Finance Column » Your Money This Week » The Fed meets Tears for Fears

The Fed meets Tears for Fears

By Mark Hamrick ·
Monday, June 16, 2014
Posted 6 am ET

United States Government Work

It's time for another track from the Federal Reserve's version of "Songs  From the Big Chair," the blockbuster 1985 album by the British duo Tears for Fears. Fed Chair Janet Yellen -- the big boss at the central bank -- may sing the praises of the economy or offer something a little more subdued this week when she takes questions from reporters following a meeting of central bank policymakers. Every other meeting brings one of these news conferences and the opportunity to hear first-hand from the Fed chief.

The meeting also includes a fresh set of economic projections, including a prediction of when interest rates will begin to rise. Also on the way this week: an update from the Commerce Department on new home construction.

The calendar

Events scheduled this week include:

  • The Federal Reserve reports on May industrial production, Monday at 9:15 a.m. (All times Eastern.)
  • The Commerce Department reports on May housing starts/building permits, Tuesday at 8:30 a.m.
  • The Labor Department reports on the May consumer price index, Tuesday at 8:30 a.m.
  • The Federal Reserve releases a statement on monetary policy, Wednesday at 2 p.m.
  • The Conference Board releases the index of leading economic indicators Thursday at 10 a.m.

Bankrate Audio

Left and right on the economy

Surprise! Experts from the two sides of the political divide can have similar outlooks about the economy and Congress.

Mark Hamrick

Washington Bureau Chief,

Jared Bernstein

Former Chief Economist to Vice President Biden

William Poole

Former President, Federal Reserve Bank of St. Louis

Laura Dunn




Mark Hamrick: From, This is "Your Money This Week."

I'm Mark Hamrick.

Today, a couple of recent "insiders" give us their view of the path ahead for the U.S. economy, including whether Washington can manage to get anything done to help the rest of us.

We begin with a conversation with Jared Bernstein, the former chief economist to Vice President Joe Biden. What does the Obama administration really think about the slow progress being seen for the economy?

And, we follow up with the former president of the Federal Reserve Bank of St. Louis, William Poole. He has some ideas about the risks ahead for the U.S., and also how the Fed itself could be doing more to nudge the economy into a faster path.

While our guests' views traditionally range from liberal to conservative, you'll find they agree on some things about where the economy is, at the moment.

All of that and more coming up on "Your Money This Week."

(music transition)


Our first interview is with an expert on the economy who served until recently in the Obama administration. Or more precisely, in the Biden administration.

Jared Bernstein was chief economist to Vice President Biden. He now serves as senior fellow at the Center on Budget and Policy Priorities.

To begin, I asked Jared where he thinks the U.S. economy stands, here at the midway point of 2014.

Jared Bernstein: I am sure that second quarter GDP is going to look a whole lot better than the first -- remember, the first quarter printed out a negative 1 percent, but almost everyone blamed a good chunk of that on weather. The underlying growth rate of the economy writ large, in terms of GDP growth, is probably around 2 percent per year, and that trend has been persistent for a while.

I think if you split economists into optimists and pessimists as to where you think things are going forward, the optimists think that 2 (percent) is going to ramp up to 3, and the pessimists think we are just going to stick around "trend," which is around 2 percent. I am closer to the latter camp in that I think "trend" seems to be pretty embedded both in terms of GDP and, importantly, in terms of employment as well. I consider that to be a fine thing, except for the fact that we have never grown quickly enough to close some of the gaps that developed during the great recession. If we were talking about an economy that was percolating along at full employment and you told me that we are posting 200,000-plus jobs a month with GDP growing at trend, I would say, "Fine." But was have not made up the damage yet, so I still think there is work to be done.

Mark Hamrick: I wanted to ask you also -- from the perspective that you have as one who had worked for the administration previously -- I think the administration has worked, over time, very hard to try to manage expectations about the recovery. Do you think the pace of the recovery in these past few years has been frustrating even for the administration?

