Making sense of the jobs report

We had another head scratcher of a jobs report yesterday.

Only 113,000 new jobs but the unemployment rate fell from 6.7 to 6.6%.

Labor Force Participation must have fallen, you say.

Nope, it rose slightly from 62.8 to 63.0%.

BLS is on acid, you say.

Maybe, but the simple but weird fact that explains this is that new jobs and unemployment rates are calculated from two completely different government surveys!

Here's one of my favorite KPC posts from a couple years ago that explains this strange state of affairs.

Unit--root-toot-tootin'

Friday (like most days), Brad DeLong said some amazing stuff.

In particular he claimed that, "There Are Two Unit Roots and Strong Mean Reversion in U.S. GDP per Capita".

Yikes.

Phone call for Clive Granger.

First off, unit roots and mean reversion are incompatible concepts. A unit root is essentially a stochastic trend. There is no fixed mean of the series to revert to.

Second, "two unit roots" means that real gdp per capita is I(2). Which means in English that shocks to the growth rate are permanent, that the variance of the growth rate continually increases over time, and that there is no mean reversion in the growth rate.

We actually have a lot of statistical tests for unit roots. Sure they are not so great, especially in the power department. So if we fail to reject the null, we are not thrilled about rolling with it.

But if we can reject the null, the size of the tests (probability of rejecting a true null) are not far from accurate, especially over longer time periods, and we have over 200 years of data to work with!


So here's the augmented Dickey-Fuller test for a unit root in the growth rate of real GDP per capita(the null is that there is such a unit root):


********************************************************************************

Null Hypothesis: D(LRYPC) has a unit root Exogenous: Constant Lag Length: 0 (Automatic based on Modified SIC, MAXLAG=14)

                                                                t-Statistic                     Prob.

Augmented Dickey-Fuller test statistic          -11.43155                  0.0000
Test critical values:  1% level                        -3.461630
                             5% level                        -2.875195
                           10% level                        -2.574125

*MacKinnon (1996) one-sided p-values.

 *********************************************************************************

We are rejecting (crushing) the null of a second unit root in the series at the 0.01 level. You can click through all the options in EVIEWS on lag length selection and get exactly the same rejection.

There are not two unit roots in real US GPD per capita.

Here's a graph of the growth rate of real GDP per capita in the US since 1800:

The data run from 1801 to 2010 (I'm pretty sure it's the same data Brad used).

The mean of the series is around 0.015, or a 1.5% growth rate. As you can see, while there is evidence of volatility clustering, the series is strongly mean reverting and shocks to the growth rate are decidedly not "highly persistent"  (i.e. it does not have a unit root).

There is even a big debate about whether real GDP per capita has even one unit root, because there are a lot of processes (long memory, Markov switching, structural breaks, breaking trends) that are not unit root processes but typical tests will fail to reject the null of a unit root anyway.

The Golden Age of Macro Surrealism

Lebron von Strauss helpfully directed me to this blog, where we find the claim that (their version of) potential real GDP is below current real GDP.

Just like that, problem solved. Hey Paul, Mark & Brad: look at the chart. We are above potential!

Quiterbitching.

(clic the pic to better see that the economy has actually been above potential for 2 years now!)

Before you scoff, you should know there's a method to this madness:


When capacity utilization is above effective labor share, ED potential real GDP will be below real GDP. When capacity utilization is below effective labor share, ED potential real GDP will be above real GDP.

Say what?????

People, I didn't say it was a reasonable method, did I?

Further following his muse, the inspired blogger busts out this gem:

The path forward may not be a matter of raising real GDP, but of raising potential real GDP.

I guess this could be epic trolling, but I prefer to think of it as the epitome of Dali-onomics.

Given that the guy calls his measure "ED potential real GDP", I think we all know how to raise it, no?

magical surrealism

Yesterday, Paul Krugman put up a strong challenger for the Dali-o-nomics surrealistic graph of the year.

For you aspiring magical realists of graphics, the best way to do this is to combine variables where there's no consensus on how to measure the concept being discussed.

Paul does this in spades by graphing the "adjusted deficit" as a percentage of "potential GDP" He get serious bonus point for mangling the axis labels and just generally producing an ugly graph.

Feast your eyes people:































A bit of googling will reveal that both the cyclically adjusted deficit AND potential GDP are
hotly contested concepts with no straightforward way to measure them.

Now, PK didn't need this magically surreal graph to prove his point, which is that we don't have a serious deficit problem through 2015.

