Wonkbook: Everything’s coming up Yellen

September 17, 2013

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(Photo by Robert Galbraith/Reuters)
(Photo by Robert Galbraith/Reuters)

The White House certainly isn't discouraging anyone from thinking that Janet Yellen will be their pick to chair the Federal Reserve. "Officials close to the White House" tell the New York Times that Yellen is now the frontrunner. "Senior administration officials" tell the Wall Street Journal that the process isn't starting over and no new names have been added to the list.

This is consistent with what the White House has said all along: Summers is their first choice, but Yellen is an excellent choice.

It's true that there have been tensions between Yellen and key members of the White House, but this is often overblown. There are whispers of friction between Yellen and Gene Sperling during the Clinton administration, but the clashes were so minor and routine that no one who was there even seems to remember specifics ("standard turf stuff" is the answer I've gotten). More consequential, and more recent, are the tensions that have emerged between Yellen and Federal Reserve Governor (and early Obama adviser) Dan Tarullo. But even those are relatively modest.

Meanwhile, the other plausible candidate, Don Kohn, has baggage, too. Though he's widely beloved in the monetary-policy world and has decades of Fed experience, Kohn was adviser, confidante, and vice-chair to Alan Greenspan and Ben Bernanke during the long run-up to the crisis. It would be very hard for the Obama administration to explain why they chose Kohn, who didn't see the storm coming, over Yellen, who did. (That said, Kohn's recent speech on financial regulation was quite strong.)

Meanwhile, the Fed will meet today to decide whether to begin "tapering" their support for the economy. The consensus expectation is they'll pull back a bit, though not much. As Neil Irwin writes, a likely option is that "the Fed will slow the pace of its bond purchases only modestly, reducing them, say, from $85 billion a month to about $75 billion. That would allow it to assess the effects on markets and have more time to see how the economy is evolving before acting further."

It's also possible Bernanke and the Fed will do nothing, as job growth in recent months has been weaker than anyone has hoped and it might make sense to leave current policy in place if there's soon to be a new Fed chief. That way the new chair can decide whether to begin the taper, or whether more support is needed.

Wonkbook's Number of the Day: 24 square inches. Yes, we've never done a dimension before. But that's how little space it takes to give you all the personal-financial advice you'll never need.

Wonkbook's Graph of the Day: How Janet Yellen would raise interest rates, in green. See this 2012 speech for context.

Wonkbook's Top 5 Stories: 1) Fed week; 2) oh my, not again; 3) Syria and sarin; 4) majority of U.S. states to expand Medicaid; and 5) Wonkbook's brief rundown on the Navy Yard shooting.

1) Top story: Between Yellen and tapering, this is the Fed's week

Yellen is now frontrunner to lead Fed. "President Barack Obama hasn't made a final decision, a senior administration official said. The process for selecting a nominee isn't starting over, senior administration officials said Monday, and no new candidates have been added to the mix. An announcement won't happen this week, officials said. White House press secretary Jay Carney said Monday that Mr. Obama is still on track to name his Fed nominee this fall, which he noted technically begins next week." Carol E. Lee, Damian Paletta, and Jon Hilsenrath in The Wall Street Journal.

...And markets are thrilled Summers won't be Fed chair. "Since news broke Sunday afternoon that Larry Summers has taken himself out of the running to lead the Federal Reserve, the reaction in financial markets can only be described as elation. The Standard & Poor's 500 index opened Monday morning up 0.9 percent, and the Dow Jones industrial average up 155 points. Bond markets rallied, as well, with 10-year interest rates falling from around 2.9 percent Friday to 2.79 percent Monday morning, and the dollar fell against other currencies." Neil Irwin in The Washington Post.

@joebrusuelas: Let me state what Wall Street is thinking: #Yellen more qualified that #Summers. Triumph of merit & exceptionalism over connections

Yellen builds momentum. "Administration officials and supporters acknowledged that the president would enrage his party’s base if he were now to reject Ms. Yellen and forfeit the chance to name the first woman to the most influential economic job in the world. On the other hand, with no obvious alternatives, the choice of Ms. Yellen — which months ago might have been celebrated as historic — is likely to be seen as Mr. Obama’s reluctant capitulation to his party’s left wing. That prospect, and Mr. Obama’s distaste for being pressured into some action, could prompt him to consider other candidates, several former administration officials said." Jackie Calmes and Binyamin Appelbaum in The New York Times.

