |
-12.3 |
|
AE ∆% May 2014 |
2.4 |
|
AE ∆% Jan-Apr 2014 |
-7.8 |
|
AE ∆% Dec 2013 |
3.7 |
|
AE ∆% Aug-Nov 2013 |
-8.4 |
|
AE ∆% Jul 2013 |
18.2 |
|
AE ∆% Mar-Jun 2013 |
-9.5 |
|
AE ∆% Jan-Feb 2013 |
24.6 |
|
AE ∆% Sep-Dec 2012 |
3.0 |
|
AE ∆% Aug 2012 |
23.9 |
|
AE ∆% Apr-Jul 2012 |
-16.1 |
|
AE ∆% Jan-Mar 2012 |
14.9 |
|
AE ∆% Nov-Dec 2011 |
0.0 |
|
AE ∆% May-Oct 2011 |
-1.3 |
|
AE ∆% Jan-Apr 2011 |
30.6 |
|
AE ∆% Oct-Dec 2010 |
31.8 |
AE: Annual Equivalent
Sources: https://www.bls.gov/ppi/ https://www.boj.or.jp/en/index.htm/
http://www.stats.gov.cn/english/PressRelease/ https://ec.europa.eu/eurostat/data/database
https://www.destatis.de/EN/Home/_node.html
https://www.insee.fr/en/accueil
Similar world inflation waves are in the behavior of
consumer price indexes of six countries and the euro zone in Table IA-2. US
consumer price inflation shows similar waves. (1) Under risk appetite in
Jan-Apr 2011, US consumer prices increased at the annual equivalent rate of 4.9
percent. (2) Risk aversion caused the collapse of inflation to annual equivalent
1.8 percent in May-Jun 2011. (3) Risk appetite drove the rate of consumer price
inflation in the US to 3.2 percent in Jul-Sep 2011. (4) Gloomier views of carry
trades caused the collapse of inflation in Oct-Nov 2011 to annual equivalent
1.8 percent. (5) Consumer price inflation resuscitated with increased risk
appetite at annual equivalent of 1.8 percent in Dec 2011 to Jan 2012. (6)
Consumer price inflation returned at 2.4 percent annual equivalent in Feb-Apr
2012. (7) Under renewed risk aversion, annual equivalent consumer price
inflation in the US was minus 1.2 percent in May-Jul 2012. (8) Inflation jumped
to annual equivalent 5.7 percent in Aug-Oct 2012. (9) Unwinding of carry trades
caused annual equivalent inflation of 0.0 percent in Nov 2012-Jan 2013 but some
countries experienced higher inflation in Dec 2012 and Jan 2013. (10) Inflation
jumped again with annual equivalent inflation of 6.2 percent in Feb 2013 in a
mood of relaxed risk aversion. (11) Inflation fell at 3.0 percent annual equivalent
in Mar-Apr 2013. (12) Inflation rose at 1.4 percent in annual equivalent in
May-Sep 2013. (13) Inflation moderated at the annual equivalent rate of 1.8
percent in Oct-Nov 2013. (14) Inflation stood at annual equivalent 2.4 percent
in Dec 2013-Mar 2014. (15) Inflation returned at annual equivalent 1.8 percent
in Apr-Jul 2014. (16) Annual equivalent inflation was 0.0 percent in Aug 2014.
(17) Inflation was 0.0 percent in annual equivalent in Sep-Oct 2014. (18)
Inflation fell at annual equivalent 4.3 percent in Nov 2014-Jan 2015. (19)
Inflation increased at annual equivalent 3.2 percent in Feb-Jun 2015. (20)
Annual equivalent inflation was 2.4 percent in Jul 2015. (21) Annual equivalent
inflation was minus 1.2 percent in Aug-Sep 2015. (22) US consumer prices increased at annual
equivalent 1.2 percent in Oct-Nov 2015. (23) US consumer prices decreased at
annual equivalent 0.6 percent in Dec 2015-Jan 2016. (24) US consumer prices
fell at annual equivalent 1.2 percent in Feb 2016. (25) US consumer prices increased
at annual equivalent 3.7 percent in Mar-Apr 2016. (26) US consumer prices
increased at annual equivalent 3.7 percent in May-Jun 2016. (27) Consumer
prices changed at annual equivalent 0.0 percent in Jul 2016. (28) US consumer
prices increased at annual equivalent 2.4 percent in Aug 2016. (29) Consumer
prices increased at annual equivalent 2.4 percent in Sep-Oct 2016. (30) US
consumer prices increased at 2.4 percent annual equivalent in Nov-Dec 2016.
(31) Consumer prices increased at annual equivalent 4.9 percent in Jan 2017.
(32) Consumer prices in the US increased at annual equivalent 1.2 percent in
Feb 2017. (33) Consumer prices fell at 1.2 percent in Mar 2017. (34) Consumer
prices increased at annual equivalent 1.2 percent in Apr 2017. (35) Consumer
prices changed at annual equivalent 0.0 percent in May-Jun 2017. (36) Consumer
prices increased at 1.2 percent annual equivalent in Jul 2017. (37) Consumer
prices increased at annual equivalent 5.5 percent in Aug-Sep 2017. (38) US
consumer prices increased at annual equivalent 2.4 percent in Oct-Nov 2017.
(39) Prices of consumers in the US increased at annual equivalent 3.7 percent
in Dec 2017-Feb 2018. (40) US consumer prices changed at 0.0 percent in Mar
2018. (41) Prices of consumers increased at 3.0 percent in Apr-May 2018. (42)
Prices of consumers in the US increased at 1.8 percent annual equivalent in
Jun-Sep 2018. (43) US consumer prices increased at annual equivalent 2.4
percent in Oct 2018. (44) Prices of consumers in the US changed at 0.0 percent in
Nov 2018-Jan 2019. (45) US consumer prices increased at annual equivalent 3.7
percent in Feb-Apr 2019. (46) Prices of consumers in the US increased at 1.2
percent annual equivalent in May-Jun 2019. (47) US consumer prices increased at
3.7 percent annual equivalent in Jul 2019. (48) Prices of consumers in the US
increased at 1.2 percent annual equivalent in Aug-Sep 2019. (49) US consumer
prices increased at annual equivalent 2.4 percent in Oct-Dec 2019. (50) Prices
of consumers in the US increased at annual equivalent 1.2 percent in Jan-Feb
2020. (51) Prices of consumers decreased at annual equivalent 5.1 percent in
Mar-Mar 2020. (52) US consumer prices increased at annual equivalent 6.6
percent in Jun-Aug 2020. Inflationary expectations can be triggered in one of
these episodes of accelerating inflation because of commodity carry trades
induced by unconventional monetary policy of zero interest rates by
reinvestment of principal in securities and issue of trillion of dollars of
bank reserves in perpetuity or QE→∞ in almost continuous time.
The FOMC is again engaging in increase of the balance sheet depending on data.