Agreed.

However, as Jeff Sachs noted, we are in this happy state of affairs only because NO ONE LISTENED TO KRUGMAN and we produced almost $4 trillion in "deficit reduction" over the next decade.

That's $1.5 trillion from the first debt ceiling crisis, $1 trillion from the sequester, $600 billion from the part of the Bush tax cuts that were not continued on high earners and $600 billion from "interest savings".

So no, we don't need more short term deficit reduction, because we've already, in a piecemeal, disjointed, ugly and almost counterproductive way, dealt with the problem.

I say "almost counterproductive" because we have not done much of anything to address the main long term drivers of our budget problems: Medicare, Medicaid, (to a lesser extent) Social Security, and just health care costs in general.

Jobs!

The jobs report for February is out and the news is decent. 236,000 net new non-farm jobs and the unemployment rate is down to 7.7%.

While we've still never had the really big job numbers that historically occur in recoveries, this was a good number in terms of beating expectations.

About the only bad news in the report is that last month's job number was revised downward from 157,000 to 119,000, a 24% downward adjustment.

Given that the confidence interval on these initial numbers is something over  + / - 50,000, we shouldn't get too excited or too upset at any single initial job number.

Almost cut my hair

People, we almost lost the semi-sacred KPC monthly tradition of Christina Romer writing an Economic View column in the NY Times and then me mocking it here.

Almost but not quite.

Almost,  because 90 percent of the column about the minimum wage makes total sense.

Not quite because of the following two passages:

1.  some minimum-wage workers are middle-class teenagers or secondary earners in fairly well-off households. But the available data suggest that roughly half the workers likely to be affected by the $9-an-hour level proposed by the president are in families earning less than $40,000 a year. So while raising the minimum wage from the current $7.25 an hour may not be particularly well targeted as an anti-poverty proposal, it’s not badly targeted, either.

Yikes! What a low bar Romer has for government. A program that under the most charitable of definitions only hits an intended target less than half of the time is "not badly targeted"?

The official "poverty line" for a family of 4 is $23,000. So less than half of the policy effects hit a population defined as almost double the poverty line. Even for our poor blind doddering Uncle Sam, that is shitty targeting.

2. Then there are the last two sentences of the piece:

And pre-kindergarten education, which the president proposes to make universal, has been shown in rigorous studies to strengthen families and reduce poverty and crime. Why settle for half-measures when such truly first-rate policies are well understood and ready to go?

Please note that pre-K had not been mentioned at all in the previous 16 paragraphs of the op-ed. Only in the penultimate sentence does Romer pull the pre-K rabbit out of her hat, informing us that "rigorous studies" show it reduces poverty, among other wondrous things. She links to a review article which does not present any evidence that pre-K reduces poverty!

Yes, the EITC is a much better targeted and effective anti-poverty program than is the minimum wage. Good on Romer for saying so. But throwing in universal pre-K as a "well understood and ready to go" poverty reduction program is what kept our KPC tradition alive for another month at least.

I feel like I owe it so someone.

défenestrer le sequester?

The NYT is on the sequester rampage this morning:

 Here's an unsigned editorial:

 Democrats and Republicans remain at odds on how to avoid a round of budget cuts so deep and arbitrary that to allow them now could push the economy back into recession. The cuts, known as a sequester, will kick in March 1 unless Republicans agree to President Obama’s demand to a legislative package that combines spending reductions and tax increases. 

And here's the inevitable Krugman chiming in with his bosses:

 the “sequester,” one of the worst policy ideas in our nation’s history... a fiscal doomsday machine that would inflict gratuitous damage on the nation.

 People, the sequester only lowers spending relative to baseline growth.

That is to say, it doesn't actually cut spending in the sense a regular normal person would view it.

Over the full 10 years of "deep" cuts, after the "doomsday machine" ravages us, Federal spending will be higher than it is now.

I am not making this up!

Federal spending is over 3 trillion dollars. We are talking about cutting 85 billion from its growth.

That's like a pimple on your pimple.

Calling this "one of the worst policy ideas in our nation's history" is just amazing hackery.

Slavery was one of our nation's policies.

Interning Japanese Americans with no cause in WWII was one of our nation's policies.

The war on drugs is one of our nation's policies.

Extra-legal drone killings of Americans (and non-americans) is one of our nation's policies.

I'd say that the sequester is actually an above average policy for our nation.