Jared Bernstein: I cannot speak for the administration anymore. They do seem to go out there every time there is a report, whether it is GDP or jobs -- wage growth -- and say, "Sure, we are making progress, but we have got to do better." That is a very common line. If you take them at your word, and you should, then I would say it is fair to suggest that they are not satisfied. I think that is a correct place to be, in my view, because it is not just that growth rates are -- as I mentioned in my first comment -- such that we have not really closed some of the big gaps in output or jobs or wages that developed over the great recession. But it is also a matter of who the recovery is reaching. If you look at GDP, it is up about 11 percent over the expansion. Corporate profitability is up 40 percent. The stock market -- adjusted for inflation -- is up something like 80 percent. But the typical household's income is flat, actually down a few percent in real terms. In order for a lot more folks to experience the benefits of the economic growth that has occurred, growth needs to be faster and to reach deeper into the economy.

Mark Hamrick: Wages is definitely a topic that I wanted to ask you about. What do you think is holding wage gains back at this point?

Jared Bernstein: I think it is very much slack in the job market. Yes, the unemployment rate has fallen considerably -- 6.3 percent at the most last month. But the labor force participation rate, the share of the population that is in the job market, either working or looking for work -- anyone who pays attention to these numbers knows that is at a depressed rate, as low as it has been since the late 1970s. Now some of the decline -- the three- or four-percentage-point decline in the labor force since its most recent peak -- has to do with aging baby boomers retiring, leaving the economy. Part of it is benign demographics, but a good chunk of it -- I would say at least half -- has to do with persistently weak demand. And one thing we know about our economy is that it is only in the presence of tight labor markets -- full employment -- that middle and low-wage workers have the bargaining power they otherwise lack, to claim what I would say is their fair share of the economy's growth, growth that they themselves are helping to promote but not benefiting that much from it.

Mark Hamrick: And at the same time that Americans are not seeing much wage growth, everybody seems to be pointing to a first interest rate increase courtesy of the Federal Reserve about a year from now. Do you think that will happen on time Jared?

Jared Bernstein: There is really no "on time." The people who are saying it will happen a year from now are basing that prediction on the data flow. One thing we know about this Federal Reserve -- I am thinking particularly of Chair Janet Yellen -- is that she is very data-driven. We also know that she is very focused on labor market slack. I mentioned that in my last comment as being an extremely important thing for her to stay focused on. I think that the lift-off depends on conditions in the job market. As I mentioned, the unemployment rate -- which is a key benchmark for the Fed -- is biased downward. It is not really 6.3 percent, it is something higher than that because of the labor force exiters that I mentioned, and this is something that the Federal Reserve and Chair Yellen in particular are very cognizant of.

Mark Hamrick: I thought the Fed had waved us off of watching the unemployment rate?

Jared Bernstein: I think that is correct, and at some point they said, well, when it hits 6.5 we will start thinking about lift-off, and then they said never mind because the -- as I mentioned, and as I think most economists who look closely at these data would agree -- that rate is biased down. The Fed has to be mindful of any biases in the numbers on which they are benching their decisions upon.

Mark Hamrick: Jared, you watch the numbers but you are also a keen observer of the political scene in Washington. Do you expect much to get enacted by Congress as it relates to the economy before this November's midterms?

Jared Bernstein: I am reminded of -- I was watching the basketball playoff game, and one of the commentators asked the coach of the San Antonio Spurs, "What are you going to do about Lebron James?" And the coach said, "There is nothing you can do about Lebron James." Well, there is nothing you can do about Congress, they are committed to gridlock and inactivity, so I do not expect much of substance on the economy between now and the election, for sure.

Mark Hamrick: Well Jared, terrific insight, and thanks so much for your time.

Jared Bernstein: My pleasure.

Mark Hamrick: Jared Bernstein. He's senior fellow at the Center on Budget and Policy Priorities and former chief economist to Vice President Joe Biden. He spoke with us from Washington.


