The Fed’s idea of ‘normalization’ changes

Washington Post

Two years ago, top officials at the Federal Reserve mapped out a strategy for withdrawing the central bank’s unprecedented support for the American economy.

The official communiqué was titled “Policy Normalization Principles and Plans,” and it was supposed to serve as a rough outline for the tenure of newly installed Fed Chair Janet L. Yellen. Essentially, it consisted of two basic parts: Raise interest rates and shrink the central bank’s massive balance sheet.

But now, both of those steps are being called into question as Fed officials grapple with an economy that appears to be stuck in first gear. Instead of executing its exit strategy, the Fed is confronting the possibility that the dramatic measures it took to safeguard the recovery will remain in place indefinitely.

“Maybe this is one of those cases where you can’t go home again,” former Fed chairman Ben S. Bernanke wrote in a recent blog post arguing for a shift in course.

The central bank has made no official changes to its strategy, which was adopted with a nearly unanimous vote. But just getting started clearly has been a challenge. The Fed has struggled to increase its benchmark interest rate this year after raising it above zero in December for the first time since the Great Recession.

That move was supposed to be the start of a gradual process of normalization, in which the Fed slowly turned up the dial on its target interest rate until it reached about 3.5 percent, close to its historical average. Several times this year, officials suggested that they were preparing to hike, only to punt amid financial market turmoil and fractures in the global economy. The Fed’s top brass will meet again in Washington this week, but investors largely expect them to keep rates steady until December, or even later.

Even once rates do rise again, there is growing acceptance within the central bank that they are unlikely to increase as much as initially anticipated. Officials now estimate rates will only likely reach about 3 percent. Investors believe even that could be too optimistic.

Indeed, some economists fear the next U.S. recession may not be far off — and that means the Fed should be not be considering withdrawing its support but debating what more it could do. “Fed is almost certain to make a mistake,” tweeted Narayana Kocherlakota, a professor at the University of Rochester in New York and former head of the Minneapolis Fed.

Other countries have already been forced to wade

Sure, it’s barely autumn. You’ve only recently sent your kids back to school and ordered your first pumpkin spice latte of the season.

But for big retailers, the countdown to Christmas is already well underway.

In the last week or so, we’ve begun to see a trickle of forecasts and news tidbits that offer hints about how the all-important holiday shopping season is going to shape up. Here, we round up some of the key takeaways.

Forecasters think this year will be better than 2015. Deloitte, a consulting firm, predicts sales will grow this holiday season between 3.6 and 4 percent. Another consultancy, AlixPartners, estimates the industry’s sales will tick up between 3.3 and 4 percent.

That kind of performance would stack up favorably to last year, when the National Retail Federation reported that the industry notched 3 percent growth. That figure wasn’t terrible, but it was sharply below the 3.7 percent the group had forecast at the time. The industry chalked up its troubles in the 2015 season to a variety of factors: Promotional activity was high, and weather was unusually warm in broad swaths of the country, potentially making it less enticing to buy items such as boots and gloves.

This year, analysts are noting that the economy has broadly continued to improve, and that should encourage people to shop.

There are tea leaves to read in retailers’ plans for their seasonal workforces. Several big chains already have announced how many temporary workers they’ll add to get through the holiday crush. Macy’s plans to hire 83,000 employees, while Target is moving to add 70,000 store workers and an additional 7,500 people in its e-commerce warehouses. Kohl’s, meanwhile, plans to bring on 69,000 seasonal staffers. What’s most noteworthy about these numbers is that they are barely changed from last year. This suggests that these big-name stores aren’t expecting any particularly dramatic swings in sales or traffic.

What’s perhaps more interesting than the headline hiring numbers is the fact that Macy’s and Target are bumping up their holidayseason hiring for their ecommerce warehouses. For example, Macy’s had about 12,000 temporary workers in distribution centers last year. This year, the company is boosting that to 15,000. That’s a clue that they expect online, not stores, to be the key driver of sales growth. By aiming to put more manpower in the warehouses, these retailers could be in