The balance sheet is swelling in the global recession, with output in the US reaching a
high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event. Alternating episodes of increase and decrease of
inflation introduce uncertainty in household planning that frustrates
consumption and home buying. Announcement of purchases of impaired sovereign
bonds by the European Central Bank (https://www.ecb.europa.eu/press/pr/date/2012/html/pr120906_1.en.html) relaxed risk aversion that induced carry trades into
commodity exposures, increasing prices of food, raw materials and energy. There
is similar behavior in the other consumer price indexes in Table IA-2. China’s
CPI increased at annual equivalent 8.3 percent in Jan-Mar 2011, 2.0 percent in
Apr-Jun, 2.9 percent in Jul-Nov and resuscitated at 5.8 percent annual
equivalent in Dec 2011 to Mar 2012, declining to minus 3.9 percent in Apr-Jun
2012 but resuscitating at 4.1 percent in Jul-Sep 2012, declining to minus 1.2
percent in Oct 2012 and 0.0 percent in Oct-Nov 2012. High inflation in China at
annual equivalent 5.5 percent in Nov-Dec 2012 is attributed to inclement winter
weather that caused increases in food prices. Continuing pressure of food
prices caused annual equivalent inflation of 12.2 percent in China in Dec 2012
to Feb 2013. Inflation in China fell at annual equivalent 10.3 percent in Mar
2013 and increased at annual equivalent 2.4 percent in Apr 2013. Adjustment to
lower food prices caused annual equivalent inflation of minus 7.0 percent in
May 2013 and minus 3.5 percent in annual equivalent in May-Jun 2013. Inflation
in China returned at annual equivalent 4.6 percent in Jul-Oct 2013, falling at
1.2 percent in annual equivalent in Nov 2013. As in many countries, inflation
in China surged at 7.4 percent annual equivalent in Dec 2013-Feb 2014 with
significant effects of local increases in food prices. Annual equivalent
inflation in China fell at 4.7 percent in Mar-Apr 2014 and increased at 1.2
percent in May 2014. China’s inflation fell at annual equivalent 1.2 percent in
Jun 2014 and increased at annual equivalent 2.4 percent in Jul-Oct 2014.
Inflation in China fell at annual equivalent 2.4 percent in Nov 2014 and
increased at annual equivalent 7.4 percent in Dec 2014-Feb 2015. Consumer
prices in China fell at annual equivalent 2.7 percent in Mar-Jun 2015. China’s
consumer prices increased at annual equivalent 4.9 percent in Jul-Aug 2015.
China’s consumer prices increased at annual equivalent 1.2 percent in Sep 2015.
The consumer price index of China decreased at 3.5 percent in Oct 2015 and
increased at 4.1 percent in Nov 2015-Jan 2016. The consumer price index of
China increased at annual equivalent 21.0 percent in Feb 2016 and fell at 3.5
percent annual equivalent in Mar-Jun 2016. China’s consumer prices increased at
1.8 percent in Jul-Aug 2016. The consumer price index of China increased at 8.7
percent annual equivalent in Sep 2016. Consumer prices fell at 1.2 percent in
Oct 2016 and increased at 1.2 percent in Nov-Dec 2016. The consumer price index
of China increased at annual equivalent 12.7 percent in Jan 2017. China’s
consumer price index fell at annual equivalent 3.0 percent in Feb-Mar 2017. The
consumer price index of China increased at 1.2 percent in Apr 2017 and fell at
1.8 percent in May-Jun 2017. China’s consumer prices increased at 1.2 percent
annual equivalent in Jul 2017. The consumer price index of China increased at
4.1 percent annual equivalent in Aug-Oct 2017. China’s consumer prices changed
at 0.0 percent in Nov 2017. The consumer price index of China increased at
annual equivalent 3.7 percent in Dec 2017. China’s consumer prices increased at
annual equivalent 11.3 percent in Jan-Feb 2018. The consumer price index of
China fell at 4.7 percent annual equivalent in Mar-Jun 2018. China’s consumer
prices increased at annual equivalent 7.0 percent in Jul-Sep 2018. The consumer
price index of China increased at annual equivalent 2.4 percent in Oct 2018.
China’s consumer prices fell at annual equivalent 1.8 percent in Nov-Dec 2018.
The consumer price index of China increased at annual equivalent 9.4 percent in
Jan-Feb 2019. China’s consumer prices fell at annual equivalent 4.7 percent in
Mar 2019. The consumer price index of China
increased at annual equivalent 0.6 percent in Apr-May 2019. China’s consumer
prices fell at annual equivalent 1.2 percent in Jun 2019. The consumer price
index of China increased at annual equivalent 8.3 percent in Jul-Aug 2019.
China’s consumer prices increased at annual equivalent 9.2 percent in Sep-Nov
2019. The consumer price index of China changed at 0.0 percent in Dec 2019.
China’s consumer prices increased at annual equivalent 14.0 percent in Jan-Feb
2020. The consumer price index of China decreased at annual equivalent 11.0
percent in Mar-May 2020. China’s consumer prices decreased at annual equivalent
1.2 percent in Jun 2020. The consumer price index of China increased at annual
equivalent 6.2 percent in Jul-Aug 2020. The euro zone harmonized index of
consumer prices (HICP) increased at annual equivalent 4.9 percent in Jan-Apr
2011, minus 2.4 percent in May-Jul 2011, 4.3 percent in Aug-Nov 2011, minus 3.0
percent in Dec 2011-Jan 2012 and then 9.6 percent in Feb-Apr 2012, falling to
minus 2.8 percent annual equivalent in May-Jul 2012 but resuscitating at 5.3
percent in Aug-Oct 2012. The shock of risk aversion forced minus 2.4 percent
annual equivalent in Nov 2012. As in several European countries, annual
equivalent inflation jumped to 4.9 percent in the euro area in Dec 2012. The
HICP price index fell at annual equivalent 11.4 percent in Jan 2013 and
increased at 10.0 percent in Feb-Mar 2013. Prices in the euro zone fell at 1.2
percent in Apr 2013 and increased at 1.2 percent in May-Jun 2013. Inflation in
the euro zone fell at annual equivalent 5.8 percent in Jul 2013. Inflation
returned in the euro zone at annual equivalent 3.7 percent in Aug-Sep 2013.
Euro zone inflation fell at the annual equivalent rate of 2.4 percent in
Oct-Nov 2013. Euro zone inflation jumped at 4.9 percent annual equivalent in
Dec 2013 as in many countries worldwide. Inflation in the euro zone fell at
annual equivalent 12.4 percent in Dec 2013 and increased at annual equivalent
5.3 percent in Feb-Apr 2014. Inflation in the euro zone fell at 1.2 percent in
May 2014 and increased at 1.2 percent in Jun 2014. Inflation in the euro area
fell at annual equivalent 7.0 percent in Jul 2014 and increased at 3.0 percent
in Aug-Sep 2014. Consumer prices of the euro zone fell at annual equivalent 5.6
percent in Oct 2014-Jan 2015. Consumer prices in the euro area increased at
annual equivalent 7.8 percent in Feb-May 2015 and changed 0.0 percent in Jun
2015. Consumer prices in the euro zone fell at annual equivalent 3.5 percent in
Jul-Aug 2015 and increased at the annual equivalent rate of 1.8 percent in
Sep-Oct 2015. Consumer prices in the euro zone fell at 2.4 percent annual
equivalent in Nov-Dec 2015. The consumer price index of the euro area fell at
16.6 percent annual equivalent in Jan 2016 and increased at 8.7 percent in Feb-Mar
2016. The consumer price index of the euro zone changed at 2.4 percent in Apr
2016 and increased at 3.7 percent in May-Jun 2016. Euro-zone consumer prices
fell at annual equivalent 5.8 percent in Jul 2016. Consumer prices of the
euro-zone increased at annual equivalent 1.2 percent in Aug 2016. Euro-zone
consumer prices increased at annual equivalent 3.7 percent in Sep-Oct 2016 and
fell at 4.7 percent annual equivalent in Nov 2016. Prices of consumer goods in
the euro zone increased at 6.2 percent annual equivalent in Dec 2016. The euro
zone price index fell at 10.3 percent annual equivalent in Jan 2017 and
increased at 7.4 percent annual equivalent in Feb-Apr 2017. Euro zone consumer
prices fell at annual equivalent 2.0 percent in May-Jul 2017. The euro zone
price index increased at 4.3 percent annual equivalent in Aug-Sep 2017. Euro
zone consumer prices decreased at annual equivalent 1.2 percent in Oct-Nov
2017. The euro zone consumer price index increased at annual equivalent 3.7
percent in Dec 2017. Euro zone consumer prices fell at annual equivalent 10.3
percent in Jan 2018. The euro zone consumer price index increased at annual
equivalent 7.1 percent in Feb-May 2018. Euro zone consumer prices increased at
annual equivalent 1.2 percent in Jun 2018. The euro zone consumer price index
decreased at annual equivalent 2.4 percent in Jul 2018. Euro zone consumer
prices increased at annual equivalent 3.2 percent in Aug-Oct 2018. The euro
zone consumer price index fell at annual equivalent 6.2 percent in Nov-2018-Jan
2019. Euro zone consumer prices increased at annual equivalent 8.3 percent in
Feb-Apr 2019. The euro zone consumer price index increased at annual equivalent
1.8 percent in May-Jun 2019. Euro zone consumer prices fell at annual
equivalent 5.8 percent in Jul 2019. The euro zone consumer price index
increased at annual equivalent 1.6 percent in Aug-Oct 2019. Euro zone consumer
prices decreased at annual equivalent 3.5 percent in Nov 2019. The euro zone
consumer price index increased at annual equivalent 3.7 percent in Dec 2019.