If we can't cut 85 billion from our planned spending growth four years after the recession ended, we are pretty much doomed.
 

The leopard cannot change his spots

Did you hear the one about the modern central banker who was able to credibly promise to be irresponsible?

Me neither.

Release of recent FOMC minutes reveal that all is not well on the QE bus:

However, many participants also expressed some concerns about potential costs and risks arising from further asset purchases. Several participants discussed the possible complications that additional purchases could cause for the eventual withdrawal of policy accommodation, a few mentioned the prospect of inflationary risks, and some noted that further asset purchases could foster market behavior that could undermine financial stability. Several participants noted that a very large portfolio of long-duration assets would, under certain circumstances, expose the Federal Reserve to significant capital losses when these holdings were unwound, but others pointed to offsetting factors and one noted that losses would not impede the effective operation of monetary policy. A few also raised concerns about the potential effects of further asset purchases on the functioning of particular financial markets, although a couple of other participants noted that there had been little evidence to date of such effects....  

...Several participants emphasized that the Committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved. For example, one participant argued that purchases should vary incrementally from meeting to meeting in response to incoming information about the economy. A number of participants stated that an ongoing evaluation of the efficacy, costs, and risks of asset purchases might well lead the Committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred.

(Quote from Tim Duy. more here)

To fight inflation, modern democracies have given the keys to the bus to conservative central bankers over the last 30 years. They worry about inflation when there is no inflation. They couch all expansionary policy statements with weasel words and out clauses that scream "we don't really mean it".  They cannot change their spots. Which is why they can pump trillions into the economy without generating much in the way of increased inflation expectations. Everyone knows they are not serious.

The single most effective tool to raise inflation expectations in the US would be to appoint Paul Krugman as the new Fed chair and let Matt Yglesias be his deputy.

By the way, it's NOT Bernanke who needs to be credibly irresponsible

Krugman and others have been optimistic that newly elected Shinzo Abe can spring Japan out of its near-deflationary lethargy and get it growing again by, as Paul says over and over,"credibly promising to be irresponsible". Abe's threatened the BOJ, let it leak that the government is targeting the stock market, proposed fiscal expansion, and just kind of given the impression that he's an "anything it takes" kind of guy.

Current central bankers can't credibly promise to be irresponsible. The whole thrust of the Central Bank Independence movement was to install and insulate conservative central bankers. Sure, Bernanke can say he's going to be irresponsible, but he can't get you to believe it. Perhaps this is why the Fed can sit with $3 trillion on its balance sheet and core inflation (and expectations) remains under 2%.

It's the politician who can run on a platform of "irresponsibility" and then perhaps be credible when they implement it.  The last President we had like that? FDR, I'd say. He took us off gold, he packed the Supreme Court, he ran massive direct jobs programs. In short, he was a bit of a wild man and Shinzo Abe role model.

BHO is no FDR.

Two wrongs make a mess

Paul Krugman is sick of morons saying “Keynesians said the stimulus would fix the economy, and it didn’t, so Keynes was wrong”.

And indeed that is moronic. We need to see the counter-factual. We need to see what would have happened without the stimulus.

But Paul doesn't stop there. He asks people making the above argument,"What part of “the Obama plan just doesn’t look adequate to the economy’s need” is so hard to understand?"

Somehow Paul doesn't seem to see that he is making the exact same error for which he's excoriating the "cockroaches".

That is to say, we are still missing the counter factual where we run Paul's 1.2 trillion dollar stimulus and see what happens. He simply assumes that the bigger stimulus would do the job.

In other words, his position is non-falsifiable and unscientific. In fact it's a bit cockroach-y of an idea.

People, at least the cockroaches have an official government attempt at a counter-factual, namely the infamous Romer-Bernstein graph showing that the stimulus would keep unemployment below 8%.

Krugman has nothing but the sound of his own voice.

In other words, we have no data available that allows us to adjudicate between the "stimulus won't work" and the "a bigger stimulus would have worked" positions.

ET, phone home

From Twitter trolling to dueling blog posts in the Economist, it's been a short, strange trip for the mythical, mystical, "trillion dollar platinum coin".

The young digital progressives are in lockstep on the issue. It's legal, what the Republicans are doing with the debt ceiling is much worse than the coin shenanigans, it will cause less problems than a default.

