Fed economists are hard at work maintaining the institution’s reputation as a stoic pillar of economic wisdom—unflappable by politics or the vagaries of the day, all-knowing, and most importantly, efficient. This obsession with image serves an important purpose: the soundness of a central bank depends on Americans believing it to be…reliable.
The Fed, like Madonna, is constantly evolving. This institution, which seeks to create an aura of stability, cannot but surprise us.
The Fed as we know it gradually raises and lowers interest rates at prearranged meetings. They explain their decisions in as much detail as possible and publish their economic forecasts to give Americans an idea of what the future holds.
This was not the case in 1980, when inflation jumped to 14.6%, the highest level on record.
Under the leadership of Paul Volcker, Fed officials have been drastically raising and lowering base rates in unscheduled meetings without corresponding policy statements. The federal funds rate did not have a narrow target range as it does today—it was regularly at 5 percentage points. It wasn’t until Alan Greenspan came to power in the 1990s that the Fed began to adjust rates at FOMC meetings, and it wasn’t until the 2000s that the central bank began to tighten and ease rates cyclically.
Big changes also took place in 2008 under the leadership of Ben Bernanke. It was then that the Fed responded to the Great Recession by adopting a policy that had previously seemed incomprehensible: interest rates were cut by 100 basis points to near zero. They stayed there until 2015.
These actions were “experimental and unprecedented,” said Christopher Leonard, author of Lords of the Easy Money, an upcoming book on the history of the Fed. “They pushed the boundaries.”
Today’s Fed has undergone “a huge shift towards transparency and is trying to make policy clear up front so as not to surprise the markets,” said Brian Reling, head of global fixed income strategy at the Wells Fargo investment institute. They are more transparent about their goals and policies. Beyond that, Powell’s impact on the annals of monetary policy remains to be determined.
Powell appears loosely following Volker’s monetary script during the high-inflation days of the 1980s, but each chairman should play to his strengths, Reinhart said. “Greenspan could dive deep into the data. Volker had personal authority over his understanding of the markets and banking, which was intimidating,” he said. Powell seems to be interested in appearing straight forward; it has shifted the Fed’s focus and attention to all Americans, not just economists and investors, he added.
But this central bank will face a new set of challenges when “the economy doesn’t feel as good and inflation still doesn’t return to its target,” Rehling said. Powell will have to decide whether the Fed will continue its hawkish rate hike in the face of political and public pressure over the state of the economy as a whole. Perhaps that is when the Fed will enter its era of the “material girl”.
The FOMC will meet next week in Washington and is expected to announce another 75 basis point rate hike.
Happy 13th birthday with $7.25 minimum wage
July 24 marks 13 years since the last increase in the U.S. federal minimum wage to $7.25 an hour. It is also the longest period without an increase since the passage of the federal minimum wage in 1938.
Even as historically high inflation has eroded the strength of U.S. wages and news headlines focus on the tight labor market, that rate of $7.25, which works out to $15,080 a year for full-time employment, remains unchanged.
“Every day without a raise is another day that the minimum wage falls even further behind the living wage,” said Holly Sklar, CEO of Business for a Fair Minimum Wage.
A worker on minimum wage today takes home 27.4% less than it did in July 2009 and 40.2% less than it did in February 1968, adjusted for inflation, EPI found.
About 30 states and Washington DC have minimum wages above the federal standard. Five states have not adopted a state minimum wage: Alabama, Louisiana, Mississippi, South Carolina, and Tennessee. Two states, Georgia and Wyoming, have minimum wages below $7.25 an hour. All seven of these states have a federal minimum wage of $7.25 an hour.
Monday: Chicago Fed National Activity Index for June
Tuesday: Microsoft, Alphabet, Coca-Cola and McDonald’s report earnings
Wednesday: Fed interest rate decision and FOMC press conference; Meta and Boeing report earnings
Thursday: Apple, Amazon and Pfizer report earnings
Friday: Exxon Mobile and Chevron report earnings
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