Good morning, all. Here's a snapshot of some of the stories I'm reading to start my day. Enjoy.
Uncertainty hurts small business
Finally, someone who was affected by the federal government shutdown in October: small business. The Small Business Optimism Index took a 2.3 point dive in October to a six-month low of 91.6, according to the National Federation of Independent Business. Seven of the 10 components turned negative last month. The index has averaged 91 since the end of the recession, which is eight points below the 1977-2007 average. Small businesses "live the economic realities of overregulation, increased taxes, weak sales and a government without any direction or plan for the future," NFIB chief economist Bill Dunkelberg said. He didn't mention uncertainty over health-care costs, but he could have.
Questioning the prevailing wisdom on monetary policy
Former Fed governor Kevin Warsh sets out to write an op-ed about his "friend and former colleague" Janet Yellen in today's Wall Street Journal. Except it isn't really about Yellen. It's about Warsh's views on the conduct of monetary policy. He thinks the biggest risk from "free money and subsidized credit" isn't higher inflation, but capital misallocation and mal-investment. He thinks the Fed's accommodative policies are enabling Congress and the administration to avoid making tough choices. And he thinks forward guidance isn't all it's cracked up to be. I couldn't agree more on the last one. "Words are not equal to concrete policy action," he says. "And the Fed hasn't received many awards for prescience in recent years." Touche.
It's a puzzlement
That's what Minneapolis Fed President Naranya Kocherlakota said in a speech yesterday about rekindled expectations for Fed tapering next month. The labor market is still weak. "The good news is that, with low inflation, the FOMC has considerable monetary policy capacity at its disposal with which to address this problem," he said. The Atlanta Fed's Dennis Lockhart wants to see inflation move closer to the Fed's 2 percent target before reducing the monthly pace of asset purchases. Bond yields have moved higher since Friday's better-than-expected jobs report for October. I confess I'm as puzzled as Kocherlakota about expectations for a December tapering. What's the rush?
Rosie Scenario makes a comeback
Maybe this explains it. Economists have been looking for an acceleration in growth just over the horizon ever since the recovery began in 2009. Yet the next quarter's improvement proves elusive, and the U.S. economy hobbles along at a 2 percent growth rate. "The consistent pattern for the last four years has been to project improving growth in the year ahead, and then to mark down those projections when the rosier future does not arrive," writes the Washington Post's Neil Irwin. The OECD's leading index is pointing up. Irwin says the fiscal "headwinds" are already priced. So could 2014 be the year of 3 percent growth? Forecasters have been proved wrong so many times, some may want to dismiss any acceleration as a fluke even when it arrives.
No Sacred Cows
You gotta love the title of this ad placed by the libertarian Cato Institute. Not that anyone in Washington is listening. Mention cutting corporate welfare, and the lobbyists start lining up outside committee chairmen's offices. Some of Cato's ideas will be popular with conservatives (personal retirement accounts instead of Social Security); others with liberals (reducing defense commitments overseas). Don't expect the House-Senate conference committee charged with producing a budget by Dec. 13 to find any sacrificial lambs.
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