The Federal Open Market Committee (FOMC) maintained the target range for the federal funds rate (FFR) at 5.25 – 5.5 percent in its November 2023 meeting. While the September 2023 Summary of Economic Projections (SEP) projected a range between 5.5 and 5.75 percent by the end of 2023, it clear that the Committee will wait before deciding whether to end the rate hiking cycle or to have one more rate increase at a subsequent meeting. There is widespread agreement that the Fed fell “behind the curve” by not raising rates when inflation rose in 2021, forcing it to play “catch-up” in 2022. “Behind the curve,” however, is meaningless without a measure of “on the curve.” In the latest version of our paper, “Policy Rules and Forward Guidance Following the Covid-19 Recession,” we use data from the SEP’s from September 2020 to June 2023 to compare policy rule prescriptions with actual and FOMC projections of the FFR. This provides a precise definition of “behind the curve” as the difference between the FFR prescribed by the policy rule and the actual or projected FFR. We analyze four policy rules that are relevant for the future path of the FFR in the post: The Taylor (1993) rule with an unemployment gap is as follows, where Rt is the level of the short-term federal funds interest rate prescribed by the rule, πt is the inflation rate, πLR is the 2 percent target level of inflation, ULRt is the 4 percent rate of unemployment in the longer run, Ut is the current unemployment rate, and rLRt is the ½ percent neutral real interest rate from the current SEP. Yellen (2012) analyzed the balanced approach rule where the coefficient on the inflation gap is 0.5 but the coefficient on the unemployment gap is raised to 2.0. The balanced approach rule received considerable attention following the Great Recession and became the standard policy rule used by the Fed. These rules are non-inertial because the FFR fully adjusts whenever the target FFR changes. This is not in accord with FOMC practice to smooth rate increases when inflation rises. We specify inertial versions of the rules based on Clarida, Gali, and Gertler (1999), where p is the degree of inertia and is the target level of the federal funds rate prescribed by Equations (1) and (2). We set p as in Bernanke, Kiley, and Roberts (2019). Rt-1 equals the rate prescribed by the rule if it is positive and zero if the prescribed rate is negative. Figure 1 depicts the midpoint for the target range of the FFR for September 2020 to September 2023 and the projected FFR for December 2023 to December 2026 from the September 2023 SEP. Following the exit from the ELB to 0.375 in March 2022, the FFR rose to 5.375 in September 2023 and is projected to rise to 5.625 in December 2023 before falling to 4.875 in December 2024, 3.875 in December 2025, and 2.875 in December 2026. The figure also depicts policy rule prescriptions. Between September 2020 and September 2023, we use real-time inflation and unemployment data that was available at the time of the FOMC meetings. Between December 2023 and December 2026, we use inflation and unemployment projections from the September 2023 SEP. The differences in the prescribed FFR’s between the inertial and non-inertial rules are much larger than those between the Taylor and balanced approach rules. Figure 1. The Federal Funds Rate and Policy Rule Prescriptions. Panel A. Non-Inertial Rules Policy rule prescriptions are reported in Panel A for the non-inertial Taylor and balanced approach rules. They are not in accord with the FOMC’s practice of smoothing rate increases when inflation rises. The prescriptions for the two rules are identical at the ELB through March 2021. The FOMC fell behind the curve starting in June 2021 when the prescribed FFR increased from the ELB of 0.125 to 2.625 for the Taylor rule and to 0.375 for the balanced approach rule while the actual FFR stayed at the ELB. The policy rule prescriptions sharply increased through 2021 and peaked in March 2022 to 7.875 for the Taylor rule and 8.125 for the balanced approach rule when the FFR first rose above the ELB to 0.375. The gap also peaked in March 2022 at 750 basis points for the Taylor rule and 775 basis points for the balanced approach rule. The gap narrowed considerably between March 2022 and September 2023 as the FFR rose from 0.375 to 5.375 while the Taylor rule prescriptions fell to 6.125 and the balanced approach