Euro zone consumer prices fell at annual equivalent 11.4 percent in Jan 2020.
The euro zone consumer price index increased at annual equivalent 4.1 percent
in Feb-Apr 2020. Euro zone consumer
prices decreased at annual equivalent 1.2 percent in May 2020. The euro zone
consumer price index increased at annual equivalent 3.7 percent in Jun 2020.
Euro zone consumer prices decreased at annual equivalent 4.7 percent in Jul-Aug
2020. The price indexes of the largest members of the euro zone, Germany,
France and Italy, and the euro zone as a whole, exhibit the same inflation
waves. The United Kingdom CPI increased at annual equivalent 6.5 percent in
Jan-Apr 2011, falling to only 0.4 percent in May-Jul 2011 and then increasing
at 4.6 percent in Aug-Nov 2011. UK consumer prices fell at 0.6 percent annual
equivalent in Dec 2011 to Jan 2012 but increased at 6.2 percent annual
equivalent from Feb to Apr 2012. In May-Jun 2012, with renewed risk aversion,
UK consumer prices fell at the annual equivalent rate of minus 3.0 percent.
Inflation returned in the UK at average annual equivalent of 4.5 percent in
Jul-Dec 2012 with inflation in Oct 2012 caused mostly by increases of
university tuition fees. Inflation returned at 4.5 percent annual equivalent in
Jul-Dec 2012 and was higher in annual equivalent inflation of producer prices
in the UK in Jul-Oct 2012 at 3.0 percent for output prices and 23.9 percent for
input prices in Aug 2012 (see Table IA-1). Consumer prices in the UK fell at
annual equivalent 5.8 percent in Jan 2013. Inflation returned in the UK with
annual equivalent 4.3 percent in Feb-May 2013 and fell at 1.2 percent in
Jun-Jul 2013. UK annual equivalent inflation returned at 3.4 percent in Aug-Dec
2013. CPI inflation fell at annual equivalent 7.0 percent in Jan 2014. Consumer
price inflation in the UK returned at annual equivalent 4.5 percent in Feb-Apr
2014. UK consumer prices fell at annual equivalent 1.2 percent in May 2014 and
increased at 2.4 percent in Jun 2014. UK consumer prices fell at annual
equivalent 3.5 percent in Jul 2014 and increased at 2.0 percent in Aug-Oct
2014. UK consumer prices fell at annual equivalent 4.7 percent in Nov 2014-Jan
2015. UK consumer prices increased at 2.7 percent annual equivalent in Feb-May
2015 and decreased at 1.2 percent in Jun-Jul 2015. UK consumer prices increased
at 2.4 percent annual equivalent in Aug 2015 and fell at annual equivalent 1.2
percent in Sep 2015. UK consumer prices increased at annual equivalent 0.8
percent in Oct-Dec 2015. UK consumer prices fell at 9.2 percent in Jan 2016 and
increased at annual equivalent 2.8 percent in Feb-Apr 2016. The consumer price
index of the UK increased at 2.4 percent annual equivalent in May-Jun 2016 and
fell at annual equivalent 1.2 percent in Jul 2016. UK consumer prices increased
at annual equivalent 2.4 percent in Aug-Nov 2016. Consumer prices in the UK
increased at 6.2 percent annual equivalent in Dec 2016 and fell at 5.8 percent
in Jan 2017. UK consumer prices increased at 6.8 percent in Feb-Mar 2017.
Consumer prices increased at 4.9 percent annual equivalent in Apr-May 2017. UK
consumer prices changed at minus 0.6 percent annual equivalent in Jun-Jul 2017.
Consumer prices in the UK increased at annual equivalent 5.5 percent in Aug-Sep
2017. Consumer prices in the UK increased at annual equivalent 1.2 percent in
Oct 2017. UK consumer prices increased at annual equivalent 4.3 percent in
Nov-Dec 2017. Consumer prices in the UK decreased at annual equivalent 5.8
percent in Jan 2018. UK consumer prices increased at annual equivalent 3.0
percent in Feb-Mar 2018. Consumer prices increased at annual equivalent 4.9
percent in Apr-May 2018. UK consumer prices changed at annual equivalent 0.0
percent in Jun-Jul 2018. Consumer prices in the UK increased at annual equivalent
8.7 percent in Aug 2018. UK consumer prices increased at annual equivalent 1.2
percent in Sep-Oct 2018. Consumer prices in the UK increased at 2.4 percent in
Nov-Dec 2018. UK consumer prices decreased at annual equivalent 9.2 percent in
Jan 2019. UK consumer prices increased at annual equivalent 4.9 percent in
Feb-May 2019. Consumer prices in the UK changed at annual equivalent 0.0
percent in Jun-Jul 2019. UK consumer prices increased at annual equivalent 3.0
percent in Aug-Sep 2019. Consumer prices in the UK decreased at annual
equivalent 2.4 percent in Oct 2019. UK consumer prices increased at annual
equivalent 1.2 percent in Nov-Dec 2019. Consumer prices in the UK decreased at
annual equivalent 3.5 percent in Jan 2020. UK consumer prices increased at
annual equivalent 2.4 percent in Feb-Mar 2020. Consumer prices in the UK
decreased at annual equivalent 1.2 percent in Apr-May 2020. Consumer prices in
the UK increased at annual equivalent 3.0 percent in Jul 2020. UK consumer
prices decreased at annual equivalent 4.7 percent in Aug 2020.