If you heard our last podcast, we discussed our recently-published quarterly economists survey. The consensus among our panel of experts was that the economy should gradually improve over the next year, including a lower unemployment rate and slight increase in the pace of hiring. At the same time, there was a fear of an outbreak of higher inflation.

Our next guest shares that concern. William Poole served as President of the Federal Reserve Bank of St. Louis.

He was a member of the Council of Economic Advisers in the first Reagan administration. And is now senior fellow at the Cato Institute in Washington.

To begin, I asked him what he's thinking about the health of the U.S. economy at the moment.

William Poole: Well, I am not in the forecasting business, Mark. But it looks like things are rolling ahead on a steady basis. I think the real issue here is on the fiscal side and not the monetary or financial side. That is the issue here. Fiscal and regulatory sides are depressing activity relative to what the economy could produce.

Mark Hamrick: So let us translate that a bit, because we have all kinds of people listening to our podcast. We know that there is political deadlock in Washington. That is really what you are referring to, I think, the inability of the president and Congress to come together on something that would help the economy.

William Poole: Well, that is certainly part of it. And there is a stalemate on dealing with the long-run fiscal issue. And there is no progress on tax reform, which we desperately need at both the individual and corporate level. But there are also disincentives to expansion on the regulatory side. And the easiest example, and a not unimportant one in its own right, is the Keystone XL pipeline, which the president has blocked.

So the companies are ready to build. But the permits are not there. And that is a regulatory issue. There are other regulatory issues besides just that one. There are other pipelines that are held up in the regulatory process. The Federal Energy Regulatory Commission, FERC, has lots of projects awaiting approval. They are all sitting there. There is a lot that companies are ready to build. And it is particularly attractive in today's unusually low interest rates. If you cannot get the permits to build, then you cannot build.

Mark Hamrick: What is your sense about the level of frustration about that kind of issue that is currently the experience of members of the Federal Reserve Open Market Committee? Janet Yellen has effectively said, as did her predecessor, Ben Bernanke, that, "We can't do it all alone," in the sense of trying to nudge the economy along.

William Poole: My view of that statement is that it's a pro forma statement. Of course, it is true. It has always been true. The Federal Reserve cannot do it all. But I believe that the current situation is somewhat different, and that it would be helpful if the Federal Reserve could provide more than just a pro forma statement about that.

Mark Hamrick: Well, two questions then. No. 1, what would you have, essentially, Chair Yellen say, exactly? And secondly, why do you think she is hesitant?

William Poole: Well, what the Federal Reserve certainly could do -- it has the staff to come out with a great deal of detailed specific information about projects that are ready to go and are held up in the regulatory process. I believe that the Federal Reserve is unwilling to go that route for a very simple reason that it would provoke possibly a political backlash with the administration and with the Democrats on the Hill.

Mark Hamrick: And indeed, that is a tightrope for any Fed chair to walk, correct?

William Poole: Of course, but it is also true that the Federal Reserve is -- the way I look at it, the Federal Reserve has a responsibility to use its bully pulpit, to use its analytical resources to explain to the American public what the issue is. And what has happened is, because the Federal Reserve is unwilling to go that route at all, what the Fed has done instead is to do this massive QE, quantitative easing, the huge expansion of its balance sheet, because it is trying to do something. And it is building in a long-run risk for the economy.

Mark Hamrick: Well, President Poole, it is terrific to have you share some of your insights on not only the United States economy, but our own central bank. Thanks so much for your time.

William Poole: Very good talking with you Mark.

Mark Hamrick: William Poole, senior fellow at the Cato Institute. He spoke with us from his home in Elkton, Maryland.

And for ongoing coverage of the economy, including the Federal Reserve, check out our website,


Next up, a reminder why following your heart instead of your head can be the worst thing to do for your personal finances, at least when it involves putting yourself on the hook for someone else's loan.

We're talking about co-signing on a loan. Bankrate's Laura Dunn tells us why it's almost always a bad idea.

