Synopsis: Is the whole notion of poverty traps exaggerated? Or is there some truth to the idea?

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Discussion:
This article evaluates the recent statement that poverty traps are exaggerated. Instead of looking at whole decades or larger periods, e.g. 1960 – 2010, the author, C.W. looks at decade blocks and points out two main things to show that poverty traps are not a myth:

1. Living standards were exacerbated for the poor countries more that for the rich countries.
2. Any growth rates for poor countries would increase living standards for the rich and decrease them for the poor; i.e. income inequality has risen sharply.

For these reasons, C.W. believes that poverty traps do exist. The author elaborates by saying that while it is not true that long-term poverty traps will never be escaped, short-term poverty are the ones to worry about.

Synopsis: How long will it take for the Fed to raise the interest rates after the end of QE?

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Discussion:
This article talks about the U.S. Federal Reserve’s (Fed’s) next steps after the end of its bond-buying program. Quantitative easing (QE) is ending in October, and this begs the question of when interest rates will increase. The Federal Open Market Committee (FOMC) had said that this will happen in “considerable time”, which can be perceived to mean between April and June, i.e. six months after QE stops. However, speculation has it that Yellen was speaking “dovishly”, and that it may not increase after a “considerable time”; interest rates will rise after the six-month window.

Why is the Fed speaking so dovishly? What is “considerable time”? The use of this phrase is a part of the Fed’s attempt at qualitative easing, i.e. the use of forward-looking statements about interest rates to reassure the market and to provide a stimulus. To read another article and commentary on qualitative easing and its impacts on the U.S. market, click here.

The Fed has always spoken dovishly so as to allow itself some “wiggle room”, as the article calls it. Resultantly, is not one to renege on its words, so if they do want to withdraw the “considerable time statement” it will have to be done around December so as not to shake consumer confidence.

Context:
There are three steps to ending QE, and the Fed is on the second step.

1. Tapering (bringing down the level of new bond purchases)
2. Maintaining the stock of bonds on the Fed balance sheet
3. Letting the bonds mature and the stocks run down

Key words:
Dovish – to speak with a tone that implies that no immediate action will be taken.
Hawkish – the antonym of dovish, to speak with a decisive tone