Benn Steil

Geo-Graphics

A graphical take on geoeconomic issues, with links to the news and expert commentary.

“It’s (Still) the Inflation, Stupid.”

by Benn Steil and Dinah Walker Thursday, March 13, 2014
inflation and unemployment v targets

Fed officials have been tripping over themselves and each other trying to explain to the world what the right measure of unemployment is and how it should affect what the Fed does.

Using the headline unemployment rate (“U-3”) in official communications hasn’t worked out so well.  Last June, then-Chairman Ben Bernanke suggested that the taper would end with U-3 around 7%; in fact, taper only started with U-3 below that level, at 6.6%.  The FOMC’s December 2012 forward guidance specified a 6.5% threshold for potential rate rises; yet now, with unemployment barely above this, we have NY Fed President Bill Dudley arguing that the guidance should be discarded entirely, as the number is “not providing a lot of value right now in terms of our communications.” Read more »

Lew Does Not Need IMF Reform to Aid Ukraine

by Benn Steil and Dinah Walker Wednesday, March 5, 2014
Ukraine IMF

The new provisional government in Ukraine is seeking $15 billion in assistance from the International Monetary Fund.  This would represent 700% of the country’s quota with the Fund, added on top of the loans it has already outstanding, amounting to 214% of its quota. Read more »

Was Ukraine Tapered?

by Benn Steil and Dinah Walker Tuesday, February 25, 2014
ukraine

For Ukraine’s beleaguered bond market, the seminal event of 2013 was Ben Bernanke’s now-famous taper talk of May 22.  As today’s Geo-Graphic shows, it sent yields soaring to levels they never came back from.

Ukraine was uniquely susceptible to taperitis, having been sporting a current account deficit of 8% of GDP—considerably worse than other big victims such as India, Brazil, Indonesia, Turkey, and South Africa.  Its current political crisis clearly has deep roots, yet it is interesting to speculate as to whether Yanukovych could have held on had it not been for the country’s spiraling debt costs—sent spiraling by the Fed last May. Read more »

“It’s the Growth, Stupid” (Or Half of It): Unemployment in North Carolina

by Benn Steil and Dinah Walker Tuesday, February 11, 2014
north carolina

In July, North Carolina cut off unemployment benefits for those who have been on benefits for 19 weeks, down from 99.  This made it a test run for what would happen nationally after January 1, when the federal extension of unemployment benefits expired. Read more »

“The Euro Crisis Is Dead! Long Live the Euro Crisis!”

by Benn Steil and Dinah Walker Friday, January 24, 2014
spanish spreads

You’ve got to hand it to Mario Draghi.  Never in the history of central banking has one man accomplished so much with so few words and even less action.

Since having announced the creation of the Outright Monetary Transaction (OMT) program in August 2012, Draghi has had the pleasure of sitting back and watching yield spreads between Spanish and German government bonds fall relentlessly without having to buy a single bond.  Italian spreads have done the same. Read more »

Which Fed Guidance Should We Believe?

by Benn Steil and Dinah Walker Monday, January 13, 2014
forward guidance

In October 2012, the Fed issued what came to be called a “pledge” to keep its target interest rate near zero through mid-2015.  The market immediately reacted as the Fed wanted, centering expectations on a rate hike in mid-2015.

At its next meeting, the Fed abandoned date-based guidance in favor of data-based guidance: a pledge to keep rates near zero until the unemployment rate fell below 6.5%.  The Fed emphasized, however, that the two pledges were consistent, as it didn’t expect unemployment to fall below that level until mid-2015. Read more »

“It’s the Inflation, Stupid”

by Benn Steil and Dinah Walker Monday, December 16, 2013
dual mandate

“Based on labor market data alone, the probability of a reduction in the pace of asset purchases has increased,” said Federal Reserve Bank of St. Louis President James Bullard on December 9.  Indeed, Fed watchers have been firmly focused on the improving labor market data in their handicapping of the prospects for an imminent Fed “taper” of its monthly asset purchases, known as “QE3,” which it began back in September 2012. Read more »

Beware of Greeks Bearing Primary Budget Surpluses

by Benn Steil and Dinah Walker Wednesday, December 4, 2013
primary balance and default

Things are looking up in Greece – that’s what Greek ministers have been telling the world of late, pointing to the substantial and rapidly improving primary budget surplus the country is generating.  Yet the country’s creditors should beware of Greeks bearing surpluses. Read more »

Is a “Decisive Role” for Market Forces in China Compatible with a 7 Percent Growth Target?

by Benn Steil and Dinah Walker Wednesday, November 20, 2013
china target vs us forecast

The Chinese government is early next year expected to announce a 7% growth target for 2014, a rate China has managed to exceed every year since 1990.  Chinese growth has also exceeded the government target at least as far back as 2001 (the first year for which we have found such targets); the target has therefore in essence been a floor.  In contrast, as today’s Geo-Graphic shows, the White House has overestimated U.S. growth 70% of the time since 2001. Read more »

ECB Rate Cut a No-Brainer; Also, for Many, a No-Gainer

by Benn Steil and Dinah Walker Wednesday, November 6, 2013
inflation and correlation

Back in April, we showed that the eurozone countries most in need of lower corporate borrowing rates benefited only marginally from ECB rate cuts. Today’s Geo-Graphic shows that little has changed in this regard; the financial crisis has clearly done serious and lasting damage to the monetary transmission mechanism in Europe – particularly as it affects Greece, Portugal, Spain, and Italy. Read more »