Tags: Ip | Fed | crisis | policy

Reporter Previews Economy in 2014

By    |   Monday, 06 Jan 2014 08:26 AM

Greg Ip, U.S. economics editor for The Economist, recently provided a standard economic outlook in an interview with Paul Ryan on C-SPAN's Washington Journal. Ip is a graduate of Carleton University in Ottawa, Ontario, and previously worked for The Wall Street Journal for 12 years.

This article will serve as an introduction to a series of articles on Federal Reserve policy as Ben Bernanke completes his second term as chairman.

Ip began by saying his outlook is the same as it has been for the last three or four years — optimistic, but without concerns regarding fiscal headwinds and possible crises over sovereign debt in the European Union. (This is consistent with remarks by television pundits who have said there is no "wall of worry" for the stock market to climb this year, because there are no worries.)

Ip also cited job growth in the range of 150,000 to 200,000 per month, about the same as a year ago. He acknowledged that when there appear to be no clouds in the forecast, investors still need to "be aware."

Asked to comment on the 100th anniversary of the founding of the Fed, Ip quipped that it is said it takes one of two things to get Congress to act, Christmas or crisis, and in 1913 there were both. The legislation that founded the Fed represented a compromise between the concept of a central bank and dispersion of power through the establishment of regional Fed banks. (It is said that President Wilson came to regret having signed the bill.)

In later remarks, Ip defended the Fed against complaints by callers, including one who advocated returning to the gold standard, as he pointed out that crises and panics have occurred with and without the gold standard, and with and without the Fed. Ryan stated that the questions submitted by callers will tilted toward critics.

When a caller complained that bankers have too much influence over the regional banks, Ip responded that they have no say over the selection of the presidents. (This sounded improbable, since bankers choose two-thirds of the directors, but the structure of the regional banks is diabolically complicated, and upon further review, Ip is right. There are three classes of directors, each with three members. While bankers elect six of the nine directors, the banker directors do not participate in the selection of the president of each region.)

To the evident displeasure of some viewers, Ip repeated uncritically the party line of the Fed that the policy of extended monetary accommodation the Fed has pursued for more than five years has helped the economy recover, that it can be tapered now because the economy can stand on its own and that the taper could be completed in 2014. However, the tapering does not constitute tightening, because interest rates will remain close to zero.

In response to a caller who complained that the recovery has been financed at the expense of savers, Ip replied, in line with the Fed's view, sometimes savers benefit from interest-rate policy, sometimes they lose in the short term, but savers will ultimately benefit from the economic recovery.

(Archived video can be found here.)

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Greg Ip, U.S. economics editor for The Economist, recently provided a standard economic outlook in an interview with Paul Ryan on C-SPAN's Washington Journal. Ip is a graduate of Carleton University in Ottawa, Ontario, and previously worked for The Wall Street Journal for 12 years.
Ip,Fed,crisis,policy
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2014-26-06
Monday, 06 Jan 2014 08:26 AM
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