"Kee" Points with Jim Kee, Ph.D.

Shutdown: Well, frankly the government shutdown (today is day 14) has gone on longer than I thought it would, but I think the markets’ recent positive movements reflect the recognition that neither the public nor the majority of politicians have an interest in a prolonged stalemate. That’s pretty evident by last week’s move by negotiators towards longer-term entitlement reform – where there’s a lot of common ground – and away from the Affordable Care Act (i.e. “Obamacare”) funding war, where there is little common ground. Treasury Secretary Jacob Lew’s deadline for the risk of not meeting all obligations is Friday, October 18th. But most strategists argue that the end of the month is the real drop-dead date, so there may not be resolution until that 18th to 31st period. One plausible scenario has markets selling off after the 18th deadline, forcing quick resolution from Congress. But most are betting on a Thursday evening deal. We’ll see.

 

Janet Yellen and the Federal Reserve: As expected, President Obama nominated Federal Reserve Vice Chairman Janet Yellen to succeed Ben Bernanke as Fed Chairman. I see no immediate change in philosophy here, and as Jeanie Wyatt mentioned in our recent client webcast www.brainshark.com/stmmltd/3Q2013, the important thing is that Ms. Yellen represents continuity. That’s crucial, as the last thing markets need right now is a huge injection of uncertainty on the monetary side of the policy mix.

 

How I think about it: Upon listening to commentary from both laymen and professionals regarding the Fed over the past several years, I am constantly reminded of how true economist George Stigler’s statement was that, “what a person says is much less important than what others hear.” It has been a source of amazement to me what other people have heard in Fed Chairman Ben Bernanke’s speeches, and I assume that this will continue with Janet Yellen (assuming she is confirmed). This is what I hear: Over 30 years ago economist Norman B. Ture, who was involved in both the Kennedy and Reagan era tax cuts, used to exasperatingly exclaim that “we could accomplish miracles on the fiscal side if we had a reasonably coherent and stable monetary policy.” I have always heard in Bernanke’s speeches, “if you want to accomplish something positive on the fiscal side of the policy mix, I’ve got your back on the monetary part.” Honestly, nothing more or less. I see Ms. Yellen as a continuation of that theme, which is basically a call for simplification and permanence (i.e. clarity) on the fiscal (tax, spending, regulatory) side, and a promise not to work against economic expansion on the monetary side.