Results 301–350 of 537 found.
What to Expect When You're Expecting (a Fed Hike)
It’s anticipated that the Fed will begin tightening monetary policy soon, but many investors may be unfamiliar with how policy will be tightened. Let’s review the key policy tools and how this tightening cycle will differ from previous cycles.
Forecasting Exchange Rates
Currency forecasting is inherently difficult. Getting monetary policy right can help in the short-term, but beyond three months, you can’t do any better than a random walk. That aside, the strong dollar (along with softer global economic growth) has played a major role in the slowdown in U.S. corporate profits this year. What can we expect for 2016?
The agonizing over whether the Fed will begin raising short-term interest rates is unlikely to end soon. A 25-basis-point increase shouldn’t have much of an impact on the economy, especially if the Fed makes it clear that it intends to go slow with further rate hikes. However, the financial markets believe this to be a big deal. So it is. Fed officials have continued to signal that it “may be appropriate” to start in December, but they have also continued to signal that this is not a done deal.
The Job Market and the Fed
The October Employment Report was stronger than expected, but should be seen in its proper context. That is, while October’s payroll gain far exceeded forecasts, it followed softer figures in August and September. The three-month average was moderate. Financial market participants believe that the report makes a December 16 rate hike a lot more likely. However, the Fed had already been signaling that such a move was likely.
Only the Data Can Stop a December Fed Rate Hike
As expected, the Federal Open Market Committee left short-term interest rates unchanged last week. However, the wording of the policy statement was decidedly hawkish, suggesting (contrary to market expectations) that officials are leaning toward a move on December 16. GDP growth wasn’t especially brisk in the third quarter, but that was due largely to slower inventory growth. Domestic demand remained strong, but monthly figures suggest a loss of momentum heading toward 4Q15. Ultimately, the Fed’s decision will remain data-dependent and there are many reports between now and then.
Gross Domestic Product
The Bureau of Economic Analysis will report its initial estimate of third quarter growth on Thursday. There’s always plenty of uncertainty in the advance estimate. The BEA does not have a complete picture and will have to make some assumptions about foreign trade and inventories in September. These figures will be revised, perhaps a lot, which is why it is more important to focus on the story behind the numbers.
The Budget and the Debt Ceiling
Treasury reported a $439 billion budget deficit for the fiscal year ending in September. That sounds like a lot, but it’s 2.4% of GDP, below the average of the last few decades. However, that’s nothing to celebrate, as the retirement of the baby-boom generation will boost entitlement spending in the decades to come. There’s plenty of time to solve that problem, but the federal debt ceiling is a more immediate concern. Congress has just two weeks to work out a deal.
Employment, GDP, and the Fed
The September Employment Report was disappointing, but not horrible. Some of the recent softening in the pace of job growth may reflect seasonal issues. Stronger seasonal hiring in May and June should naturally lead to more seasonal layoffs in August and September. That is unlikely the only explanation. Concerns about global growth and financial market volatility may have made firms, especially smaller firms, reluctant to hire. Estimate of 3Q15 GDP have been declining, while underlying domestic demand have remained strong.
Nearing Normalization / Shutdown Shuffle – Part 2
Fed Chair Janet Yellen downplayed concerns about the rest of the world and indicated that she was among the majority of Fed officials expected to raise short-term interest rates this year. Meanwhile, while John Boehner’s resignation as House Speaker may signal an agreement on the budget, Congress has moved further away from future compromise.
Nearing Normalization / Shutdown Shuffle
The key line that was added to the Fed’s policy statement suggests a sharper focus on what’s happening in the rest of the world, but let’s be clear. The Fed is not reacting to overseas developments per se, but to what shifting global economic and financial conditions mean for the U.S. economy. In focusing on the Fed’s decision to delay policy normalization, investors have ignored the increased risk of a government shutdown.
China, the Fed, and Bond Yields
An initial increase in short-term interest rates is apparently still on the table at this week’s Fed policy meeting, but it’s more likely that we’ll see a delay. That may not ease the stock market’s concerns, as officials are expected to remain committed to raising rates at some point in the near future.