 Josh Barro, one of the coins most persistent and seemingly serious defenders, has a piece where he attempts a debunking of the concerns of the anti-coin crowd. I am most interested in one particular slice of his piece:

 "But that will be inflationary!" This is a more serious objection, and it gets at what the platinum coin strategy really is -- financing the federal government's operations by printing money instead of borrowing it. The trillion- dollar coin will never circulate, but it will be used to back cash payments coming from the Treasury that would have otherwise been financed by bond purchases. If the government financed itself this way in general, that would absolutely be inflationary. But the president can hold inflation expectations steady by making absolutely clear that the policy will not lead to a net change in the money supply over the long term. Obama should pledge that once Congress authorizes additional borrowing, he will direct the Treasury to issue bonds to cover the government's coin-backed spending and then to melt the coin.... If the president is clear about his lack of any long-term intention to interfere with the money supply, I don't expect the platinum coin to cause a spike in prices."

I think the coin is excellent political theatre. It's got the right up in arms, positively sputtering with indignation, which can only be a good thing.

However, I think the expectations issue is quite a bit more problematic than what Josh outlines. In economics modeling, expectations aren't anchored by jawboning or empty promises. Without a specific commitment mechanism, mere promises will be non-credible (this of course is the time-consistency issue made famous by another Barro).

Specifically, I worry that when a US president takes up the power to directly print money in a political dispute, his assurances that it's only temporary, will be reversed as soon as his opponents capitulate, and will never happen again, might not be extremely credible. One could make a case that this action would indeed increase expectations of inflation down the road and increase the volatility of inflation as well.

And beyond inflation concerns, it is worth considering what the coin would to do the expectations of future government behavior held by investors, credit raters, trading partners and other relevant actors.

So while I absolutely love the trolling value of the coin, and kind of love the overall idea of the coin, I think is is a much more risky economic proposition than its proponents will recognize.
 

Questions entirely relevant for investing in 2013

Does the Fed think QEIII will produce higher inflation?

The short answer is, not really.

The longer answer can be found in these charts which were released on September 13th, the same day that QEIII was announced:

(you can clic for a slightly better image or refer to page two of the linked PDF)

The bottom panel shows that no one on the FOMC is predicting a surge in inflation from QEIII. The highest individual prediction in 2014 is 2.2% and in 2015 it's 2.3%. The "central tendencies" for those years are 1.8% - 2% in 2014 and 1.9% - 2% in 2015. You can read these numbers from the first table in the link provided above.

I just don't see that the Fed views their language in the QEIII statement or the minutes as seriously committing to higher than equilibrium (i.e. 2%) inflation in the future.

The FOMC is bullish on growth in 2014 and 2015 as can be seen from the top panel of the embedded chart, with a "central tendency" of their forecasts reported as 3.2% - 3.8%. Their long run forecast central tendency is 2.2% - 3%.

There is nothing in these forecasts that indicates the Fed expects NGDP to get back on anything resembling its pre-crash trend.

People, believe me when I tell you that I want the economy to recover. I want lots of new jobs created. I want there to be good times in America for all.

But I think people are projecting their own views onto Fed actions. The FOMC  just isn't playing the game that the Woodfordians want them to play.

 It's my view that it is impossible for the Fed to play and win the Woodfordian game, but I'd love to be proven wrong.

Calvo, we have a problem

We are operating in an era where the Fed is using forward guidance to condition the public's expectation of future interest rates.  Having already pushed the policy rate to zero, the Fed is now left with promising to keep it there in future periods.

An obvious question is, does this work? Or, in what class of models does this work?

 From this recent Cleveland Fed working paper, it seems like part of the answer is, not in the basic DSGE models everyone uses.

 I'll let the authors tell you themselves:

 Our experiments consider a fully anticipated and unconditional lowering of the monetary policy rate for a finite number of periods. We find that the workhorse Calvo (1983) models of time dependent pricing currently used for monetary policy analysis deliver unreasonably large responses of inflation and output in response to such a policy. Furthermore, if there are endogenous state variables, these models suggest that the initial responses can become arbitrarily large as the duration of the fixed rate regime approaches some critical value and then switch sign and become arbitrarily negative as this critical value is exceeded slightly. For empirically realistic models such as the Smets and Wouters (2007) model, the critical duration for which these asymptotes occur is around eight quarters - well within the duration of the low interest rate environment in the U.S. following the financial crisis. 

So, either the promise is not credible, the models are wrong, or maybe both?

Let's be clear that is paper is not done by hacks. One of the authors is Tim Fuerst, and he is the real deal.