@JimPethokoukis: More Morgan Stanley: "Everyone who is not Yellen is less dovish and more willing to talk with market participants"

What about Don Kohn? "Conveniently for us, Kohn had a previously scheduled appearance at a Brookings seminar Monday, where he dropped a few clues about where he thinks efforts at financial repair and regulation stand. Bottom line: He may be open to some experimentation, but is not terribly hopeful that the system can be completely fixed. The overall topic was “Making Macroprudential Policy Work,” an unspeakably dry way of asking whether bureaucrats should bust market bubbles – i.e. keep your house or portfolio from getting too valuable on the upswing in hopes of preventing a complete crash on the way down. It’s a bit of market and social engineering that has come into vogue in financial regulatory circles since the Lehman collapse, though no one’s quite sure what it means in practice or how quite to apply it." Howard Schneider in The Washington Post.

Poll: Americans say Washington, Wall Street haven’t done enough to thwart financial crisesScott Clement in The Washington Post.

With friends like President Obama, Summers should be asking himself, who needs enemies? "Barack Obama’s got a knack for turning trial balloons into piñatas, and then leaving his allies to pick up the mess. The pattern: He floats a buddy for a top job early, deliberates long enough for the opposition to gather steam, defends his pal too late to do any good and then regretfully accepts defeat. First it was Susan Rice, his choice for secretary of state. Now, Larry Summers has withdrawn from consideration to become the next chairman of the Federal Reserve. Their candidacies were so poorly handled that neither ever made it to the stage of being nominated, much less getting blocked — or voted down — by the Senate." Jonathan Allen in Politico.

Summers's withdrawal points to party fissures. "In some of these cases, it was centrist Democrats who rejected Mr. Obama's plans. The final straw for the Summers nomination seemed to come Friday, when Sen. Jon Tester (D., Mont.), a centrist, said he would vote against the former Treasury secretary. A sure sign of trouble for Mr. Obama's request to use force in Syria came when Sen. Joe Manchin (D., W.Va.) said he couldn't back the president's resolution. The recent events have also showed the power of a resurgent liberal Democratic wing. Liberal groups quickly claimed credit for Mr. Summers's withdrawal late Sunday, and they are expected to ramp up their opposition to spending cuts as Congress debates deficit-reduction measures in the coming weeks." Damian Paletta in The Wall Street Journal.

@morningmoneyben: Don't get the argument that Obama will bypass Yellen just to stick it to E. Warren et al on the left. Seems nonsensical.

What to expect from the Fed this week. "The Federal Reserve begins one of its regular policy meetings Tuesday. But this one will feel anything but routine. For the first time in months, the outcome of the meeting is genuinely in question. The Fed must decide whether to begin pulling back on the rate at which it pumps new money into the economy. It has been buying $85 billion in bonds using newly created money for the past year, but it might be ready to start closing the spigot. It would be the most concrete step the Fed has taken toward trying to wind down its aggressive interventions to support economic growth." Neil Irwin in The Washington Post.

@justinwolfers: Will Yellen's impending promotion lead fellow FOMC members to give greater deference to her (dovish) views when they debate tapering on Wed?

@justinwolfers: Latest #FedChairOdds from Paddy Power: Yellen 1/8 Kohn 8/1 Geithner 8/1 Ferguson 16/1 Romer 33/1 Meyer 40/1 Krueger, Blinder, Fischer 40/1

...The ‘taper’: what it means for economies outside the US. "Even in duller times, the Fed’s monetary policy has implications worldwide because of the dollar’s role as the global reserve currency, used commonly for trade. The fact the US is the world’s largest economy also affects expectations for borrowing costs elsewhere – if America is recovering, the presumption is that growth and interest rates will rise elsewhere too...Governments outside the US have two major problems from tapering. First, the decision by the Fed to slow the pace of its bond-buying has raised their borrowing costs. Second, they are major holders of US Treasuries." Claire Jones in The Financial Times.