Co-sign? No. Nuh-uh. Never! Back away from that ledge!

No matter what the sob story or good cause, say no to co-signing, even if a spouse, parent or child asks. Why? You take on full responsibility of inheriting their debt if they default on the loan. Politely decline so you don't ruin the relationship or abet a bad behavior.

Even if the loan is paid on time, the debt drops your credit scores, since 30 percent of your score is based on the amount of carried debt. Co-signing also increases your debt-to-income ratio, making it difficult to qualify for loans you may need.

Remember, co-signing should be a responsible decision, not a thoughtful gesture.

However, if you're just set on being their co-signer, make it a gift so you'll be less disappointed if things go south. Assume from the moment you co-sign that you'll pay back the loan yourself.

No matter what your financial situation, do your research.

For more tips on healthy personal spending habits, check out I'm Laura Dunn.

This week in business history:

Summertime brings the season for blockbuster movies.

(music up and under)

And in 1975, an iconic summer thriller, directed by Steven Spielberg debuted on the silver screen.

Of course, we're talking about Jaws, which opened on June 20, 1975, nearly four decades ago.

The story about a killer Great White Shark spawned four sequels and caused a lot of people to think twice about going into the ocean for a swim.

Its success no doubt also helped by the soundtrack composed by John Williams.


You've been listening to "Your Money This Week."

For more on this and other personal finance issues, visit Thanks to producer Lucas Wysocki.

I'm Mark Hamrick. From all of us here at Bankrate, here's hoping you have a great week.

Embed Audio


Fed's forecasts, rate hike timing

Along with its statement on interest rates, Federal Reserve officials are expected to release an updated set of economic projections. Last time they did this, in March, 13 of 16 officials indicated they expect the first hike in the Fed's benchmark federal funds rate to come next year. If the updated projections include any change, that would be important.

No rate hike is anticipated this time, and the Fed is expected to continue drawing down its monthly asset purchases on the way to ending that program this fall.

Chief economist David Crowe with the National Association of Home Builders says he doesn't see much drama coming from the Fed, not at this meeting anyway. "I don't think anything's going to change there," he says.

The start of '14 keeps looking weaker

Many economists believe that growth in the first quarter will be revised to show contraction in the gross domestic product at a 2 percent annual rate. The revision could be even bleaker, according to economists at IHS Global Insight.

The extent of any rebound, during the current quarter and in the second half of the year, takes on added importance. Lindsey Piegza, chief economist at Sterne Agee, says the growth rate in the current quarter could be 2 percent or less. If she's correct, that means growth during the first six months of 2014 would be essentially flat, on average.

Housing struggles

New home construction is also in the spotlight, but its starring role in the recovery is suspect. Between building permits and housing starts, economists are looking for a modest decline from April's numbers.

Ken Fears, senior economist with the National Association of Realtors, says builders are suffering from a "confidence issue."There are so many questions around affordability because of the sharp rises in prices and (interest) rates over the last year," he says. According to Fears, other pressures possibly limiting new homebuyers include rising student loan debt and "credit that remains tight."

Homebuilding slows

The single-family portion of the housing market is in "pause mode," according to NAHB's Crowe. He says builders are waiting for a "clearer sign from the consumer that they're really serious that they are going to come out buy houses." In addition, they're having trouble just building homes at all.

Crowe says that at a recent industry meeting, builders were citing difficulty finding enough workers to put up new homes. He says after homebuilding cratered during the recession, workers fled to other sectors, including the booming energy sector. Crowe says the business is now having trouble attracting new hires and is "poor in recruiting young people."

This week in business history: 'Jaws'

Nearly four decades ago, an iconic summer thriller directed by Steven Spielberg debuted on the silver screen. "Jaws" opened on June 20, 1975.

The story about a killer Great White shark spawned four sequels. It also caused some people to think twice about going into the ocean for a swim.
Follow me on Twitter: @Hamrickisms

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