Economists at the Fed work hard to maintain the institution’s reputation as a stoic pillar of economic wisdom — unperturbed by politics or the whims of the day, all-knowing and, most importantly, effective. This image obsession serves an important purpose: The central bank’s dependability hinges on Americans believing that it’s … dependable.
The Fed, much like Madonna, is constantly evolving. This institution that aims to project an aura of stability is not beyond surprising us.
The Fed as we know it gradually moves interest rates up and down at pre-designated meetings. They explain their decision-making with as much communication as possible and release their economic projections to give Americans an idea of what’s coming in the future.
That wasn’t the case in 1980, when inflation soared to 14.6%, the highest level on record.
Under the leadership of Paul Volcker, Fed officials hiked and cut their benchmark rates sharply at unscheduled meetings without corresponding policy statements. The fed funds rate didn’t have a tight target range like today’s — it regularly spanned 5 percentage points. It wasn’t until Alan Greenspan took over in the 1990s that the Fed started adjusting rates at FOMC meetings and it wasn’t until the 2000s that the central bank began cyclically tightening and loosening rates.
Big changes also occurred in 2008 under the leadership of Ben Bernanke. That’s when the Fed responded to the Great Recession by enacting a policy that was previously unfathomable: Interest rates were slashed by 100 basis points to near-zero. They remained there until 2015.
These actions were “experimental and unprecedented,” said Christopher Leonard, author of The Lords of Easy Money, an upcoming book on the history of the Fed. “They pushed boundaries.”
Today’s Fed has undergone a “huge shift towards transparency and trying to clearly communicate policy in advance so as to not surprise markets,” said Brian Rehling, head of Global Fixed Income Strategy at the Wells Fargo Investment Institute. They’re more transparent in their goals and their policy setting. Beyond that, Powell’s impact on the annals of monetary policy has yet to be defined.
Powell appears to be loosely following the monetary playbook set by Volcker in the high-inflation days of the 1980s, but each chair has to play to their own strengths, said Reinhart. “Greenspan could dive deeply into the data. Volcker had a personal authority about his understanding of markets and banking that was intimidating,” he said. Powell seems to be interested in coming off as plain-spoken; he’s shifted the focus and attention of the Fed to all Americans instead of just economists and investors, he added.
But this central bank will face a new set of challenges when “the economy is not feeling so good and inflation still isn’t back down to the target level,” said Rehling. Powell will have to decide whether the Fed stays the course on hawkish rate hikes while facing political and public pressure about the state of the overall economy. Perhaps that’s when the Fed will enter its ‘Material Girl’ era.
The FOMC will meet in Washington next week and is widely expected to announce another interest rate hike of 75 basis points.
Happy-ish 13th birthday to the $7.25 minimum wage
July 24 marks 13 years since the last time the US federal minimum wage was raised, to $7.25 an hour. It’s also the longest period without a raise since the federal minimum wage was enacted in 1938.
Even as historically high inflation rates have eroded the strength of US paychecks and headlines focus on the tight labor market, that $7.25 rate, which amounts to $15,080 a year for full-time work, remains firmly intact.
“Every day without a raise is another day the minimum wage falls further behind the cost of living,” said Holly Sklar, CEO of Business for a Fair Minimum Wage.
A worker making the minimum wage today is taking home 27.4% less than they did in July of 2009, and 40.2% less than in February 1968 when adjusted for inflation, EPI found.
About 30 states and Washington DC have minimum wages above the federal standard. Five states have not adopted a state minimum wage: Alabama, Louisiana, Mississippi, South Carolina and Tennessee. Two states, Georgia and Wyoming, have a minimum wage below $7.25 per hour. In all seven of these states, the federal minimum wage of $7.25 per hour applies.
Monday: Chicago Fed national activity index for June
Tuesday: Microsoft, Alphabet, Coca-Cola and McDonald’s report earnings
Wednesday: Fed interest rate decision and FOMC press conference; Meta and Boeing report earnings
Thursday: Apple, Amazon and Pfizer report earnings
Friday: Exxon Mobile and Chevron report earnings
#Fed #Madonna #common