Fed faces tough sell on low-rate strategy. "Their updated economic projections could show an economy that appears back to normal by 2016, but their projections of where short-term interest rates will be could show rates still quite low by then. Their challenge: How to justify the low interest-rate plan when their own estimates suggest an economy regaining its health." Jon Hilsenrath in The Wall Street Journal.

Wall Street faces an unfriendly new Senate. "Wall Street, which has typically counted on the United States Senate to moderate public anger, found itself reckoning Monday with a new reality: A key Senate panel stacked with liberals immune to its blandishments...When Kaufman and Connaughton were in Washington, Kaufman along with Senator Sherrod Brown of Ohio proposed an amendment to Dodd-Frank which would have placed a size limit on the biggest banks. After the Obama administration lobbied against the amendment — with Summers personally going to Kaufman — it failed 61 to 33." Matthew Zeitlin in BuzzFeed.

U.S. factory output picked up in August. "Industrial output increased a seasonally adjusted 0.4% last month and the use of available production capacity inched ahead 0.2 percentage point to 77.8%, the Federal Reserve said Monday. Both figures were in line with economists' forecasts. Manufacturing, the biggest component of industrial production, advanced 0.7% in August, bouncing back from July's 0.4% drop. Utility output slid 1.5% while the mining component of the overall index rose 0.3%. Manufacturing accounts for less than one-fifth of gross domestic product in the U.S., but the sector is scrutinized as a reflection of the broader economy's health." Jeffrey Sparshott in The Wall Street Journal.

...And let's check in on the housing recovery with a just-released report: "To understand why the vacancy rate and household formation matter for new construction, here’s a simple analogy. Think of the vacant housing stock as water in a bathtub. The bathtub fills when new homes are built. The bathtub drains as vacant homes are occupied, which depends on how fast the overall number of households is increasing – “household formation.”" Jed Kolko in Trulia. Link to go live at 7 a.m.

This 4x6 index card has all the financial advice you'll ever need. "Think managing your finances has to be complicated? Wonkblog contributor (and UC Chicago social scientist) Harold Pollack doesn't. After a talk with personal finance expert Helaine Olen, Pollack managed to write down pretty much everything you need to know on a 4x6 index card...[T]he lesson here is that once you have an income that you can live off of and save a little bit besides, managing your finances shouldn't be all that hard. The people making it complicated are often trying to make money off of you." Ezra Klein in The Washington Post.

Regulators to charge JPMorgan Chase $750 million in London Whale cases. "The settlements could be announced as soon as this week, said the people who were not authorized to speak publicly because the settlements have not been finalized. It would resolve a majority of the investigations that were launched after JPMorgan revealed that its traders in London placed bad bets on credit derivatives that resulted in billions of dollars in losses. The bank may make a rare declaration of wrongdoing in its agreement with the Securities and Exchange Commission." Danielle Douglas and Dina ElBoghdady in The Washington Post.

SOLTAS: With Summers, the left takes a scalp. "This was really never about monetary policy -- which is sad, given that it’s the only function of the Fed where it has independence. And I don’t think this was about Summers’s record on financial regulation, although that’s debatable...No, this was about tribalism. In the mind of progressives, the Democratic Party has let them lead on social issues -- see Obama’s quick “evolution” on same-sex marriage -- but locked them out of the room where tax rates are set, trade agreements signed, budgets drawn up and regulations stamped. It could only keep them pounding at the door for so long." Evan Soltas in Bloomberg.

Music recommendations interlude: Kings of Leon, "Taper Jean Girl." Oh, and one more: Dire Straits, "Money for Nothing."

Top opinion

SCHAUBLE: Europe is being fixed. "What is happening turns out to be pretty much what the proponents of Europe’s cool-headed crisis management predicted. The fiscal and structural repair work is paying off, laying the foundations for sustainable growth. This has taken critical observers aback. It should not have, because, in truth, we have seen it all before, many times and in many places. Despite what the critics of the European crisis management would have us believe, we live in the real world, not in a parallel universe where well-established economic principles no longer apply." Wolfgang Schauble in The Financial Times.

