Baum on Money: Fed Digs Itself a Guidance Hole
Good morning, and welcome to the Friday edition of what I'm reading. It's going to be a busy weekend, not so much for me but for the folks in Washington trying to figure out a way to keep the government open and get the health-care exchanges operating on Oct. 1.
Waiting for Plan B
House Speaker John Boehner is weighing options to make the continuing resolution to fund the government after Sept. 30 more palatable to House Republicans, according to the Wall Street Journal. The Senate is expected to pass the resolution, minus the rider to defund Obamacare, and kick the bill back to the House. Then what? Aides say GOP lawmakers are considering a one-year delay in the individual mandate or a repeal of the tax on medical devices. Time is running out. We get so caught up in the dispute over the continuing resolution that sometimes it's good to remind ourselves that we're at this point because the Senate has failed to pass a budget for the last four years. Senators should be forced to stay in Washington until they do.
Another day, another delay
Now it's the online enrollment in the small-business exchanges that has been postponed for a month, according to Politico. It's not a huge deal because coverage doesn't go into effect until Jan. 1. But it's just "another PR headache for the White House," Politico writes. The Spanish-language version of Healthcare.gov won't be ready to roll on Oct. 1, according to the Associated Press. The hits just keep on coming. Unless the enrollment process is easy, I wonder how many young, healthy Americans are going to spend their time sorting it out, especially when the penalty for not buying healthcare is less than most premiums.
Everything's not up-to-date in Kansas City
The Kansas City Fed released its monthly manufacturing survey yesterday, and what caught my eye were two of the comments: "General labor is very difficult to find in order to fill our manufacturing positions. Educated workers are even harder to find." And "Our starting wage has dropped because we are having to train people that come to us with no experience or skill." What does that say? Manufacturing employment is 1.8 million below its December 2007 level. And yes, factory jobs peaked in the 1970s; many have been outsourced or replaced by machines. But there are an awful lot of people looking for work, and it would make sense to find a way to put buyers and sellers together.
Less is more?
The Fed may be considering layering more conditionality onto its forward guidance, but some economists think enough is enough.Tim Duy, for example, thinks it's too bad the Fed "keeps throwing out markers for the unemployment rate, first the 6.5 percent threshold for interest rates and the 7 percent trigger for asset purchases," he writes on his blog. "In the absence of those markers, I think most of us would agree that healing in the labor market is far from complete." Yes, we would. And that's the problem with quantitative targets: they can't capture qualitative differences.
Fed hits the speaking circuit
Yesterday, it was Minneapolis Fed President Narayana Kocherkota's turn to weigh in. He said monetary policy should do "whatever it takes" to help the labor market. In Frankfurt, Fed governor Jeremy Stein teed up the idea of introducing new targets or thresholds for tapering. For example, for every 0.1 percentage point decline in the unemployment rate, the Fed could reduce monthly asset purchases by $10 billion. Is he serious? Bernanke already had to backtrack on his guidance on the end of the asset-purchase program corresponding to a 7 percent unemployment rate, saying last week that there was no "preset course." The Fed needs to review the first law of holes: When you are in one, stop digging.
(Caroline Baum is a Bloomberg View columnist. Follow her on Twitter.)