Table IA-2,
Annual Equivalent Rates of Consumer Price Indexes
|
Index
2011-2020 |
AE ∆% |
|
US Consumer
Price Index |
|
|
AE ∆% Jun-Aug
2020 |
6.6 |
|
AE ∆% Mar-May
2020 |
-5.1 |
|
AE ∆% Jan-Feb
2020 |
1.2 |
|
AE ∆% Oct-Dec
2019 |
2.4 |
|
AE ∆% Aug-Sep
2019 |
1.2 |
|
AE ∆% Jul
2019 |
3.7 |
|
AE ∆% May-Jun
2019 |
1.2 |
|
AE ∆% Feb-Apr
2019 |
3.7 |
|
AE ∆% Nov
2018-Jan 2019 |
0.0 |
|
AE ∆% Oct
2018 |
2.4 |
|
AE ∆% Jun-Sep
2018 |
1.8 |
|
AE ∆% Apr-May
2018 |
3.0 |
|
AE ∆% Mar
2018 |
0.0 |
|
AE ∆% Dec
2017-Feb 2018 |
3.7 |
|
AE ∆% Oct-Nov
2017 |
2.4 |
|
AE ∆% Aug-Sep
2017 |
5.5 |
|
AE ∆% Jul
2017 |
1.2 |
|
AE ∆% May-Jun
2017 |
0.0 |
|
AE ∆% Apr
2017 |
1.2 |
|
AE ∆% Mar
2017 |
-1.2 |
|
AE ∆% Feb
2017 |
1.2 |
|
AE ∆% Jan
2017 |
4.9 |
|
AE ∆% Nov-Dec
2016 |
2.4 |
|
AE ∆% Sep-Oct
2016 |
2.4 |
|
AE ∆% Aug
2016 |
2.4 |
|
AE ∆% Jul
2016 |
0.0 |
|
AE ∆% May-Jun
2016 |
3.7 |
|
AE ∆% Mar-Apr
2016 |
3.7 |
|
AE ∆% Feb
2016 |
-1.2 |
|
AE ∆% Dec
2015-Jan 2016 |
-0.6 |
|
AE ∆% Oct-Nov
2015 |
1.2 |
|
AE ∆% Aug-Sep
2015 |
-1.2 |
|
AE ∆% Jul
2015 |
2.4 |
|
AE ∆% Feb-Jun
2015 |
3.2 |
|
AE ∆% Nov
2014-Jan 2015 |
-4.3 |
|
AE ∆% Sep-Oct
2014 |
0.0 |
|
AE ∆% Aug 2014 |
0.0 |
|
AE ∆% Apr-Jul
2014 |
1.8 |
|
AE ∆% Dec
2013-Mar 2014 |
2.4 |
|
AE ∆% Oct-Nov
2013 |
1.8 |
|
AE ∆% May-Sep
2013 |
1.4 |
|
AE ∆% Mar-Apr
2013 |
-3.0 |
|
AE ∆% Feb
2013 |
6.2 |
|
AE ∆% Nov
2012-Jan 2013 |
0.0 |
|
AE ∆% Aug-Oct
2012 |
5.7 |
|
AE ∆% May-Jul
2012 |
-1.2 |
|
AE ∆% Feb-Apr
2012 |
2.4 |
|
AE ∆% Dec
2011-Jan 2012 |
1.8 |
|
AE ∆% Oct-Nov
2011 |
1.8 |
|
AE ∆% Jul-Sep
2011 |
3.2 |
|
AE ∆% May-Jun
2011 |
1.8 |
|
AE ∆% Jan-Apr
2011 |
4.9 |
|
China
Consumer Price Index |
|
|
AE ∆% Jul-Aug
2020 |
6.2 |
|
AE ∆% Jun
2020 |
-1.2 |
|
AE ∆% Mar-May
2020 |
-11.0 |
|
AE ∆% Jan-Feb
2020 |
14.0 |
|
AE ∆% Dec
2019 |
0.0 |
|
AE ∆% Sep-Nov
2019 |
9.2 |
|
AE ∆% Jul-Aug
2019 |
8.3 |
|
AE ∆% Jun
2019 |
-1.2 |
|
AE ∆% Apr-May
2019 |
0.6 |
|
AE ∆% Mar
2019 |
-4.7 |
|
AE ∆% Jan-Feb
2019 |
9.4 |
|
AE ∆% Nov-Dec
2018 |
-1.8 |
|
AE ∆% Oct
2018 |
2.4 |
|
AE ∆% Jul-Sep
2018 |
7.0 |
|
AE ∆% Mar-Jun
2018 |
-4.7 |
|
AE ∆% Jan-Feb
2018 |
11.3 |
|
AE ∆% Dec
2017 |
3.7 |
|
AE ∆% Nov
2017 |
0.0 |
|
AE ∆% Aug-Oct
2017 |
4.1 |
|
AE ∆% Jul
2017 |
1.2 |
|
AE ∆% May-Jun
2017 |
-1.8 |
|
AE ∆% Apr
2017 |
1.2 |
|
AE ∆% Feb-Mar
2017 |
-3.0 |
|
AE ∆% Jan
2017 |
12.7 |
|
AE ∆% Nov-Dec
2016 |
1.2 |
|
AE ∆% Oct
2016 |
-1.2 |
|
AE ∆% Sep
2016 |
8.7 |
|
AE ∆% Jul-Aug
2016 |
1.8 |
|
AE ∆% Mar-Jun
2016 |
-3.5 |
|
AE ∆% Feb
2016 |
21.0 |
|
AE ∆% Nov
2015-Jan 2016 |
4.1 |
|
AE ∆% Oct
2015 |
-3.5 |
|
AE ∆% Sep
2015 |
1.2 |
|
AE ∆% Jul-Aug
2015 |
4.9 |
|
AE ∆% Mar-Jun
2015 |
-2.7 |
|
AE ∆% Dec
2014-Feb 2015 |
7.4 |
|
AE ∆% Nov
2014 |
-2.4 |
|
AE ∆% Jul-Oct
2014 |
2.4 |
|
AE ∆% Jun
2014 |
-1.2 |
|
AE ∆% May
2014 |
1.2 |
|
AE ∆% Mar-Apr
2014 |
-4.7 |
|
AE ∆% Dec
2013-Feb 2014 |
7.4 |
|
AE ∆% Nov
2013 |
-1.2 |
|
AE ∆% Jul-Oct
2013 |
4.6 |
|
AE ∆% May-Jun
2013 |
-3.5 |
|
AE ∆% Apr
2013 |
2.4 |
|
AE ∆% Mar
2013 |
-10.3 |
|
AE ∆% Dec
2012-Feb 2013 |
12.2 |
|
AE ∆% Oct-Nov
2012 |
0.0 |
|
AE ∆% Jul-Sep
2012 |
4.1 |
|
AE ∆% Apr-Jun
2012 |
-3.9 |
|
AE ∆% Dec
2011-Mar 2012 |
5.8 |
|
AE ∆% Jul-Nov
2011 |
2.9 |
|
AE ∆% Apr-Jun |
2.0 |
|
AE ∆% Jan-Mar
2011 |
8.3 |
|
Euro Zone
Harmonized Index of Consumer Prices |
|
|
AE ∆% Jul-Aug
2020 |
-4.7 |
|
AE ∆% Jun
2020 |
3.7 |
|
AE ∆% May
2020 |
-1.2 |
|
AE ∆% Feb-Apr
2020 |
4.1 |
|
AE ∆% Jan
2020 |
-11.4 |
|
AE ∆% Dec
2019 |
3.7 |
|
AE ∆% Nov
2019 |
-3.5 |
|
AE ∆% Aug-Oct
2019 |
1.6 |
|
AE ∆% Jul
2019 |
-5.8 |
|
AE ∆% May-Jun
2019 |
1.8 |
|
AE ∆% Feb-Apr
2019 |
8.3 |
|
AE ∆% Nov
2018-Jan 2019 |
-6.2 |
|
AE ∆% Aug-Oct
2018 |
3.2 |
|
AE ∆% Jul
2018 |
-2.4 |
|
AE ∆% Jun
2018 |
1.2 |
|
AE ∆% Feb-May
2018 |
7.1 |
|
AE ∆% Jan
2018 |
-10.3 |
|
AE ∆% Dec
2017 |
3.7 |
|
AE ∆% Oct-Nov
2017 |
-1.2 |
|
AE ∆% Aug-Sep
2017 |
4.3 |
|
AE ∆% May-Jul
2017 |
-2.0 |
|
AE ∆% Feb-Apr
2017 |
7.4 |
|
AE ∆% Jan
2017 |
-10.3 |
|
AE ∆% Dec
2016 |
6.2 |
|
AE ∆% Nov
2016 |
-4.7 |
|
AE ∆% Sep-Oct
2016 |
3.7 |
|
AE ∆% Aug
2016 |
1.2 |
|
AE ∆% Jul
2016 |
-5.8 |
|
AE ∆% May-Jun
2016 |
3.7 |
|
AE ∆% Apr
2016 |
2.4 |
|
AE ∆% Feb-Mar
2016 |
8.7 |
|
AE ∆% Jan 2016 |
-16.6 |
|
AE ∆% Nov-Dec
2015 |
-2.4 |
|
AE ∆% Sep-Oct
2015 |
1.8 |
|
AE ∆% Jul-Aug
2015 |
-3.5 |
|
AE ∆% Jun
2015 |
0.0 |
|
AE ∆% Feb-May
2015 |
7.8 |
|
AE ∆% Oct
2014-Jan 2015 |
-5.6 |
|
AE ∆% Aug-Sep
2014 |
3.0 |
|
AE ∆% Jul
2014 |
-7.0 |
|
AE ∆% Jun
2014 |
1.2 |
|
AE ∆% May
2014 |
-1.2 |
|
AE ∆% Feb-Apr
2014 |
5.3 |
|
AE ∆% Jan
2014 |
-12.4 |
|
AE ∆% Dec
2013 |
4.9 |
|
AE ∆% Oct-Nov
2013 |
-2.4 |
|
AE ∆% Aug-Sep
2013 |
3.7 |
|
AE ∆% Jul
2013 |
-5.8 |
|
AE ∆% May-Jun
2013 |
1.2 |
|
AE ∆% Apr
2013 |
-1.2 |
|
AE ∆% Feb-Mar
2013 |
10.0 |
|
AE ∆% Jan
2013 |
-11.4 |
|
AE ∆% Dec
2012 |
4.9 |
|
AE ∆% Nov 2012 |
-2.4 |
|
AE ∆% Aug-Oct
2012 |
5.3 |
|
AE ∆% May-Jul
2012 |
-2.8 |
|
AE ∆% Feb-Apr
2012 |
9.6 |
|
AE ∆% Dec
2011-Jan 2012 |
-3.0 |
|
AE ∆% Aug-Nov
2011 |
4.3 |
|
AE ∆% May-Jul
2011 |
-2.4 |
|
AE ∆% Jan-Apr
2011 |
4.9 |
|
Germany
Consumer Price Index |
|
|
AE ∆% Oct-Dec
2018 |
1.6 NSA 0.8
SA |
|
AE ∆% Aug-Sep
2018 |
3.0 NSA 3.0
SA |
|
AE ∆% May-Jul
2018 |
3.7 NSA 2.8
SA |
|
AE ∆% Apr
2018 |
0.0 NSA 2.4
SA |
|
AE ∆% Feb-Mar
2018 |
5.5 NSA 1.8
SA |
|
AE ∆% Jan
2018 |
-8.1 NSA 1.2
SA |
|
AE ∆% Nov-Dec
2017 |
5.5 NSA 3.0
SA |
|
