Is Another Round of Quantitative Easing Coming?

Today was a special Jobs Day Tuesday as the Bureau of Labor Statistics released the September jobs report, which had been delayed due to the government shutdown. It wasn’t very good. Total non-farm payrolls increased by 148,000, which was less than the expected 180,000, while the unemployment rate dropped from 7.3% to 7.2%. The labor force participation rate remained unchanged at 63.2%. The July (-15,000) an August (+24,000) revisions combined for an increase of 9,000 jobs.This report was disappointing, but what’s even scarier is the trend lines.

Here’s the three-month moving average going back to the end of 2011:

3 month moving averageThere’s a pretty good chance that something is wrong with the way the BLS seasonally adjusts the numbers. Every winter has been much better than the following summer, but the trend is still not good. We’re into Obama’s second term and the economy is still barely growing. The reasons for this aren’t clear, but the government likely has a lot to do with it. Sequestration is terrible policy that is taking a chunk out of the economy at the wrong time. Austerity is the last thing we need right now. The expiration of the payroll tax cut at the start of this year is likely having some effect as well. And, of course, shutting down the government and risking a default is about as boneheaded as it gets. Instead of constructing policies looking to get the economy back going, the federal government (read: Republicans) have stood in its way.

The Federal Reserve has been concerned about fiscal policy and chairman Ben Bernanke has repeatedly emphasized that Congress needs to do more. Except that’s never going to happen. The question then is will the Fed do more? The economy is slowing down, not recovering. The FOMC had hinted at tapering in September, but pushed it off due to weak data and the impending fiscal fights. The market had assumed that the Fed was going to reduce its bond purchases regardless of the underlying data. By delaying the taper, the central bank attempted to regain its credibility and prove to investors that it’s data-dependent. Now, this is another test of that credibility.

This was a bad report and the economy is trending downwards. More fiscal fights loom and sequestration will be worse in 2014 than it was this year. Inflation is still running well below the Fed’s 2% target. If the Fed is really data-dependent, it will seriously think about making its policy even more accommodative either through QE4 or another mechanism.. The economy is no longer improving at a moderate pace. It’s slowing and there’s no chance that fiscal policy will help. It’s time for the Fed to pick up the slack.

“Who Are We Really Affecting With All These Cuts? It’s The Future”

I spent yesterday morning at the Center for American Progress (CAP) where a panel discussed sequestration’s effects on the Head Start program and the thousands of kids harmed by cuts to it. The panel was moderated Christina Samuels from Education Week and included participants from CAP, the Head Start Program, the Office of Management and Budget (OMB) and the Center on Budget and Policy Priorities (CBPP).

Carmel Martin, the Executive Vice President for Policy at CAP, and Yasmina Vinci, the Executive Director of the National Head Start Association, kicked off the program by running through some of the numbers about sequestration’s harmful effects. More than 57,000 kids have lost access to Head Start, including 6,000 infants and toddlers and 51,000 3-4 year olds. Another 87,000 kids have fewer days to attend Head Start, with programs cutting an average of 15 days per child. Yet another 11,000 kids have shorter days (approx. 1.5 hours less each day). Head Start was allowed some flexibility in their cuts and they passed that flexibility on to individual programs. Thus, some programs decided to cut days altogether or eliminate transportation to and from the site while others laid off employees or kicked students out.

But that flexibility will end in 2014, when more scheduled cuts are due to take effect. Colleen Rathgeb, the Director of Policy at Head Start, warned that future cuts will harm children even more.

“These one-time fixes aren’t available in the future,” she said. “This is unsustainable.”

The sequester cut Head Start by 5.27% – equal to $405 million – and more is coming next year unless Congress finds a way to make a deal that undoes the law.

Yet, while the cuts have been steep, they have caused less damage than expected. In February, the White house predicted that 70,000 kids would be kicked out of the program. Fortunately, “only” 57,000 actually have been. Of course, that number will certainly grow next year if the cuts aren’t replaced. And while most of the panelists offered optimistic takes that Congress will find a way to undo the sequester, Michael Linden, the Managing Director for Economic Policy at CAP, offered a more negative view:

“It’s also important to note that while there’s a growing awareness among some policymakers that sequestration is bad, others are saying that it wasn’t as bad as expected to be,” he said. “They have to understand that sequestration is not the status quo.”

Martha Coven, the Associate Director for Education, Income Maintenance and Labor at OMB, emphasized that the Obama Administration does not support the sequester  and is determined not just to undo those cuts, but to add additional funding for early childhood education.

“One thing to be very clear: the cuts to sequestration and Head Start in general were very much not part of the Administrations plan,” she said. “We’re very much trying to put ourselves on a path to reverse that. Moreover, our plan for early education is very much one of investment.”

Investment was a major theme throughout the discussion, with all of the panelists noting that funding for Head Start was not about the present, but was about the future. Head Start has a strong record of improving the quality of neighboring early childhood programs as well, said CBPP’s Sharon Parrott. In addition, states have trouble funding programs like these as they face different budget restrictions than the federal government does, Coven added. For that reason, it’s important for the federal government to fund Head Start and other such programs.

Yet, Congress is gridlocked and the federal government’s budget expires on September 30th. If it can’t reach a deal by then, the government shuts down. And any deal on a budget will have to figure out what to do with sequestration’s cuts. If Republicans and Democrats can’t come to an agreement and instead pass a continuing resolution that keeps the government funding at current levels, Head Start will have to start looking ahead to cuts it will have to make in 2014.

Linden summed up the dangers of the sequester’s effects on Head Start the best:

“Who are we really affecting with all these cuts? It’s the future.”