The August Employment Report and the Fed
The August employment figures were mixed. Payrolls rose less than anticipated, but with an upward revision to the two previous months. The unemployment rate fell more than expected, while average hourly earnings ticked a little higher than anticipated – providing the Fed’s hawks some ammunition in arguing for a September 17 rate hike. The Fed is not going to react to any one economic report, but the jobs data fall in line with the broader range of indictors that suggest that slack is being reduced.
China and the Submerging Market Outlook
China’s economic slowdown may not be much of a direct drag on U.S. growth. While U.S. exporters will have a tougher time, the drop in commodity prices should help consumers and domestic producers. However, the country’s difficulties need to be considered in the broader view of emerging market troubles.
China, the Fed, and Commodity Prices
The People’s Bank of China, the country’s central bank, moved to allow its exchange rate to be determined by market forces. After two sharp declines in the yuan, the PBOC apparently had had enough and declared that the currency adjustment was “basically completed.” The news from China added to uncertainty about what the Fed will do in September. Concerns about the pace of global growth have put downward pressure on commodity prices, which may keep the Fed on hold.
The July Employment Report
Job growth remained strong in July. The average monthly gain for May, June, and July was 235,000, or 2.82 million at an annual rate. To remain in line with population growth, we need to add about 1.4 million jobs per year. Slack in the job market is being reduced, but a considerable amount remains. How much? The Fed has to consider the pace and plan ahead.
GDP, the ECI, and the FOMC
Following Fed Chair Janet Yellen’s monetary policy testimony in mid-July, the odds of a September rate hike seemed about even. That doesn’t mean that the Fed’s decision would be a toss-up at the time of the meeting. When the September 16-17 policy meeting rolls around, it should be pretty clear what the Fed will do (or not do). Rather, that policy outlook reflected the uncertainty in the economic data that would arrive between now and the September FOMC meeting. However, just two weeks later, the evidence is pointing to a likely delay.
Jobs, Inflation, and Wage Pressures
In her monetary policy testimony to Congress, Fed Chair Janet Yellen made it clear that the central bank remains on track to begin raising short-term interest rates later this year. However, she gave herself an out, indicating that Federal Reserve officials’ projections of the federal funds rate are “based on the anticipated path of the economy, not statements of intent to raise rates at any particular time.”
The View from the Fed
Federal Reserve Chair Janet Yellen will give her semiannual monetary policy testimony to Congress this week. In the past, this has been an important event for the financial markets. However, Fed communication is a lot more open these days. For example, we have the forecasts of senior Fed officials and the minutes of the June policy meeting in hand. However, there is still scope for financial market participants to learn a bit more.
More of the Same
The U.S. economic data reports have remained mixed, consistent with a moderately strong pace of growth in the near term. The June jobs data suggest that a September Fed rate hike may be a closer call than thought earlier. Meanwhile, Greece’s economy is in tatters. The country has to face the burden of further austerity or the chaos of a euro exit.
An Important Week for Economic Data
Fed officials have signaled that monetary policy decisions will be data-dependent. Hence, financial market participants will closely examine upcoming economic reports. Data are expected to remain consistent with an improving economy and an initial increase in short-term interest rates by the end of the year.
Clarifying the Fed Policy Outlook
There was nothing unexpected in the Fed’s monetary policy statement or in the revised economic projections of senior officials. Chair Yellen covered no new ground in her press conference. However, many investors appear to be unsure of the monetary policy outlook and the implications for the financial markets. So, to clear things up...
The Fed Policy Outlook: Connecting the Dots
Policywise, not much is expected out of this week’s meeting of the Federal Open Market Committee. The FOMC is unlikely to provide a clear signal on the precise timing of the initial increase in short-term interest rates. However, there should be plenty of information in the Fed’s revised economic projections and in Fed Chair Janet Yellen’s press conference.