FELDSTEIN: How to create a real economic stimulus. "Entitlement reforms and a limit on tax expenditures are the keys to creating the framework for the tax-rate reductions and infrastructure spending that can stimulate growth and employment while gradually shrinking the relative size of the national debt. Without such a program, the U.S. economy will continue to limp along with slow growth, declining earnings and weak employment." Martin Feldstein in The Wall Street Journal.

SCHEIBER: This time there really will be a government shutdown. "Even so, if this were the only obstacle to an agreement, we might still avoid a government shutdown. After all, we’ve been in situations before where the null-set logic looked ironclad, only to have one side or the other back down at the last minute...What makes this time is different is that, in addition to having carved out hardline positions, neither side has an incentive to back down." Noam Scheiber in The New Republic.

FRAKT AND CARROLL: The feel-good promise of wellness programs. "Whether wellness programs work as intended or not, let’s recognize what they also do: They increase the cost of coverage for some employees. That saves employers money but by shifting costs to workers. Those who bear the brunt of this increase are the less healthy employees, who also tend to be those of lower socioeconomic status. Now let’s consider what wellness programs might do: reduce health-care spending and improve health. In general, the evidence is weak that they will. Why? Conceptually, factors within workers’ control make only a small contribution to rising health-care costs, so there’s only so much such a program can do, even if it works perfectly. Empirically, the track record of wellness programs’ efficacy is mixed at best." Austin Frakt and Aaron Carroll in Bloomberg.

No way interlude: Apparently, there is such a thing as "one-way bulletproof glass."

2) For heaven's sake, do we really have to do this again?

Seeing potential ‘economic chaos,’ Obama warns GOP on shutdown threat. "A potential federal shutdown looming, President Barack Obama on Monday warned congressional Republicans they could trigger national “economic chaos” if they demand a delay of his health care law as the price for supporting continued spending for federal operations. House Republican leaders were to meet Tuesday in hopes of finding a formula that would avoid a shutdown on Oct. 1 without alienating party conservatives who insist on votes to undercut the Affordable Care Act. Even more daunting is a mid- to late-October deadline for raising the nation’s borrowing limit, which some Republicans also want to use as leverage against the Obama administration." The Associated Press.

Full transcript: President Obama’s Sept. 16 speech on the economy and the navy yard shootingThe Washington Post.

Well, the GOP has really backed itself into a corner on this one. "For three years, Congressional leaders have relied on tactical maneuvers, sleights of hand and sheer gimmickry to move the nation from one fiscal crisis to the next — with little strategy to deal with the actual problems at hand...Now, with a government shutdown looming at month’s end and a crippling default on the nation’s debt possible by mid-October, Congressional leaders may have run out the string on legislative trickery." Jonathan Weisman in The New York Times.

GOP leaders want to link a debt-ceiling hike and the continuing resolution. "The House Republican leadership, facing rank-and-file GOP lawmakers skeptical that the party is willing to defund or delay Obamacare, is weighing ways to tie an increase in the $16.7 trillion debt ceiling to a government funding bill, which must be enacted before Oct. 1, according to several leadership aides involved in the discussions." Jake Sherman and John Bresnahan in Politico.

And you thought you had seen it all interlude: Photography that resembles painting.

3) "The rockets had...Cyrillic letters and numbers on the bottom ring of an engine"

UN confirms evidence of sarin gas. "The report, based on physical samples and interviews with survivors and witnesses, says "several surface-to-surface rockets capable of delivering significant chemical payloads were identified" at the site of the attack. "Samples later confirmed to contain Sarin were recovered from a majority of the rockets or rocket fragments," the report said. "Environmental, chemical and medical samples we have collected provide clear evidence that surface-to-surface rockets containing the nerve agent Sarin was used in Ein Tarma, Moadamiyah and Zamalka in the Ghouta area of Damascus," the report said. The inspectors said that 330-mm caliber rockets fired into one neighborhood likely came from the same multiple-rocket launcher. The resulting craters were small, indicating that the rockets were carrying chemical weapons rather than explosives." Joe Lauria in The Wall Street Journal.

