Nathan Sheets, head of the Fed’s international division until August, clearly plans to enjoy his freedom as head of international economics at Citi. In a new note he proposes a fairly dramatic communications option for the Fed – setting a target for the level of nominal consumption – which is definitely not the kind of thing you’re allowed to say in public when you work at the Federal Reserve Board.
As Mr Sheets notes, the Fed has ruled out any dramatic changes to its framework for the time being, but “our view is that in the event of a sizable financial shock from Europe—or evidence that the economy was slipping into recession—the Fed would be looking for a ‘bazooka,’ and such a regime would again be considered”.
When he established the Office for Budget Responsibility, George Osborne had never envisaged his creation would give him such a grim day less than 18 months later. But the OBR has just told the chancellor that without further action his deficit reduction ambitions were seriously off track.
The latest forecasts with lower growth and higher borrowing implied Britain would miss Mr Osborne’s March Budget ambition of eliminating the current structural deficit by 2014-15 by miles. The original OBR forecasts showed he was set to meet his goals not one, not two, but only three years later in 2017-18, close to the election after next.
With such bad news, the government has had to announce not a “plan B” of policy stimulus, but an “augmented plan A” with £15bn additional spending cuts a year by 2016-17 – deeper cuts in the final two years than the annual austerity being undertaken now. And that is all just to allow him to scrape home on his fiscal mandate. Austerity is no longer a four-year pain, but a six-year trial.