Jobs, Consumer Spending, Gasoline, and the Fed
Job growth was stronger than expected in May, although figures may have been inflated a bit by the seasonal adjustment. Still, the strong job gains over the last year and the drop in gasoline prices have failed to boost consumer spending as anticipated. Following this week’s retail sales report, we may better understand why. This may have some impact on the outlook for monetary policy, but Fed officials will want to see a lot more economic data before pulling the trigger.
Profit of Doom?
In its 2nd estimate of 1Q15 GDP growth, the Bureau of Economic Analysis published its preliminary estimate of corporate profits. No surprise, profits fell sharply in the quarter, reflecting the impact of a stronger dollar, adverse weather, and possibly statistical noise and seasonal adjustment issues. Profits are a key driver of new hiring and capital spending. Looking ahead, a lot will depend on currency market developments.
Fun with GDP
The current economic expansion is rapidly approaching its six-year anniversary. Contrary to popular belief, the likelihood of entering a recession does not depend on the age of the expansion. However, there are other issues. In this recovery, average growth in the first quarter of the year has been well below the average of the other three quarters, leading to some doubts about the quality of the seasonal adjustment. Looking ahead, the government will introduce two new gauges with the annual benchmark revisions in late July.
Back to the drawing board
The data reports for April suggest that the second quarter’s anticipated rebound from a weak 1Q15 will fall far short of expectations. We could get revisions, figures for May and June could be a lot stronger, but at face value, the economy has disappointed. However, the Fed is still on track to begin raising short-term interest rates later this year. We should come away with a better understanding of how the Fed sees the situation when the central bank’s two top officials speak later this week.
In the Market’s Sweet Spot
Recent economic data reports have reflected a slowdown in growth, but they are not disastrous. The economy continues to improve, but not so much that the Fed will rush to take away the punch bowl. That’s good news for the financial markets.
Waiting on the Turn
The economy slowed in the first quarter, reflecting a variety of restraints. Most of these should give way, leading to stronger growth in the second quarter. However, Federal Reserve officials and financial market participants will want to see proof.
The Pause in Capital Spending
The Bureau of Economic Analysis will report its initial estimate of first quarter growth on April 29. There’s always a lot of uncertainty in the advance estimate, but that’s especially true for 1Q15. Of the key components of GDP, consumer spending is expected to have slowed to a more moderate pace – nothing terrible. However, business fixed investment should be soft. For business investment, as with manufacturing activity in general, it’s often difficult to distinguish a short-term slowdown from the beginning of a more significant downturn.
We live in an uncertain world. Policymakers have to sift through a wide range of data, much of which is subject to statistical error and measurement difficulties. Financial market participants deal with much of the same data, but also have to account for the uncertainty in how policymakers will interpret the data and respond. There are longer-term questions, which won’t be resolved anytime soon. So where do we stand now?
The Long-Term Outlook: Secular Stagnation or Not?
The good news is that the output gap, the difference between real Gross Domestic Product and its potential, has narrowed. The bad news is that’s largely because potential GDP has declined. The big question now is whether the economy is on a permanently lower track. The answer is not so clear.
March Employment Report – Fear vs. Hope
The nonfarm payroll data for March were disappointing. Job growth was substantially less than expected and figures for the first two months of the year were revised lower. These data fit in with the general theme of other recent economic reports.
Fed Policy Outlook - in *Retrograde?
The question of whether the Fed would abandon the “patient” language should have not been an issue, but the financial press always tries to generate some level of tension. However, while the Federal Open Market Committee appeared to move closer to tightening monetary policy, it indirectly signaled that it would likely be much less aggressive.
February Employment Report - Is It Enough?
Job growth remained strong in February, leading financial market participants to believe that the Fed will begin to raise short-term interest rates sooner (June) rather than later (September) and, more importantly, at a faster pace than thought earlier. The report is only one item that the Fed will consider when it meets to set monetary policy (March 17-18).
Fed Chair Janet Yellen signaled that officials will likely alter the forward guidance at the March 17-18 policy meeting. However, altering this guidance (the conditional commitment to keep short-term interest rates exceptionally low) is not the same as signaling that a rate hike is imminent, as Yellen made clear. She did indicate what would lead the Fed to start tightening.