What the Fudge?

ADP reports that job growth slows in September: Yglesias says it shows that QE3 is already working!

People, I am not making this up.

Here's the deal: Today, ADP reported 162,000 new jobs for September. It also reported that August's number had been revised to 189,000. Thus we have 27,000 fewer new jobs in September than in August.

Matt then posted this:

the ADP report out this morning says there was a net gain of 162,000 jobs in September (PDF). Now that's all preliminary and maybe it won't hold up. But this—rather than long and variable lags—is what I'd expect to see from QE 3.


Wow. And I thought I was a QE bear!

Now Matt's overall point is that when (if) the Fed is playing the expectations game, we might expect to see things change quickly if they are successful rather than having to wait for a mechanical chain of events to slowly unwind over time.

I even agree that what our economy needs now is a jump from what Tyler calls the "low trust" state to a "high trust" state and that maybe Fed jawboning can help us make that jump.

But I have to question pointing to a slower rate of job growth as evidence that we are jumping.

Who's on first? The Bernank!

Our esteemed Fed chairman gave a widely hailed speech that was, on the key point at least, clear as mud.

Check it out:

In the category of communications policy, we also extended our estimate of how long we expect to keep the short-term interest rate at exceptionally low levels to at least mid-2015. That doesn't mean that we expect the economy to be weak through 2015. Rather, our message was that, so long as price stability is preserved, we will take care not to raise rates prematurely. Specifically, we expect that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economy strengthens. We hope that, by clarifying our expectations about future policy, we can provide individuals, families, businesses, and financial markets greater confidence about the Federal Reserve's commitment to promoting a sustainable recovery and that, as a result, they will become more willing to invest, hire and spend.

So which is it?

"Rates will be exceptionally low til at least mid-2015. "

or

"so long as price stability is preserved we will take care not to raise rates prematurely."

People, those are two very different guidances. Which (if either) did he actually mean and which is the dog whistle?

Well, since the first is a promise that Bernanke cannot actually keep (it's highly unlikely he'll be Fed chair in mid-2015), and the second is business as usual, I'd put my money on the second phrase as actually being closer to what will happen.

Then, he adds insult to injury with this gem: "We hope, by clarifying our expectations about future policy,...."

Not clarifying the path of future policy but his expectations about the path of future policy. Not that it will work, but that he hopes it will work.

Is Ben actually giving the middle finger to the expectations channel here? You wouldn't have to be a rabid Straussian to think so.

Moving the goalposts in the NDGP debate, or money illusion illusion

Matt Ygelias reacts to my showing that inflation is uncorrelated with jobs growth while real GDP growth is highly correlated with jobs growth by deftly moving the goalposts:

Hiring workers is probably the wrong thing to think about. Let's worry about hiring capital goods. Some extra space for your business or some extra production equipment. You know the price of said capital and you know roughly what it does, but you're not sure whether you should buy it or not. You look to your left and you see a stack of dollars. You look to your right and you see a bunch of machines. Do you want to trade the dollars for the machines? It's a close call.

Now a little birdie from the Bureau of Labor Statistics shows up and tells you that the price level is going to surge over the next three years. Suddenly your decision is made for you. That stack of dollars isn't as valuable as you thought it was. Buy the machines!

So now the claim is that we don't need to separate NGDP (PY) growth into inflation and real growth because inflation changes investment decision.

Let's go to the charts, people. I am sticking with the two time periods Ryan Avent chose in the post that started all this in order to not be open to the charge of cherry picking dates.

So from 1990 to the present, here's the graph of real investment growth and inflation:

The linear correlation beween the two series is -0.007. Yikes!

Now for real investment growth and real GDP growth over the period:

The linear correlation between these two series is 0.78.

Inflation is uncorrelated with real investment growth, real growth is highly correlated with real investment growth.

Now let's look at the other Avent period, 1960 - 1980 starting with inflation and real investment growth:

The linear correlation here is -0.174.

Now for real investment growth and real GDP growth:

The linear correlation between these two series is 0.83.

So in practice inflation is uncorrelated with real investment growth, while real GDP growth is incredibly highly correlated with real investment growth.

So it seems, yet again, that business decision makers DO distinguish between which component of NGDP are changing, and if it's the P component, they ignore it when making decisions about changing employment and changing investment.

The US economy in these time periods at least, was not caught in the grip of money illusion.

For what purpose does the gentleman from Oklahoma rise?