rule prescriptions fell to 6.625. Looking forward, the gap between the FFR projections and the policy rule prescriptions reverses in December 2023 and the FFR projections are above the policy rule prescriptions through December 2026. Figure 1. The Federal Funds Rate and Policy Rule Prescriptions. Panel B. Inertial Rules Panel B reports the results for the inertial Taylor and balanced approach rules. They are much more in accord with the FOMC’s practice of raising the FFR slowly when inflation rises. The prescriptions for the two rules are identical at the ELB through March 2021 and rise to 0.375 for the Taylor rule in June 2021. The FOMC fell behind the curve starting in September 2021 when the prescribed FFR increased to 0.875 for the Taylor rule and 0.625 for the balanced approach rule while the actual FFR stayed at the ELB. The gap between the policy rule prescriptions and the FFR peaked in March 2022 at 200 basis points when the prescribed FFR was 2.325 for both rules while the FFR first rose above the ELB to 0.375. The Fed is no longer behind the curve. The gap narrowed steadily and, in September 2023, the FFR was equal to the inertial balanced approach rule prescription and 25 basis points above the inertial Taylor rule prescription. As of the November 2023 meeting, it is unclear whether the FOMC will follow the prescriptions in the September 2023 SEP and raise the FFR to 5.625 or leave it unchanged at 5.375 at the December 2023 meeting. If the FOMC raises the FFR to 5.625, it will be 25 basis points above the balanced approach rule prescription and 50 basis points above the Taylor rule prescription. If the FOMC leaves the FFR unchanged at 5.375, it will be equal to the balanced approach rule prescription and 25 basis points above the Taylor rule prescription. The inertial rules prescribe a much smoother path of rate increases from September 2021 through June 2023 than that adopted by the FOMC. If the Fed had followed the inertial Taylor or balanced approach rule instead of the FOMC’s forward guidance, it could have avoided the pattern of falling behind the curve, pivot, and getting back on track that characterized Fed policy during 2021 and 2022. Looking forward, the FFR projections from the September 2023 SEP are generally 25 basis points above the policy rule prescriptions through June 2025, equal to the policy rule prescriptions through March 2026, and 25 basis points below the policy rule prescriptions through December 2026. The current and projected FFR is in accord with prescriptions from inertial policy rules.
This post written by David Papell and Ruxandra Prodan. recession unemployment covid-19 fomc open market committee fed recession unemployment
Beloved Las Vegas, Las Vegas Strip tradition closer to the end
Maybe it’s time to let the old ways die. That’s a line sung by Bradley Cooper’s character in the hit "A Star Is Born" remake he and Lady Gaga co-starred…
Las Vegas is no longer the land of buffetsIn the 1990s and 2000s, every resort casino seemed to have a buffet. Most of them were closer to Golden Corral than fine dining. But the idea was to keep people in the casino, get them fed (maybe even with a comp) and then get them back on the casino floor. As Las Vegas has become a culinary capital of the world, Caesars Entertainment, MGM Resorts International MGM, Wynn Resorts, and the other Las Vegas Strip players realized that they could make more money from low- and mid-tier gamblers by selling them Guy Fieri, Wolfgang Puck, Bobby Flay, Gordon Ramsay and other big-name celebrity chefs than by having them playing slots. That has made the space once devoted to buffets valuable real estate that makes more sense as a high-end restaurant than it does as a low-end all-you-can-eat eatery. "On the Las Vegas Strip, only eight buffets remain (the Bacchanal at Caesars Palace, The Buffet at Bellagio, Wicked Spoon at Cosmopolitan, The Buffet at Wynn Las Vegas, the MGM Grand Buffet, the Buffet at Excalibur, the Circus Buffet at Circus Circus, and The Buffet at Luxor) where 18 once stood," Casino.org reported. VISIT LAS VEGAS: Are you ready to plan your dream Las Vegas Strip getaway? Most of those, aside from from Excalibur and Circus, are very high-end affairs that can cost nearly (or over for some special servings) $100. Buffets have met the same fate off the Strip, and another has closed to make way for a new trend, a food hall.
