Trade tensions are strangling American manufacturing

The US manufacturing sector has now contracted for two consecutive quarters, according to the Federal Reserve, raising concerns a general recession is drawing near. But those fears remind me of a triathlon I recently completed. With burning lungs and a pounding heart, I’d really flagged during the swimming section. Then I recovered and finished fine. So does a limping manufacturing sector really mean the American expansion will end?

Fed rate cuts won’t help

Everyone has been obsessed with whether the Fed will cut rates and by how much, but the much more important question is: what’s the point? I argue that Fed rate cuts won’t help much:

For a shorter version of this argument, see my CNBC debate on the topic with Steve Liesman and Kelly Evans.

Fed shouldn’t use wages as beacon

For years, the US Federal Reserve steered monetary policy in part by wage growth: drive slack out of the labour market and higher wages, and therefore inflation, should follow. But fishing for inflation in this recovery, the Fed has been using the wrong bait, reading the water incorrectly and getting no bites. I look at why wages aren’t growing and why inflation wouldn’t accelerate even if they did:

ECB has the biggest bazooka

When European Central Bank president Mario Draghi leaves his post in October, most analysts will say his greatest legacy was saving the euro. That’s nothing to sniff at, but years from now I think we will have discovered an even more important legacy: the ECB has created and implemented the biggest monetary policy bazooka out there and we should all look to adopt it in the next serious downturn:

Fiscal stabilizers are crucial

For all the focus on central banks to step in and fight the next downturn, there are tools outside of monetary policy that could be employed. In this Alphachat Podcast, I talk to Jay Shambaugh about fiscal stabilizers and why we should focus on establishing them now while times are good:

Personal News

Some personal news! I’ve recently started as a Senior Fellow at the Mossavar-Rahmani Center for Business and Government (M-RCBG) at the Harvard Kennedy School. I’ll spend the year doing a little teaching and a lot of writing (my regular Financial Times column, as well as a book). So far it has been fantastic, though if any of you have tips on cycling to work in Boston in the winter, I am all ears…