Tags: Yglesias | taper | nuts | Fed

Slate's Yglesias: Tapering Is 'Nuts'

By    |   Wednesday, 11 September 2013 11:57 AM

Nuts. That's how Matthew Yglesias, business editor for Slate, describes the Federal Reserve's plan to wind down its economic stimulus in the face of a feeble economic recovery.

Friday's weak job numbers show that the Fed's plan to taper its bond-purchasing stimulus "is nuts, was always nuts and continues to be totally nuts," writes Slate business editor in one of the most critical commentaries on tapering.

The latest disappointing jobs report shows that job creation is still slow and the recovery remains barely noticeable, he argues.

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"Real output is weak, has been weak and shows every sign of continuing to be weak. The labor market recovery is weak, has been weak and shows every sign of continuing to be weak."

America's long-term growth potential, Yglesias warns, will suffer "irreparable harm" due to declining labor force participation, endemic long-term unemployment and persistent corporate underinvestment.

Ending quantitative easing would be necessary if inflation was apparent, yet there's no indication that inflation is increasing.

"Monetary policymakers need to stop looking for the exits and seizing on any random bits of good news as a reason for tighter policy," he says. "You need to keep easing until really bad news about inflation starts to loom larger than continuing bad news about jobs."

Unemployment fell to 7.3 percent in August and the economy added 169,000 jobs, slightly worse than expectations and under the average pace last year.

But the report was full of bad news behind those headline numbers.

Importantly, the Labor Department revised downward estimated job growth for June and July by a combined 74,000 jobs. The unemployment rate dropped mainly because of people dropping out of the labor force.

The labor force participation rate is the lowest in 35 years, and the number of people reporting they had jobs dropped 115,000 in August. Plus, new jobs tend to be in low-paying sectors such retail and restaurants.

"Bad news all around," The Wall Street Journal states. "There’s no way to sugarcoat it: This was a lousy jobs report."

Some economists the Journal polled believe the Fed will still proceed with tapering as planned, while others said the poor jobs report puts its schedule in doubt.

"What we find disturbing in this report was another round of downward revisions to prior months," said Eric Green of TD Securities, according to the Journal, noting it was the second consecutive and sizeable downward revision.

"Labor markets that are gaining momentum are rarely peppered with downward revisions, the opposite typically prevails. That makes us a bit nervous."

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Nuts. That's how Matthew Yglesias, business editor for Slate, describes the Federal Reserve's plan to wind down its economic stimulus in the face of a feeble economic recovery.
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2013-57-11
Wednesday, 11 September 2013 11:57 AM
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