US and allies push for robust UN measure. "Secretary of State John Kerry and the foreign ministers of France and Britain said on Monday that they would not tolerate delays in dismantling Syria’s chemical weapons and would press ahead with a strong resolution in the United Nations Security Council to enforce the disarmament plan...The framework plan on quarantining and destroying Syria’s chemical arsenal was worked out by the United States and Russia on Saturday but now needs to be incorporated into a Security Council resolution. Under the framework agreement, the terms of the accord are to be included in a resolution under Chapter 7 of the United Nations Charter, which would authorize punitive measures if Syria does not comply." Michael R. Gordon in The New York Times.

Oh my god this is so great interlude: Star Wars + HTML.

4) Majority of U.S. states to go ahead with Medicaid expansion

Obamacare hits a tipping point: Most governors now want to expand Medicaid. "Between Pennsylvania and Michigan, you're looking at more than 800,000 people becoming eligible for new health law programs. And if the Pennsylvania expansion does go through, it would be the 26th state to expand Medicaid, meaning that the majority of states had decided to opt into a massive health law provision that the Supreme Court decision last year accepted." Sarah Kliff in The Washington Post.

What science says about fetal pain. "Most scientists who have expressed views on the issue have said they believe that if fetuses can feel pain, the neurological wiring is not in place until later, after the time when nearly all abortions occur. Several scientists have done research that abortion opponents say shows that fetuses can feel pain at 20 weeks after conception. One of those scientists said he believed fetuses could likely feel pain then, but he added that he believed the few abortions performed then could be done in ways to avoid pain. He and two other scientists said they did not think their work or current evidence provided scientific support for fetal-pain laws." Pam Belluck in The New York Times.

The hard truths of cutting health spending in one tweet. "Here's (some of) the evidence that wellness, tort reform and insuring the uninsured don't cut costs. Doing less and paying less both work — but people don't always like the results. As for competition, I'm hopeful, but the evidence says we should be skeptical about that, too." Ezra Klein in The Washington Post.

Two new polls tell us Americans are very, very confused about Obamacare. "Obamacare opens for enrollment in 15 days and, if two new polls are any indication, the White House has a whole lot of work to do in the next two weeks. Taken together, the polls from Pew Research Center/USA Today and Wall Street Journal/NBC News take a pretty good snapshot of where Americans are right now, just days before open enrollment starts." Sarah Kliff in The Washington Post.

Rift exposed over long-term care. "The special commission issued recommendations Friday for tackling the persistent policy challenge of reforming long-term care. The recommendations were approved, 9-6, but five of the nine Democratic appointees voted against the commission’s final recommendations...The commission, which had a small budget and just a few months to issue recommendations, proposed policy changes that drew some bipartisan appeal. Recommendations included reforms to the Medicaid waiver process, a review of state laws on where care is provided and efforts to better coordinate care." Jason Millman in Politico.

Trader Joe’s cut health benefits last week. Here’s its side of the story. "Last week I wrote about Trader Joe's decision to cut health insurance benefits for employees who work fewer than 30 hours a week. After that, one reader forwarded along a response received from Trader Joe's after inquiring about the matter. It's one of the more thorough explanations I've seen from a company cutting in benefits, so I've posted it here. It acknowledges, surprisingly bluntly, that some employees will be worse off for the decision and that others might benefit. Here is the full response." Sarah Kliff in The Washington Post.

Taking antibiotics you don’t really need might kill you. "According to a new report from the Centers for Disease Control and Prevention, "more than two million people are sickened every year with antibiotic-resistant infections, with at least 23,000 dying as a result." Oh, and those numbers are probably too low: "The estimates are based on conservative assumptions and are likely minimum estimates." The basic issue here is that we're using too many antibiotics — both on ourselves and our animals." Ezra Klein in The Washington Post.

Extreme sports interlude: 24 seconds of sumo championship wrestling you have to see.