AE ∆% Aug-Oct
2017 |
0.8 NSA 1.6
SA |
|
AE ∆% Jun-Jul
2017 |
3.7 NSA 2.4
SA |
|
AE ∆% May
2017 |
-2.4 NSA -1.2
SA |
|
AE ∆% Apr
2017 |
0.0 NSA 2.4
SA |
|
AE ∆% Feb-Mar
2017 |
4.9 NSA 0.6
SA |
|
AE ∆% Jan
2017 |
-7.0 NSA 2.4
SA |
|
AE ∆% Dec
2016 |
8.7 NSA 4.9
SA |
|
AE ∆% Sep-Nov
2016 |
1.6 NSA 2.0
SA |
|
AE ∆% Aug
2016 |
0.0 NSA 1.2 SA |
|
AE ∆% May-Jul
2016 |
2.8 NSA 1.6
SA |
|
AE ∆% Apr
2016 |
-4.7 NSA -1.2 SA |
|
AE ∆% Feb-Mar 2016 |
7.4 NSA 1.2 SA |
|
AE ∆% Dec 2015-Jan 2016 |
-5.3 NSA -1.2 SA |
|
AE ∆% Nov 2015 |
1.2 NSA 1.2 SA |
|
AE ∆% Oct 2015 |
0.0 NSA 1.2 SA |
|
AE ∆% Sep 2015 |
-2.4 NSA -1.2 SA |
|
AE ∆% Jul-Aug
2015 |
1.2 NSA 0.0 SA |
|
AE ∆% Jun 2015 |
-1.2 NSA -1.2 SA |
|
AE ∆% Feb-May 2015 |
4.6 NSA 1.2
SA |
|
AE ∆% Jan
2015 |
-11.4 NSA
-1.2 SA |
|
AE ∆% Aug-Dec
2014 |
-0.7 NSA 0.0
SA |
|
AE ∆% Jun-Jul
2014 |
3.7 NSA 1.2
SA |
|
AE ∆% Apr-May
2014 |
-1.8 NSA 0.0
SA |
|
AE ∆% Feb-Mar
2014 |
4.9 NSA 0.0
SA |
|
AE ∆% Jan 2014 |
-7.0 NSA 2.4 SA |
|
AE ∆% Nov-Dec 2013 |
3.7 NSA 2.4 SA |
|
AE ∆% Oct 2013 |
-2.4 NSA 1.2 SA |
|
AE ∆% Aug-Sep 2013 |
0.0 NSA 0.6 SA |
|
AE ∆% May-Jul 2013 |
4.1 NSA 2.4 SA |
|
AE ∆% Apr 2013 |
-5.8 NSA 0.0 SA |
|
AE ∆% Feb-Mar 2013 |
6.8 NSA 1.2
SA |
|
AE ∆% Jan
2013 |
-5.8 NSA 1.2
SA |
|
AE ∆% Sep-Dec
2012 |
1.5 NSA 1.5
SA |
|
AE ∆% Jul-Aug
2012 |
4.9 NSA 3.0 SA |
|
AE ∆% May-Jun
2012 |
-1.2
NSA 0.6 SA |
|
AE ∆% Feb-Apr
2012 |
4.5 NSA 2.4
SA |
|
AE ∆% Dec
2011-Jan 2012 |
0.6 NSA 1.8
SA |
|
AE ∆% Jul-Nov
2011 |
1.7 NSA 1.9
SA |
|
AE ∆% May-Jun
2011 |
0.6 NSA 3.0 SA |
|
AE ∆% Jan-Apr 2011 |
3.0 NSA 2.4 SA |
|
France Consumer Price Index |
|
|
AE ∆% Aug
2020 |
-1.2 |
|
AE ∆% Jul
2020 |
4.9 |
|
AE ∆% Mar-Jun
2020 |
1.2 |
|
AE ∆% Jan-Feb
2020 |
-2.4 |
|
AE ∆% Nov-Dec
2019 |
3.0 |
|
AE ∆% Sep-Oct
2019 |
-1.8 |
|
AE ∆% Aug
2019 |
6.2 |
|
AE ∆% Jul
2019 |
-2.4 |
|
AE ∆% May-Jun
2019 |
1.8 |
|
AE ∆% Feb-Apr
2019 |
4.9 |
|
AE ∆% Nov
2018-Jan 2019 |
-2.4 |
|
AE ∆% Oct
2018 |
1.2 |
|
AE ∆% Sep
2018 |
-2.4 |
|
AE ∆% Aug
2018 |
6.2 |
|
AE ∆% Jun-Jul
2018 |
-0.6 |
|
AE ∆% Mar-May
2018 |
6.6 |
|
AE ∆% Jan-Feb
2018 |
-0.6 |
|
AE ∆% Oct-Dec
2017 |
2.0 |
|
AE ∆% Sep
2017 |
-2.4 |
|
AE ∆% Aug
2017 |
6.2 |
|
AE ∆% Jul
2017 |
-4.7 |
|
AE ∆% Apr-Jun
2017 |
0.4 |
|
AE ∆% Feb-Mar
2017 |
4.3 |
|
AE ∆% Jan
2017 |
-3.5 |
|
AE ∆% Dec
2016 |
3.7 |
|
AE ∆% Oct-Nov
2016 |
0.0 |
|
AE ∆% Sep
2016 |
-2.4 |
|
AE ∆% Aug 2016 |
3.7 |
|
AE ∆% Jul
2016 |
-4.7 |
|
AE ∆% Jun
2016 |
1.2 |
|
AE ∆% Feb-May
2016 |
4.6 |
|
AE ∆% Jan
2016 |
-11.4 |
|
AE ∆% Dec
2015 |
2.4 |
|
AE ∆% Nov
2015 |
-2.4 |
|
AE ∆% Oct
2015 |
1.2 |
|
AE ∆% Sep
2015 |
-4.7 |
|
AE ∆% Aug
2015 |
3.7 |
|
AE ∆% Jun-Jul
2015 |
-3.0 |
|
AE ∆% Feb-May
2015 |
5.2 |
|
AE ∆% Jan
2015 |
-11.4 |
|
AE ∆% Dec
2014 |
1.2 |
|
AE ∆% Sep-Nov
2014 |
-2.4 |
|
AE ∆% Aug
2014 |
4.9 |
|
AE ∆% Jul
2014 |
-3.5 |
|
AE ∆% Apr-Jun
2014 |
0.0 |
|
AE ∆% Feb-Mar
2014 |
6.8 |
|
AE ∆% Jan
2014 |
-7.0 |
|
AE ∆% Dec
2013 |
3.7 |
|
AE ∆% Sep-Nov
2013 |
-1.6 |
|
AE ∆% Aug
2013 |
6.2 |
|
AE ∆% Jul
2013 |
-3.5 |
|
AE ∆% May-Jun
2013 |
1.8 |
|
AE ∆% Apr
2013 |
-2.4 |
|
AE ∆% Feb-Mar
2013 |
6.8 |
|
AE ∆% Nov
2012-Jan 2013 |
-1.6 |
|
AE ∆% Aug-Oct
2012 |
2.8 |
|
AE ∆% May-Jul
2012 |
-2.4 |
|
AE ∆% Feb-Apr
2012 |
5.3 |
|
AE ∆% Dec
2011-Jan 2012 |
0.0 |
|
AE ∆% Aug-Nov
2011 |
2.7 |
|
AE ∆% May-Jul
2011 |
-1.2 |
|
AE ∆% Jan-Apr
2011 |
4.0 |
|
Italy
Consumer Price Index |
|
|
AE ∆% Aug
2020 |
3.7 |
|
AE ∆% Jul
2020 |
-2.4 |
|
AE ∆% Jun
2020 |
1.2 |
|
AE ∆% May
2020 |
-2.4 |
|
AE ∆% Mar-Apr
2020 |
1.2 |
|
AE ∆% Feb
2020 |
-1.2 |
|
AE ∆% Dec
2019-Jan 2020 |
1.8 |
|
AE ∆% Sep-Nov
2019 |
-3.5 |
|
AE ∆% Aug 2019 |
4.9 |
|
AE ∆% May-Jul
2019 |
0.4 |
|
AE ∆% Mar-Apr
2019 |
3.0 |
|
AE ∆% Jan-Feb
2019 |
1.2 |
|
AE ∆% Nov-Dec
2018 |
-1.8 |
|
AE ∆% Sep-Oct
2018 |
-3.0 |
|
AE ∆% May-Aug
2018 |
3.7 |
|
AE ∆% Feb-Apr
2018 |
1.6 |
|
AE ∆% Dec
2017-Jan 2018 |
4.3 |
|
AE ∆% Sep-Nov
2017 |
-2.8 |
|
AE ∆% Jul-Aug
2017 |
2.4 |
|
AE ∆% May-Jun
2017 |
-1.8 |
|
AE ∆% Apr
2017 |
4.9 |
|
AE ∆% Mar
2017 |
0.0 |
|
AE ∆% Dec
2016-Feb 2017 |
4.5 |
|
AE ∆% Sep-Nov
2016 |
-1.6 |
|
AE ∆% Jul-Aug
2016 |
2.4 |
|
AE ∆% May-Jun
2016 |
2.4 |
|
AE ∆% Apr
2016 |
-1.2 |
|
AE ∆% Mar
2016 |
2.4 |
|
AE ∆% Jan-Feb
2016 |
-2.4 |
|
AE ∆% Nov-Dec
2015 |
-2.4 |
|
AE ∆% Oct
2015 |
2.4 |
|
AE ∆% Sep
2015 |
-4.7 |
|
AE ∆% Aug
2015 |
2.4 |
|
AE ∆% Jul
2015 |
-1.2 |
|
AE ∆% Feb-Jun
2015 |
2.4 |
|
AE ∆% Nov
2014-Jan 2015 |
-2.4 |
|
AE ∆% Oct
2014 |
1.2 |
|
AE ∆% Sep
2014 |
-4.7 |
|
AE ∆% Aug
2014 |
2.4 |
|
AE ∆% Jul
2014 |
-1.2 |
|
AE ∆% Jun
2014 |
1.2 |
|
AE ∆% May
2014 |
-1.2 |
|
AE ∆% Mar-Apr
2014 |
1.8 |
|
AE ∆% Feb
2014 |
-1.2 |
|
AE ∆% Dec
2013-Jan 2014 |
2.4 |
|
AE ∆% Sep-Nov
2013 |
-3.2 |
|
AE ∆% Dec
2012-Aug 2013 |
2.0 |
|
AE ∆% Sep-Nov
2012 |
-0.8 |
|
AE ∆% Jul-Aug
2012 |
3.0 |
|
AE ∆% May-Jun
2012 |
1.2 |
|
AE ∆% Feb-Apr
2012 |
5.7 |
|
AE ∆% Dec
2011-Jan 2012 |
4.3 |
|
AE ∆% Oct-Nov
2011 |
3.0 |
|
AE ∆% Jul-Sep
2011 |
2.4 |
|
AE ∆% May-Jun
2011 |
1.2 |
|
AE ∆% Jan-Apr
2011 |
4.9 |
|
UK Consumer Price Index |
|
|
∆% Aug 2020 |
-4.7 |
|
∆% Jun-Jul
2020 |
3.0 |
|
∆% Apr-May
2020 |
-1.2 |
|
∆% Feb-Mar
2020 |
2.4 |
|
∆% Jan 2020 |
-3.5 |
|
∆% Nov-Dec
2019 |
1.2 |
|
∆% Oct 2019 |
-2.4 |
|
∆% Aug-Sep
2019 |
3.0 |
|
∆% Jun-Jul
2019 |
0.0 |
|
∆% Feb-May
2019 |
4.9 |
|
∆% Jan 2019 |
-9.2 |
|
∆% Nov-Dec
2018 |
2.4 |
