The US Federal Reserve has held interest rates incredibly low since late 2008, with the federal funds rate at or below 0.25%. It has taken unprecedented steps (like quantitative easing, or QE) to make money incredibly cheap for businesses, individuals, and banks. Until recently, most members of the Fed’s Open Market Committee (FOMC, which decides these things) have been adamant that, while these policies could do damage under other circumstances, they are necessary now to stimulate the economy.
The most recent minutes from the FOMC suggest the mood is shifting. Although the Fed hasn’t said it will change anything, some members of the committee seemed hesitant about how long it should continue its program of QE, asset purchases meant to push banks out of holding safe securities and into lending. The current round of QE, unlike previous ones, is open-ended. Several committee members now argue that it should be curtailed well before the end of 2013, “citing concerns about financial stability or the size of the balance sheet.” Others suggested it continue at least until the end of the year.
Most interesting is not what the committee said but why. Numerous statements within the minutes suggest that the Fed is truly growing concerned about the unintended consequences of ultra-loose monetary policy on a long-term basis. For four years, Fed Chairman Ben Bernanke and his supporters have argued for more monetary easing, not less. Inflation, the dovish Fed argued, is not the problem right now; we need to do more to get the economy on the move. By all accounts, as my colleague Matt Phillips has reported, this policy has been effective so far.
But three-and-a-half rounds of QE later, Bernanke et. al. see an economy “moderately” on the move, as the housing market improves and unemployment falls. Several committee members now cite concerns about creating unseen bubbles and distortions in the markets, overburdening the Fed’s balance sheet, or even causing problems for the US Treasury in borrowing. Some quotes (our emphasis):
With regard to the possible costs and risks of purchases, a number of participants expressed the concern that additional purchases could complicate the Committee’s efforts to eventually withdraw monetary policy accommodation, for example, by potentially causing inflation expectations to rise or by impairing the future implementation of monetary policy. Participants also discussed the implications of continued asset purchases for the size of the Federal Reserve’s balance sheet. Depending on the path for the balance sheet and interest rates, the Federal Reserve’s net income and its remittances to the Treasury could be significantly affected during the period of policy normalization. Participants noted that the Committee would need to continue to assess whether large purchases were having adverse effects on market functioning and financial stability.
This hawkish stance extends to long-term interest rates, which could eventually hurt savers and push investors into unnecessarily risky assets.
A few participants, observing that low interest rates had increased the demand for riskier financial products, pointed to the possibility that holding interest rates low for a prolonged period could lead to financial imbalances and imprudent risk-taking. One participant suggested that there were several historical episodes in the United States and other countries that might be used to build a better understanding of the financial strains that could develop from a long period of very low long-term interest rates.
In other, shorter words, committee members are worried that prolonged easy money might get the economy addicted; that it will put a strain on the Fed’s own finances; and that it will encourage moral hazard. (That mystical reference to “historical episodes” might be a warning about Japan’s “lost decade” in the 1990s, or US stagflation in the 1970s.) We’ve talked about this before, and tons of economists have been warning about the unintended consequences of QE or low interest rates for years. That the Fed is now discussing it, however, suggests that these concerns may now be more pressing. It also suggests that this could be the beginning of the end for easy monetary policy in the US.
Although holiday shoppers spent $42.3 billion online this holiday season—14% more than they did at the same time in 2011—ComScore says that sales lagged sharply starting in early December. It believes that uncertainty generated by the fiscal cliff—the possibility that taxes would increase, government spending would fall, and Congress would have to debate the debt ceiling all over again—produced a “December swoon,” preventing online spending from reaching the $43.4 billion that was expected.
Says ComScore Chairman Gian Fulgoni:
While November started out at a very healthy 16% growth rate through the promotional period of Thanksgiving, Black Friday and Cyber Monday, consumers almost immediately pulled back on spending, apparently due to concerns over the looming fiscal cliff and what that might mean for their household budgets in 2013. With Congress deadlocked throughout December, growth rates softened even further and never quite made up enough ground to reach our original expectation.
Admittedly, online retailers did see a late surge on the first ever “Free Shipping Day” on Dec. 19, which accounts for the one-week spike you see in the chart above. Otherwise, strong spending in November slumped significantly in early December, from 17% more money spent year-over-year during the week ending Nov. 25 to just 9% more spent the week ending Dec. 9.
And it does make sense that concerns about fiscal policy would impact consumer spending. Even the deal that was reached on Monday, while avoiding tax rate hikes for most Americans, allowed the payroll tax cut to expire, meaning that anyone earning $50,000 in 2013 will have to pay another $1,000 in taxes.
It starts out well, or well-meaning at least. Chinese outbound tourism is the fastest and biggest growing sector in travel, as outbound tourists rose to 70.3 million in 2011, and are expected to rise to 82 million this year, up 17%. And everyone wants these hordes of Chinese travelers spending money, especially the recession and debt crisis beset European countries.
From hotels, airports, malls, and retailers hiring Manadarin speaking concierge services, to countries easing visa norms and doing joint marketing agreements with China, the efforts run the gamut. And most of the time, in the name of being sensitive to the Chinese cultural needs, some tourism organizations and companies resort to cultural shorthands, or cliches, while dealing with the guests.
For instance, Switzerland, a sophisticated tourism marketer as far as countries go, is in a Chinese marketing overdrive: As its mainstay German travelers are shying away, Chinese are among the fastest-growing groups, populating the Alps and buying its famous and pricey watches.
It recently came out with detailed norms and guidelines for its hotel industry on working with Chinese travelers, titled “Swiss Hospitality for Chinese Guests.” And the document, while very detailed and useful, resorts to plenty of cliches about Chinese culture in general, some surely useful, and some borderline offensive. We’ve extracted the best below:
13 global trends that will define travel in 2013
Americans moving out of New York City and into DC
Expedia and Concur team up for $30 million funding round for Room 77