Yellen’s Trip to the Hill, a Preview…
Fed Chair Janet Yellen will testify on monetary policy on Tuesday and Wednesday. These appearances are less traumatic for the financial markets than they used to be. The Fed releases minutes of the policy meetings on a timelier basis and the Fed chair holds press conferences after every other meeting. Hence, it’s unlikely that we’ll see Yellen signal a major change in the policy outlook. Still, the financial markets will pay attention.
Winter of Discontent or Winding the Spring?
Retail sales figures disappointed in December and January. The Bloomberg/University of Michigan Consumer Sentiment Index fell back in mid-February. This news has cast some doubt about whether the drop in gasoline prices will propel consumer spending growth in the near term. However, economic data are notoriously unreliable in the winter months. The spring economic data reports should provide a better picture of the underlying strength in jobs, consumer spending, and housing.
January Jobs Data - Good, but Slack Remains
Contrary to what you may have heard, the U.S. economy did not add 257,000 jobs in January. That’s the seasonally adjusted figure. We actually lost 2.755 million jobs, which was a smaller decline than the year before (-2.811 million).
The Road Back, and Ahead
The U.S. economy data are likely to be mixed in the near term, but there is little doubt that we are gathering steam. The plunge in gasoline prices is an enormous tailwind. However, this isn?t just an energy story. The fundamentals are getting better.
Deflation, Low Inflation, and Monetary Policy
Central bank policymakers fear deflation more than anything. However, there is good deflation and there is bad deflation. Yet, even low inflation can create problems for an economy. Low inflation is expected to be a key factor in the ECB?s decision to embark on quantitative easing and ought to have some influence on the timing of the Fed?s initial rate hike.
The Job Market and the Fed
The December Employment Report presented a mixed job market picture. The establishment survey data reflected strong job growth, but with a lackluster trend in average hourly earnings. The household survey showed a larger-than-expected drop in the unemployment rate, but that was due to a decline in labor force participation. What should Fed policymakers make of this report? Patience, grasshopper, patience ...
Adventures in Forecasting
Every December, economists are asked for their projections for the coming year. Whats GDP growth going to be? How many jobs will be added? Whats the Fed going to do? How will the financial markets react? We build models of the economy models that we know are not precise. There are simply too many variables.
Federal Reserve policymakers meet this week to set monetary policy. The key concern is the timing of policy normalization. Officials may be anxious to begin lifting short-term interest rates, but they need to be very careful about managing market expectations. The risks of tightening too soon or too late are not symmetric and with the financial markets in turmoil, the Fed will not want to add to the level of anxiety.
The Fed, Jobs, and the Financial Markets
Looking ahead to 2015, the labor market is expected to play the key part in the Feds path to policy normalization. However, as we learned from New York Fed President Dudley last week, the Fed will also consider the reaction in financial markets.
Monetary Policy Outlook
The minutes of the October 28-29 Federal Open Market Committee meeting suggested that there is still no consensus opinion among senior officials regarding when the Fed will begin raising short-term interest rates. There is strong agreement that monetary policy moves will be data-dependent. However, policymakers differ in their views on the amount of slack in the job market.
Monetary Policy Outlook
The minutes of the October 28-29 Federal Open Market Committee meeting suggested that there is still no consensus opinion among senior officials regarding when the Fed will begin raising short-term interest rates. There is strong agreement that monetary policy moves will be data-dependent.
A Mixed Bag, But Optimistic on the Consumer
Inflation-adjusted consumer spending growth, 70% of Gross Domestic Product, rose at a lackluster 1.8% annual rate in the advance estimate for 3Q14. That figure is likely to be revised higher, but the pace is expected to remain disappointing relative to job growth (this year, we are on track to post the largest increase in jobs since 2005). The main restraint on spending appears to be the weak trend in average wages. Until the job market tightens a lot more, were unlikely to see a significant pickup in wage growth.
Results 301–350 of 537 found.