The statement no longer contained the two-year old pledge to keep rates near zero “for a considerable time.” Yet in dropping the statement the Fed went to great pains to reassure that rate increases were not imminent.
The road to nowhere near Wigan Pier
OVER the past few weeks, debates over British fiscal policy have been conducted under the shadow of George Orwell’s “The Road to Wigan Pier”, a powerful description of the poverty he found in the north of England in the 1930s. On December 3rd, George Osborne, the chancellor of the exchequer, in his Autumn Statement, announced plans to turn Britain’s deficit, which stood at £108 billion ($169 billion) last year, into a surplus of £23 billion by 2020. Because the government does not want to raise taxes to fund these plans, public spending is forecast to fall from 41% of GDP today to just 35% by the end of the decade. That has prompted accusations that the government wants the country to go back to the late-1930s—and the Britain Orwell describes in his cri de coeur against poverty. The Office of Budget Responsibility, Britain’s fiscal watchdog, stated that Mr Osborne’s plans would force public spending down “below the previous post-war lows reached in 1957-58 and 1999-00 to what would probably be its lowest level in 80 years”…. Continue reading
The dark clouds around the silver lining
But try as I might, I cannot muster the same Panglossian enthusiasm as my colleague about the way policy is unfolding. This is not the best of all worlds. My colleague reckons that the American economy is “converging rapidly on full employment”. I think the Fed shares his view. Ironically, this is actually an exceptionally negative statement about the strength of the American labour market.
What’s really there?
Thanks but no thanks
The only stipulation was that they should improve their lending record to the private sector (which could mean their stock of loans to businesses declining at a slower pace). Despite these generous terms, banks were chary about accepting the offer, borrowing only €83 billion in September. The low take-up has continued in the second operation held this week. The ECB revealed today that banks borrowed only €130 billion. In other words banks have helped themselves to little more than half the amount that was available this year. This week’s lending operation does not end the offer.
Two lost decades?
If a human life is valued at $7m, but so is a river, then the implication is that the two things are substitutes for one another. But it can be a useful practice—in particular, for getting hard-nosed economists to take notice.
How rich we really are
We are hosting a round-table discussion of the statement and the direction of British economic policy. Our final contributor is Matthew Whittaker, chief economist at the Resolution Foundation. RARELY have questions of household living standards and the shape of the public finances been so interwoven. The autumn statement—or, more specifically, the Office for Budget Responsibility’s economic and fiscal outlook—identified a £25 billion shortfall in tax revenues by 2018-19 relative to the projections in place at the time of the budget in March.