|
∆% Sep-Oct
2018 |
1.2 |
|
∆% Aug 2018 |
8.7 |
|
∆% Jun-Jul
2018 |
0.0 |
|
∆% Apr-May
2018 |
4.9 |
|
∆% Feb-Mar
2018 |
3.0 |
|
∆% Jan 2018 |
-5.8 |
|
∆% Nov-Dec
2017 |
4.3 |
|
∆% Oct 2017 |
1.2 |
|
∆% Aug-Sep
2017 |
5.5 |
|
∆% Jun-Jul
2017 |
-0.6 |
|
∆% Apr-May
2017 |
4.9 |
|
∆% Feb-Mar
2017 |
6.8 |
|
∆% Jan 2017 |
-5.8 |
|
∆% Dec 2016 |
6.2 |
|
∆% Aug-Nov
2016 |
2.4 |
|
∆% Jul 2016 |
-1.2 |
|
∆% May-Jun
2016 |
2.4 |
|
∆% Feb-Apr
2016 |
2.8 |
|
∆% Jan 2016 |
-9.2 |
|
∆% Oct-Dec
2015 |
0.8 |
|
∆% Sep 2015 |
-1.2 |
|
∆% Aug 2015 |
2.4 |
|
∆% Jun-Jul
2015 |
-1.2 |
|
∆% Feb-May
2015 |
2.7 |
|
AE ∆% Nov
2014-Jan 2015 |
-4.7 |
|
AE ∆% Aug-Oct
2014 |
2.0 |
|
AE ∆% Jul
2014 |
-3.5 |
|
AE ∆% Jun
2014 |
2.4 |
|
AE ∆% May
2014 |
-1.2 |
|
AE ∆% Feb-Apr |
4.5 |
|
AE ∆% Jan
2014 |
-7.0 |
|
AE ∆% Aug-Dec
2013 |
3.4 |
|
AE ∆% Jun-Jul
2013 |
-1.2 |
|
AE ∆% Feb-May
2013 |
4.3 |
|
AE ∆% Jan
2013 |
-5.8 |
|
AE ∆% Jul-Dec
2012 |
4.5 |
|
AE ∆% May-Jun
2012 |
-3.0 |
|
AE ∆% Feb-Apr
2012 |
6.2 |
|
AE ∆% Dec
2011-Jan 2012 |
-0.6 |
|
AE ∆% Aug-Nov
2011 |
4.6 |
|
AE ∆% May-Jul
2011 |
0.4 |
|
AE ∆% Jan-Apr
2011 |
6.5 |
AE: Annual
Equivalent
Sources: https://www.bls.gov/cpi/data.htm https://www.boj.or.jp/en/index.htm/
http://www.stats.gov.cn/english/PressRelease/ https://ec.europa.eu/eurostat/data/database
https://www.destatis.de/EN/Home/_node.html
https://www.insee.fr/en/accueil
IC United States Inflation. C Long-Term US Inflation. Key
percentage average yearly rates of the US economy on growth and inflation are
provided in Table I-1 updated with release of new data. The choice of dates
prevents the measurement of long-term potential economic growth because of two
recessions from IQ2001 (Mar) to IVQ2001 (Nov) with decline of GDP of 0.3
percent and the drop in GDP of 4.0 percent in the recession from IVQ2007 (Dec)
to IIQ2009 (June) (https://cmpassocregulationblog.blogspot.com/2020/08/d-ollar-devaluation-and-yuan.html and earlier https://cmpassocregulationblog.blogspot.com/2020/08/contraction-of-united-states-gdp-at-32_57.html). There is
a current global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event. Long-term economic
performance in the United States consisted of trend growth of GDP at 3 percent
per year and of per capita GDP at 2 percent per year as measured for 1870 to
2010 by Robert E Lucas (2011May). The economy returned to trend growth after
adverse events such as wars and recessions. The key characteristic of
adversities such as recessions was much higher rates of growth in expansion
periods that permitted the economy to recover output, income and employment
losses that occurred during the contractions. Over the business cycle, the
economy compensated the losses of contractions with higher growth in expansions
to maintain trend growth of GDP of 3 percent and of GDP per capita of 2
percent. The US maintained growth at 3.0 percent on average over entire cycles
with expansions at higher rates compensating for contractions. Key percentage
average yearly rates of the US economy on growth and inflation are provided in
Table I-1 updated with release of new data. US economic growth has been at only
1.2 percent on average in the cyclical expansion in the 44 quarters from
IIIQ2009 to IIQ2020 and in the global recession with output in the US reaching
a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event. Boskin (2010Sep) measures
that the US economy grew at 6.2 percent in the first four quarters and 4.5
percent in the first 12 quarters after the trough in the second quarter of
1975; and at 7.7 percent in the first four quarters and 5.8 percent in the
first 12 quarters after the trough in the first quarter of 1983 (Professor
Michael J. Boskin, Summer of Discontent, Wall
Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are
new calculations using the revision of US GDP and personal income data since
1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) and the
second estimate of GDP for IIQ2020 (https://www.bea.gov/sites/default/files/2020-08/gdp2q20_2nd.pdf). The
average of 7.7 percent in the first four quarters of major cyclical expansions
is in contrast with the rate of growth in the first four quarters of the
expansion from IIIQ2009 to IIQ2010 of only 2.8 percent obtained by dividing GDP
of $15,557.3 billion in IIQ2010 by GDP of $15,134.1 billion in IIQ2009
{[($15,557.3/$15,134.1) -1]100 = 2.8%], or accumulating the quarter on quarter
growth rates (https://cmpassocregulationblog.blogspot.com/2020/08/d-ollar-devaluation-and-yuan.html and earlier https://cmpassocregulationblog.blogspot.com/2020/08/contraction-of-united-states-gdp-at-32_57.html). The
expansion from IQ1983 to IQ1986 was at the average annual growth rate of 5.7 percent, 5.3 percent from
IQ1983 to IIIQ1986, 5.1 percent from IQ1983 to IVQ1986, 5.0 percent from IQ1983
to IQ1987, 5.0 percent from IQ1983 to IIQ1987, 4.9 percent from IQ1983 to
IIIQ1987, 5.0 percent from IQ1983 to IVQ1987, 4.9 percent from IQ1983 to
IIQ1988, 4.8 percent from IQ1983 to IIIQ1988, 4.8 percent from IQ1983 to
IVQ1988, 4.8 percent from IQ1983 to IQ1989, 4.7 percent from IQ1983 to IIQ1989,
4.6 percent from IQ1983 to IIIQ1989, 4.5 percent from IQ1983 to IVQ1989. 4.5
percent from IQ1983 to IQ1990, 4.4 percent from IQ1983 to IIQ1990, 4.3 percent
