Money in the Morning

FED MEETS TUESDAY — On the agenda for the Federal Open Market Committee: What, if anything, to do about the tepid economic recovery? Fed Chairman Ben Bernanke has called for more measures, but others on the FOMC are unsure that the remaining monetary policy tools would do anything other than increase uncertainty for businesses.

Bloomberg: “The possibility of a sub-par expansion poses a dilemma for the central bank’s policy-making Federal Open Market Committee when it meets tomorrow. While the economy isn’t so weak that it’s clearly in need of more monetary stimulus, it may not be strong enough to keep unemployment from increasing.” ... Economists see Fed 2011 growth estimate of 2.5 to 2.8 percent to be too high.

Columnists’ answer: More inflation — The New Yorker’s James Surowiecki makes the case: “If people believe that prices are going to rise in the future, they may be less cautious about spending in the present, since money that isn’t put to work will lose value. And, because inflation erodes the real value of debts, people’s debt burdens would shrink.” 

Megan McArdle finds more inflation appealing, but warns not to forget about the consequences, such as higher interest rates and AMT creep.

Felix Salmon wants inflation, but not an inflation target: “...creating inflation can be very hard indeed. And if you say that you’re going to create inflation and you fail, then you lose precious credibility.”

OECD: U.S. UNEMPLOYMENT TO REMAIN HIGH  The economy won’t return to pre-recession jobs levels until at least 2013, according to the latest U.S. report by Organization for Economic Cooperation and Development economists. The international group found that the extension of jobless benefits has yet to reduce incentives to work, but has the potential to.

Meanwhile... The S&P hit a 4-month high despite a lack of groundbreaking economic developments.

The recession officially ended in June 2009, despite the ongoing economic pain.

HOT ON THE TUBES — Paper: The jobs problem isn’t structural

Roosevelt Institute’s Arjun Jayadev and Mike Konczal say high unemployment is due to lack of demand, not a mismatch of skills between workers and employers: “Everywhere we look, across occupations and sectors, people with the skills to work their jobs are more likely to be working part-time for economic reasons in 2010 than they were before the recession. ... If the issues of long term unemployment and the large number of people dropping out of the labor force are not addressed soon then what is an aggregate demand problem can become a structural problem through hysteresis effects.”

Paul Krugman wonders again why policy makers aren’t listening to people like Konczal and are not doing enough to stimulate demand.

Free Exchange says policymakers need to do both: stimulate demand and restructure the supply.

Bureaucracy slows stimulus... Just a third of the $230 billion for new stimulus infrastructure projects has been paid out, the WSJ reports. “The result is that the Obama administration is struggling to convince skeptical voters that the stimulus was effective. Among respondents to a Wall Street Journal/ NBC News poll in August, 30% thought the plan had ‘made things better,’ 30% thought it had ‘made things worse’ and 40% said it was ‘too soon to tell’ or had no opinion.” 


The president during his CNBC town-hall meeting at the Newseum... 

... wouldn’t rule out new economic team or a payroll tax holiday.

... pressed China on currency, saying it hasn’t done enough to revalue the yuan.

... said his administration is not “anti-business.”

... challenged the Tea Party to come up with answers on spending.

... dug his heels in on the Bush tax cuts for the rich.

The reaction...

"Mad Money" Cramer: Obama "has learned how to get out of the market's way." 

Jim Pethokoukis: Obama didn't rule out more taxes.

Arianna and new HuffPo senior editor Howard Fineman: Obama needs to be more clear about his jobs plans.


Sen. Dick Durbin (D-Ill.) says the Senate still plans to vote on a tax-cut extension before leaving in October.

Sen. Bob Corker (R-Tenn.) predicts two-year extension of all Bush tax cuts.

Heritage experts see Obama policies cutting GDP by $1.1 trillion, killing jobs over next decade.

CNN survey: Most economists support extending all the Bush tax cuts.