The Federal Reserve and Politico’s Narrative Bias

Politico is a fascinating site. I wrestled a bit with the decision to include it in RM’s blogroll, since it suffers from bad journalistic habits like the tendency to exaggerate and sensationalize what are actually mundane or superficial stories. This is of course a problem with contemporary political reporting in general, but it’s particularly acute at Politico. RM’s goal is to try to think through contentious issues in a cool and levelheaded way, so publishing articles that we hope are reasonable and moderate while simultaneously linking you to a media outfit that thrives on depicting politics as a permanent bloodsport seemed hypocritical somehow. That said, our posting a link to a given blog or site is not an endorsement of everything that it does or says, but only an indication that we’ve found worthwhile content and perspectives there in the past – and a suggestion that you might too.

FiveThirtyEight’s Nate Silver recently attacked Politico’s editors and contributors for “operating within a ‘post-truth’ worldview” and for lacking “perspective about the role that Politico plays in formulating the conventional wisdom which they then ‘report’ upon.” I found an article on the site Friday morning that I thought was an especially striking example of this. It sported the slightly puzzling title “The real jobs numbers: 2014, 2016″ (possibly a joke that didn’t quite work out as planned) and dealt with the skittish reaction of bond traders to the Labor Department report on job creation for the month of June.

Immediately after identifying the “better-than-expected gain of 195,000 jobs in June” as a “heartening sign… that the economic recovery continues to move ahead at a modest pace,” the piece goes on to claim that this “could ultimately turn out to be bad news, especially for Democrats, because it means that the Federal Reserve might start winding down its extraordinary efforts to boost the economy later this year.” The author of the article presumably believes that a healthy economy is a political boon to the Democratic Party. This is not a totally unreasonable assumption, even though there’s a plausible counterargument that strong growth could benefit incumbent politicians in general and in turn solidify the Republican majority in the House of Representatives. On balance though, the party of Obama probably stands to gain the most from an improvement in the economic outlook. So far, so good.

The author also maintains that positive economic data could lead to a premature tightening of monetary policy by the Fed, precipitating another slowdown that will hurt the Democrats. In other words, he assumes that the Fed will do exactly as bond traders seem to believe: it will take its foot off the gas too soon. Strange as this prediction might sound, the bond markets do seem to be taking an awfully pessimistic view of the Fed’s ability to safely and responsibly draw down its quantitative easing program, so it’s not as if Politico is pulling this storyline out of thin air. It also isn’t totally irrational to believe that the FOMC’s more hawkish members could ultimately convince their colleagues that the risks of continued easing outweigh the benefits, and that pulling back sooner rather than later is the best course of action.

Nevertheless, the article takes this narrative in a wildly alarmist direction:

If the Fed takes the juice away too soon it could tank the stock market, crush housing price[s], snuff out the four-year-old economic recovery, and make life exceedingly difficult for any Democrat who hopes to run in 2016 for what will essentially be President Obama’s third term.

2016 is quite a long way down the road! To speculate about what a single unemployment report in the middle of 2013 could augur for a presidential election three years out is borderline ludicrous. Beyond that, this line betrays an astonishing lack of faith in the ability of the Fed to respond effectively and in a timely manner to facts on the ground. Fed Chairman Ben Bernanke and several presidents of regional Fed banks have repeatedly tried to emphasize that reducing the pace of bond purchases does not foreclose the possibility that the pace can be increased again at some point in the future if conditions warrant.

But the real kicker comes later. Right after noting that the “jobs being created are not the kind of high-wage positions that tend to drive a robust economy” and that the “average workweek was unchanged at 34.5 hours, suggesting employers do not see much need to try and [sic] boost production,” the article laments the fact that

[d]espite all this [emphasis added], the Fed still appears to be planning to start winding down its asset purchases as soon as September, a precursor to eventually increasing interest rates, on the theory that economy will soon be able to stand on its own.

It isn’t at all clear what the word “despite” could possibly be referring to here. Did Chairman Bernanke give a press conference in the hour between the release of the jobs report and the publication of this article stating his intention to tighten policy in September regardless of what happens in the real economy? Did any Fed governor or regional bank president make any comment to that effect? The fact that the sentence goes on to say that the Fed “still appears to be planning to start winding down purchases” seems to presuppose that it had some opportunity during that short hour to indicate otherwise, but chose to blithely declare a stubborn intention to adhere to current policy instead.

I should point out that current policy doesn’t even say anything about bond purchases being “wound down” in September. Current policy, as articulated by Chairman Bernanke and the latest FOMC decision in June, is that bond purchases will continue at a rate of $85 billion per month at least until the official unemployment rate reaches 7%. The projections published alongside the most recent FOMC statement seem to imply that the Fed believes that threshold will be reached in mid-2014. From this, and from Bernanke’s testimony to Congress in May, outside observers have deduced that the Open Market Committee could begin to “taper” bond purchases by September, a possibility that Bernanke has not denied.

The bottom line is that the Fed’s policy stance right now is far more nuanced and provisional than the Politico report is willing to admit. One could be forgiven for coming away from that article with the impression that the Fed has promised to tighten policy (or more accurately, stop loosening policy) in September 2013 no matter what. This is simply not the case.

Perhaps in some small way we’re aiding and abetting this kind of bad reporting by directing more potential readers to Politico. But the fact of the matter is that the site does have a number of redeeming qualities: it posts frequently and on a wide range of topics, it devotes a great deal of effort to gaming out the possible political implications of current events in addition to simply reporting about them, and, when it needs to insult people, it generally does so in a balanced and polite way. Boycotts are probably not the right way to deal with sensationalism in the media. The best we can do is model a different way of talking about politics, and hope that we can get people to pay attention.

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