from IQ1983 to IIIQ1990, 4.0 percent from IQ1983 to IVQ1990, 3.8 percent from
IQ1983 to IQ1991, 3.8 percent from IQ1983 to IIQ1991, 3.8 percent from IQ1983
to IIIQ1991, 3.7 percent from IQ1983 to IVQ1991, 3.7 percent from IQ1983 to
IQ1992, 3.7 percent from IQ1983 to IIQ1992, 3.7 percent from IQ1983 to
IIIQ2019, 3.8 percent from IQ1983 to IVQ1992, 3.7 percent from IQ1983 to
IQ1993, 3.6 percent from IQ1983 to IIQ1993, 3.6 percent from IQ1983 to
IIIQ1993, 3.7 percent from IQ1983 to IVQ1993 and at 7.9 percent from IQ1983 to
IVQ1983 (https://cmpassocregulationblog.blogspot.com/2020/08/d-ollar-devaluation-and-yuan.html and earlier https://cmpassocregulationblog.blogspot.com/2020/08/contraction-of-united-states-gdp-at-32_57.html). The
National Bureau of Economic Research (NBER) dates a contraction of the US from
IQ1990 (Jul) to IQ1991 (Mar) (https://www.nber.org/cycles.html). The
expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP
contracted 1.3 percent from the pre-recession peak of $8983.9 billion of
chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (https://apps.bea.gov/iTable/index_nipa.cfm). The US
maintained growth at 3.0 percent on average over entire cycles with expansions
at higher rates compensating for contractions. Growth at trend in the entire
cycle from IVQ2007 to IIQ2020 and in the global recession with output in the US
reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event would have accumulated to
44.7 percent. GDP in IIQ2020 would be $22,807.6 billion (in constant dollars of
2012) if the US had grown at trend, which is higher by $5525.4 billion than actual
$17,282.2 billion. There are more than five trillion dollars of GDP less than
at trend, explaining the 34.8 million unemployed or underemployed equivalent to
actual unemployment/underemployment of 20.2 percent of the effective labor
force with the largest part originating in the global recession with output in
the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event (https://cmpassocregulationblog.blogspot.com/2020/09/exchange-rate-fluctuations-1.html and earlier https://cmpassocregulationblog.blogspot.com/2020/08/thirty-eight-million-unemployed-or.html). Unemployment is decreasing while employment is increasing in
initial adjustment of the lockdown of economic activity in the global recession
resulting from the COVID-19 event (https://www.bls.gov/cps/employment-situation-covid19-faq-june-2020.pdf). US GDP in IIQ2020 is 24.2 percent lower than at trend. US GDP
grew from $15,762.0 billion in IVQ2007 in constant dollars to $17,282.5
billion in IIQ2020 or 9.6 percent at the average annual equivalent rate of 0.7
percent. Professor John H. Cochrane (2014Jul2) estimates US GDP at more than 10
percent below trend. Cochrane (2016May02) measures GDP growth in the US at
average 3.5 percent per year from 1950 to 2000 and only at 1.76 percent per
year from 2000 to 2015 with only at 2.0 percent annual equivalent in the
current expansion. Cochrane (2016May02) proposes drastic changes in regulation
and legal obstacles to private economic activity. The US missed the opportunity
to grow at higher rates during the expansion and it is difficult to catch up
because growth rates in the final periods of expansions tend to decline. The US
missed the opportunity for recovery of output and employment always afforded in
the first four quarters of expansion from recessions. Zero interest rates and
quantitative easing were not required or present in successful cyclical
expansions and in secular economic growth at 3.0 percent per year and 2.0
percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the
US instead of allegations of secular
stagnation. There is similar behavior in manufacturing. There is classic
research on analyzing deviations of output from trend (see for example
Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term
trend is growth of manufacturing at average 2.9 percent per year from Aug 1919
to Aug 2020. Growth at 2.9 percent per year would raise the NSA index of
manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in
Dec 2007 to 155.5554 in Aug 2020. The actual index NSA in Aug 2020 is 99.2841
which is 36.2 percent below trend. The underperformance of manufacturing in
Mar-Aug 2020 originates partly in the earlier global recession augmented by the
current global recession with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19. Manufacturing grew at the
average annual rate of 3.3 percent between Dec 1986 and Dec 2006. Growth at 3.3
percent per year would raise the NSA index of manufacturing output (SIC,
Standard Industrial Classification) from 108.2987 in Dec 2007 to 163.3909 in
Aug 2020. The actual index NSA in Aug 2020 is 99.2841, which is 39.2 percent
below trend. Manufacturing output grew at average 1.7 percent between Dec 1986
and Aug 2020. Using trend growth of 1.7 percent per year, the index would
increase to 134.0774 in Aug 2020. The output of manufacturing at 99.2841 in Aug
2020 is 26.0 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification
System), manufacturing output fell from the high of 110.5147 in Jun 2007 to the
low of 86.3800 in Apr 2009 or 21.8 percent. The NAICS manufacturing index
increased from 86.3800 in Apr 2009 to 100.4257 in Aug 2020 or 16.3 percent. The
