International Forecaster Weekly

FED TOLD TO SPEED UP TAPERING, IMPROVE COMMUNICATIONS AND RELEASE PAPER ON DIGITAL CURRENCY

Jerome Powell and his colleagues at the Fed are getting advice from a new generation of college students; maybe that’s a group they’ll listen to.

They’re telling them to speed up the tapering, enhance communications with the public and finish their study on digital currency.

For a few minutes every semester or two, the students act as Fed officials and compete to pitch staffers the best direction for the economy.

Never mind the Wall Streeters. Here’s a fresh look from the next generation policymakers.

Guest Writer | December 4, 2021

By Dave Allen for Discount Gold & Silver

Jerome Powell and his colleagues at the Fed are getting advice from a new generation of college students; maybe that’s a group they’ll listen to.

They’re telling them to speed up the tapering, enhance communications with the public and finish their study on digital currency.

For a few minutes every semester or two, the students act as Fed officials and compete to pitch staffers the best direction for the economy.

Never mind the Wall Streeters. Here’s a fresh look from the next generation policymakers.

Liza Brover, a senior at Penn who competed in the College Fed Challenge this year, explained:

“This competition is a window for the Fed to see how young people look at the economy. To that extent, people should care what we have to say about inflation and employment.”

Earlier this fall, college Fed clubs around the country took a look at the economy.  Covid was finally starting to level off, when the Delta variant reared its ugly head. 

Inflation was getting hotter and hotter, but it appeared to be transitory. And job gains, after a summer surge, looked to have slowed.

The Fed students debuted a policy decision based on those conditions — much like the real one we get from the actual FOMC roughly every six weeks. 

The best presentation wins Round One and then moves on to Q&A with Fed economists and other staff.

The latest winners were students from Pace University. That team recommended that the Fed issue a new document that’s more explicit about the path of the economy.

They also presented other recommendations, such as keeping the current pace of its asset purchases.

Pace senior and team co-captain Fiona Waterman “It’d be around two pages, just letting market participants into the mind of the Fed and the specific indicators that help guide their outlook…”

That advice still holds true as the Fed made a recent hard right turn. Bowing to the possibility that surging prices might stick around, Powell announced the Fed will likely speed up the tapering of its bond purchases.

Plus, it added, an interest rate hike might not be as far off as it had been saying.

Another Pace captain Winnie Liu said, “The Fed should be more specific about what kind of [specific] conditions would trigger liftoff. 

“If the economy continues to grow and inflation stays elevated, how long can the Fed afford to wait to raise rates?” 

Other students say the Fed should have better prepared the public for that switch dynamic.

Penn sophomore (and co-captain of the club that won 2nd place this year) Brian Lee, noted:

“What we would have hoped to see was the [specific] conditions which would have led the Fed to reconsider whether inflation is transitory laid out way ahead of time, maybe in September or August.”

The Pace students also said the Fed should clarify where they stand on Fed-issued digital coins.

Issaac Tham, a Penn senior, reminded us that over the summer, “Powell did promise to release a white paper about what the Fed thinks about CBDCs. It’s really cold now and we haven’t seen the white paper.” 

Powell told the Senate Banking Committee earlier this week that the paper is expected to be released in the next few weeks.

The bottom line, Fed Challenge alumni tend to land at Wall Street’s big banks, think tanks and sometimes the Fed itself. 

Let’s hope this new generation of policymakers is more successful at effectively managing the economy than their predecessors have been.

Speaking of Jobs…

Whatever you’re thinking about the economy, you’ll find something in today’s conflicting jobs report to reinforce your views: 

America's job market is hot and the labor market is anemic. The conflict comes from the two separate surveys the government uses to compile the report.

The emerging consensus among economists and market participants is that the Fed’s survey of households is more on-point than the survey of employers, which shows much more weakness.

The most recent households survey showed a booming employment situation, with over 1.1 million new jobs last month. 

If we're at or near full employment (generally thought to be around 4%), then the Fed should take its foot off the gas pedal and maybe even start thinking about tapping the brakes.

If, however, there's still a long way to go before we get back to whatever full employment actually is, then the Fed certainly shouldn't leave the most vulnerable Americans behind.

According to the Department of Labor, the economy added 210,000 jobs in November. That's just one third of the roughly 575,000 new jobs that economists expected.

In the household survey, however, the headline unemployment rate plunged to a pandemic-low of 4.2%, down from 4.6%.

Plus, the jobs report showed that labor force participation increased to a pandemic-high of 61.8%.

"My sense is the household estimate is closer to the truth around what is happening in the jobs market," so says RSM economist Joe Brusuelas.

Another Fed watcher, the New York Times' Neil Irwin, added: "Normally the establishment survey is the better indicator of how things are going month to month, 

“But right now, the household survey better aligns with what the rest of the data and anecdotes are telling us."

Again, however you see the economy as a whole — where it is today and where it's going in the next 3-6 months — inflation’s trajectory should be at the top of what you pay attention to…when it comes to gold and silver.