Rio is closing its buffetWhen Resorts World opened on the North Strip during the pandemic, it did not have a buffet. Instead, it offered a massive food hall that contained more than 40 food and beverage options. This offered people choice — maybe a better selection than even the best buffets — by grouping lots of options in one space. At Resorts World's food hall you can even order from multiple places from your phone, and then collect your food when it is ready. It's an upscale take on the old classic that comes with higher costs for customers, but also higher quality. Now, Rio, which was just transferred from Caesars operating it to a new owner, Dreamscape, has decided to close its Carnival World Buffet and replace it with Canteen Food Hall. F1? SUPER BOWL? MARCH MADNESS? Plan a dream Las Vegas getaway. The new concept will open in January. Rio is undergoing a $350 million transformation under its new owners. Canteen will offer a wide array of choices with a ramen shop, a Mexican eatery focused on burritos, the famed Tony Luke's cheesesteak shop and a burger concept, as well as different take on chicken tenders, and a stall selling Japanese street food. Receive full access to real-time market analysis along with stock, commodities, and options trading recommendations. Sign up for Real Money Pro now. fed pandemic real estate commodities
Southwest Airlines makes major change that passengers won’t like
Travelers should act quickly before the holidays.
One major U.S. airline has, in the recent past, demonstrated a tough relationship with the winter holiday season.
Last December, Southwest Airlines LUV experienced a serious crash that caused widespread disruption for its passengers.
The airline ended up canceling a huge number of flights during one of the busiest times of the year for travel.
Outdated computer systems had apparently struggled to deal with an increase in bookings, hurting Southwest's ability to manage its flights.
The cancellations had a ripple effect, stranding passengers nationwide and separating them from their luggage.
The airline has implemented several steps to prevent a repeat of these incidents, but now the carrier appears to have a labor issue on its hands right before the 2023 holiday season.
Southwest's pilots have begun preparing to strike. Those preparations include opening a Regional Strike Center in Dallas, the Southwest Airlines Pilot Association has announced.
And now, another change affecting the carrier's passengers is on its way.
Southwest Airlines devalues its points by about 4%
Members of Rapid Rewards, Southwest's points earning program, are able to redeem points they earn by flying, or by spending with Southwest's partners.
They can use these points for flights, hotel stays and rental cars through Southwest and for gift cards, merchandise and other items through participating credit cards.
Now, however, the airline is devaluing its points, negatively impacting members.
But there is still time to book flights before the change is implemented on Jan. 1, 2024.
"Southwest award tickets are priced based on the cash value of that same ticket," wrote travel influencer Danny the Deal Guru on his website. "Rapid Rewards points are valued at about 1.4 cents-per-point. That means that if a flight costs $140, then you would be able to book it with 10,000 Rapid Rewards points. That might vary slightly based on routes."
But the carrier now says, beginning on the first day of the new year, that the points required per dollar of base fare will increase by approximately 4%.
"So with this 4% increase, that same $140 flight that we took as an example above, will cost 10,400 Rapid Rewards points starting next year," the website wrote. "That's not a huge devaluation, but it is a devaluation nonetheless. That brings the value of Rapid Rewards points to about 1.35 cent each."
Southwest last devalued points during the pandemic two years ago, after allowing passengers to convert their travel credits to points.
"After its historic operational meltdown a year ago the airline gave points to passengers," wrote Gary Leff on View From the Wing. "Their apology for last Christmas will be worth 4% less for anyone saving their points."
Leff also provided some historical perspective on the move.
"With this change Southwest will have devalued about 43% in 12 years since launching 'Rapid Rewards 2.0,'" he wrote. "And there’s really no good reason to devalue their points other than greed. Currently each point is worth around 1.2 cents apiece towards base airfare, or closer to 1.4 cents when factoring taxes saved."
Southwest travelers with award travel to book ought to consider doing it soon.
"There's little downside to redeeming your Southwest points now, before the January 1 4% devaluation, and you may come out ahead," Leff wrote.
"At least they've given some advance notice."
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