NAICS manufacturing index increased at the annual equivalent rate of 3.5
percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the NAICS
manufacturing output index from 106.6777 in Dec 2007 to 164.9372 in Aug 2020.
The NAICS index at 100.4257 in Aug 2020 is 39.1 below trend. The NAICS
manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999
to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output
index from 106.6777 in Dec 2007 to 132.0705 in Aug 2020. The NAICS index at
100.4257 in Aug 2020 is 24.0 percent below trend under this alternative
calculation. The US maintained growth at 3.0 percent on average over
entire cycles with expansions at higher rates compensating for contractions. In
the period from 1929 to 2019, the average growth rate of real GDP was 3.2
percent and 3.2 percent between 1947 to 2019, which is close to 3.0 percent
from 1870 to 2010 measured by Lucas (2011May), as shown in Table I-1. From 1929
to 2019, nominal GDP grew at the average rate of 6.1 percent and at 6.4 percent
from 1947 to 2019. The implicit deflator increased at the average rate of 2.8
percent from 1929 to 2019 and at 3.1 percent from 1947 to 2019. Between
2000 and 2019, real GDP grew at the average rate of 2.0 percent per year,
nominal GDP at 4.0 percent and the implicit deflator at 1.9 percent. The annual
average rate of CPI increase was 3.1 percent from 1913 to 2019, 3.4 percent
from 1947 to 2019 and 2.1 percent from 2000 to 2019. Between 2000 and 2019, the
average rate of CPI inflation was 2.1 percent per year and 2.0 percent
excluding food and energy. From 2000 to 2020, the average rate of CPI inflation
was 2.1 percent and 2.0 percent excluding food and energy. The average annual
rate of PPI inflation was 2.9 percent from 1947 to 2019 and 2.1 percent from
2000 to 2019. PPI inflation increased at 2.1 percent per year on average from
2000 to 2019, 1.9 percent on average from 2000 to 2020 and at 1.8 percent
excluding food and energy from 2000 to 2019 and 1.8 percent from 2000 to 2020.
Producer price inflation of finished energy goods increased at average 3.1
percent between 2000 and 2019 and at 2.3 percent between 2000 and 2020. There
is also inflation in international trade. Import prices increased at 1.2
percent per year between 2000 and 2019 and at 1.0 percent between 2000 and
2020. The commodity price shock is revealed by inflation of import prices of
fuels and lubricants increasing at 3.8 percent per year between 2000 and 2019
and at 2.3 percent between 2000 and 2020. The average percentage rates of
increase of import prices excluding fuels are at 0.9 percent for 2002 to 2019
and 0.9 percent for 2002 to 2020. Export prices rose at the average rate of 1.2
percent between 2000 and 2019 and at 1.0 percent from 2000 to 2020. What spared
the US of sharper decade-long deterioration of the terms of trade, (export
prices)/(import prices), was its diversification and competitiveness in
agriculture. Agricultural export prices grew at the average yearly rate of 3.2
percent from 2000 to 2019 and at 2.9 percent from 2000 to 2020. US
nonagricultural export prices rose at 1.0 percent per year from 2000 to 2019
and at 0.8 percent from 2000 to 2020. The share of petroleum imports in US
trade far exceeds that of agricultural exports. Unconventional monetary policy
inducing carry trades in commodities has deteriorated US terms of trade, prices
of exports relative to prices of imports, tending to restrict growth of US
aggregate real income. These dynamic inflation rates are not similar to those
for the economy of Japan where inflation was negative in seven of the 10 years
in the 2000s. There is no reality of the proposition of need of unconventional
monetary policy in the US because of deflation panic. There is reality in
cyclical slow economic growth currently but not in secular stagnation.
Table I-1, US,
Average Growth Rates of Real and Nominal GDP, Consumer Price Index, Producer
Price Index and Import and Export Prices, Percent per Year
|
Real GDP |
2000-2019:
2.0% 1929-2019:
3.2% 1947-2019:
3.2% |
|
Nominal GDP |
2000-2019:
4.0% 1929-2019:
6.1% 1947-2019:
6.4% |
|
Implicit
Price Deflator |
2000-2019:
1.9% 1929-2019:
2.8% 1947-2019:
3.1% |
|
CPI |
2000-2019:
2.1% Annual 1913-2019:
3.1% 1947-2019:
3.4% 2000-2019:
2.1% |
|
CPI ex Food
and Energy |
2000-2019:
2.0% |
|
PPI |
2000-2019:
2.1% Annual 1947-2019:
2.9% 2000-2019:
2.1% |
|
PPI ex Food
and Energy |
2000-2019:
1.8% |
|
PPI Finished
Energy Goods |
2000-2019:
3.1% 2000-2020:
2.3% |
|
Import Prices |
2000-2019:
1.2% |
|
Import Prices
Fuels and Lubricants |
2000-2019:
3.8 2000-2020:
2.3 |
|
Import Prices
Excluding Fuels |
2002-2019:
0.9% |
|
Export Prices |
2000-2019:
1.2% |
|
Agricultural
Export Prices |
2000-2019:
3.2% |
|
Nonagricultural
Export Prices |
2000-2019:
1.0% |
Note: rates for
price indexes in the row beginning with “CPI” and ending in the row
“Nonagricultural Export Prices” are for Aug 2000 to Aug 2019 and for Aug 2000
to Aug 2020.The series excluding fuels begins in 2002.
Sources: https://www.bea.gov/iTable/index_nipa.cfm https://www.bls.gov/ppi/ https://www.bls.gov/cpi/data.htm https://www.bls.gov/mxp/data.htm
© Carlos M. Pelaez, 2009,
2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020.
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