I rise to revise and extend my remarks

The gentleman is recognized for one more blog post.


So let me try this again.

Nominal GDP growth is a sum (sort of) of two things. Real Growth and Inflation. Both are outcomes. The two things are not highly correlated with each other. One of them we like and one of them we (usually) don't like.

MMTers (NGDPists) frequently show graphs where a decline in output is correlated with a decline in NGDP and exclaim something like, AHA! THE FED HAS CAUSED THIS DECLINE BY NOT KEEPING NGDP GROWING FAST ENOUGH.

As I was pointing out yesterday, that can be a very tricky case to make because the decline in output is baked directly into the decline in NGDP!

That's what I thought (and still think) Mr. Avent was doing yesterday. But I don't think I actually called him an idiot as he seems to think I did though.

But then again I am so dense that I fail to understand exactly how the Fed is supposed to precisely target NGDP. They've kept the policy rate at zero for multiple years and promised to keep it there for multiple years more. They have flooded the banking system with reserves. But NGDP has not grown fast enough. Now the Fed has promised to keep the pedal to the metal after the economy has recovered, will that get NGDP growth where the MMTers want it?

In all honesty, the most I've been able to glean from the NGDPers is that the Fed should announce a NGDP path they are going to defend and ......

Create a futures market for NGDP and target its price?

Rely on the reverence people have for Fed announcements and sit back and watch NGDP happily conform to the announcement?

I am also so dense that I simply cannot parse some statements made by the NGDP crowd. Like this one from Scott Sumner:

NGDP is “the real thing,” whereas P and Y are simply data points pulled out of the air by Washington bureaucrats.

The man who implores us to "never reason from a price change" is now informing us that distinguishing between price changes and quantity changes is irrelevant or impossible?

Or this one from Mr. Avent:

Even in tough times, some people get raises. Those people capture some of the growth in nominal incomes, leaving a smaller chunk available to go to new incomes.

That's a real puzzler to this Okie. The raises ARE growth in nominal income, aren't they? Or does the Fed pour nominal income over the economy like cereal and we all scramble to grab our share and eat it before it's gone? Nominal income is not an exogenously imposed constraint on the activities of the private economy. Nominal income is largely created by the actions of the private economy.

I guess I just don't speak MMT very fluently.

the gentleman's time has expired

thank you mr. speaker.

the return of Dali-onomics

Recently I posted about a graph so strange, it could have been made by Salvadore Dali. Well, the mad grapher is back and better than ever.

Here is a link to the whole post.

Here though is the money graph:

Here we are graphing a decidedly non-standard monetary aggregate created by the Bill Barnett: "CFS M4 Divisia" (you can find some information about it here).

Our artiste creates the other line in the graph, "the optimal amount of M4 divisia by plugging in potential nominal GDP (as estimated by the CBO) and actual trend money velocity (as estimated by the Hodrick-Prescott filter) into the equation of exchange (i.e. M*t= NGDP*t/V*t )."

Got that? So we take some non-linear combination of 3 completely made up things to get our crucial real thing.

And it turns out that we have a shortage! Of what? Let me get back to you on that.......

Take the long way home

A fair amount of the Fed's post-crisis "unconventional policies" have been aimed at the housing market. QEIII in particular. Often, these policies are evaluated on a very short term basis. Before and after the announcement like a pseudo event study is one popular method. Looking at what happens to rates after the policy ends is another. We've all seen charts of the last five years with vertical lines indicating the beginnings and ends of various Fed policies, with credit or blame assessed as desired.

But the basic fact about mortgage rates in this country is that they've been secularly falling. Here's a graph of the average 30 year fixed rate. Data are from Fred.

(clic the pic for an even more ski-slope image)

Rates are less than half what they were in 1976 when this data series begins. Rates have been steadily falling since 1982.

In other words, we've seen a steadily falling trend in mortgage rates over the last 30 years with a fair amount of short run noise around the trend.

Given that context, I think we are putting way too much emphasis on very short run movements in mortgage rates as an indicator of the effectiveness of particular Fed policies or announcements.

I also think, given mortgage rates are already at a 35 year low, that driving them down even more is not going to be a big boon to the housing market. I don't see how it helps re-financers all that much either. If you refinanced at 3.75 are you going to do it again at 3.49?



PS: Do I think the modern Fed deserves credit overall for this falling trend? Sure, just as much as they deserve blame for the ultra-high rates in the late 70s and early 80s.