5) What you need to know about the Navy Yard shooting

At least 13 killed in Navy Yard shooting. "A man who had been forced out of the military after a 2010 gun arrest opened fire inside a Navy building Monday morning, killing 12 people and injuring about a dozen more as he sprayed bullets into a cafeteria of unsuspecting military workers, officials said. Authorities said the alleged gunman, Aaron Alexis of Fort Worth, Texas, was killed in a shootout with police at the scene, but that wasn't the end to a chaotic day in the nation's capital that saw security officials lock down military buildings and the U.S. Senate, and cancel the Washington Nationals game scheduled later in the evening. Hours after the shooting, Police Chief Cathy Lanier warned there could be two additional gunmen on the loose based on possible suspects seen on surveillance video. As the probe wore on, however, investigators decided Mr. Alexis was the sole gunman." Devlin Barrett, Dion Nissenbaum and Rebecca Ballhaus in The Wall Street Journal.

Interview: The vision people have of a military base with uniformed military marching around, that’s not what the Navy Yard is.’ Ezra Klein in The Washington Post.

Navy Yard shooting delays stand-your-ground hearing. "A Senate hearing featuring testimony from Sybrina Fulton – the mother of Trayvon Martin – that had been scheduled for Tuesday was postponed following the fatal Navy Yard shootings. Sen. Dick Durbin’s (D-Ill.) office made the announcement Monday evening. The hearing from the Senate Judiciary Subcommittee on the Constitution, Civil Rights and Human Rights would have focused on so-called “Stand Your Ground” statutes – which prompted a national debate about self-defense laws following Martin’s death in early 2012." Seung Min Kim in Politico.

Aaron Alexis, Navy Yard gunman, involved in prior shooting. "Aaron Alexis, 34, who was discharged from the Navy in 2011 and had been involved in a previous shooting incident involving a neighbor in Texas, has been identified by the FBI as the gunman who killed 12 people on Monday at the Washington Navy Yard. Alexis had been in the Navy as a full-time reservist from May 2007 to January 2011, and left as a petty officer third class, according to biographical data the Navy provided. He was born in Queens, N.Y., and the FBI stated his last known residence was in Fort Worth, Texas. Law enforcement officials said Alexis recently worked as a military contractor." Darren Samuelsohn and Mackenzie Weinger in Politico.

From Newtown to Navy Yard, unpredictable calamities upend Obama’s second term. "Obama’s second term has been buffeted from the start by unpredictable calamities that have helped scuttle his priorities. In December, a mass shooting at an elementary school in Newtown, Conn., that left 26 people dead, including 20 children, prompted the newly reelected president to focus on an unsuccessful attempt to pass gun-control legislation ahead of other priorities. In many ways, Obama has yet to recover from that early-second-term loss. Immigration reform, which was supposed to be Obama’s top domestic priority, is stalled in the Republican-controlled House. A budget standoff in the spring led the White House to accept mandatory, across-the-board spending cuts that have forced federal agencies to scale back programs. And escalating violence in Egypt and Syria has led to renewed questions about Obama’s foreign policy in the Middle East." David Nakamura in The Washington Post.

Reading material interlude: The best sentences Wonkblog read today.

Wonkblog Roundup

Markets are thrilled Larry Summers won’t be Fed chairNeil Irwin.

Trader Joe’s cut health benefits last week. Here’s its side of the storySarah Kliff.

The hard truths of cutting health spending in one tweetEzra Klein.

Obamacare hits a tipping point: Most governors now want to expand MedicaidSarah Kliff.

Taking antibiotics you don’t really need might kill youEzra Klein.

How Don Kohn, possible Fed chair, is thinking about financial regulationHoward Schneider.

The vision people have of a military base with uniformed military marching around, that’s not what the Navy Yard is.’ Ezra Klein.

Two new polls tell us Americans are very, very confused about ObamacareSarah Kliff.

This 4×6 index card has all the financial advice you’ll ever needEzra Klein.

Et Cetera

Gas leaks in fracking are milder than federal government had thought, study showsMichael Wines in The New York Times.

The state pension situation is improving, but most plan funding is still lowNiraj Chokshi in The Washington Post.

Got tips, additions, or comments? E-mail me.

Wonkbook is produced with help from Michelle Williams.

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Dylan Matthews · September 16, 2013