September 2018

“All the light you cannot see”

Powell´s first words at the press conference, after the usual disclaimers: “The economy is strong!” The economy is only “strong” compared to the low point of nominal spending (NGDP) growth in mid-2016, otherwise, it´s just as “strong”, or “weak”, as it has been since it only partially climbed up from the depths of the Great Recession. As such, as the chart illustrates, there is absolutely no danger of core PCE inflation getting “out of hand”, unless, quite unwittingly, the Fed allows nominal spending to go “on a binge”. The next chart shows how misleading, even dangerous, a headline target, which… Read More

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The “Term Premium” Meme

This is Ben Bernanke in March 2006 on Reflections on the Yield Curve and Monetary Policy: However, if the behavior of long-term yields reflects current or prospective economic conditions, the implications for policy may be quite different–indeed, quite the opposite. The simplest case in point is when low or falling long-term yields reflect investor expectations of future economic weakness. Suppose, for example, that investors expect economic activity to slow at some point in the future. If investors expect that weakness to require policy easing in the medium term, they will mark down their projected path of future spot interest rates,… Read More

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“Panic”

In Bernanke´s response to Krugman´s comments on his paper presented at the Brookings Conference on 10 years after Lehman, Bernanke begins: Why was the Great Recession so deep? Certainly, the collapse of the housing bubble was the key precipitating event; falling house prices depressed consumer wealth and spending while leading to sharp reductions in residential construction. Was the collapse of the housing bubble the key precipitating event? Apparently not. Sweden, for example also experienced a similar rise in house prices, but there was no “collapsing bubble”. However, the recession in Sweden was “greater” (or deeper) than in the US. Bernanke… Read More

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NGDP Outlook Update: Surging into 2019

We’ve said before that the US economy is not currently booming, this is demonstrably true. Growth in Q1 and Q2 was a nice surprise, welcome, but we’re not yet partying like it’s 1999. The past week has however seen the outlook improve markedly with our forecast for year-over-year NGDP growth in Q3 2019 waxing to 5.2% and the Hypermind market for Q1 2019 hitting a similar number. Our forecast system, which produces projections for all quarters in the coming year, has the Q1 2019 figure at nearly 6%, well ahead of Hypermind. If we actually see a few quarters of… Read More

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David Beckworth: The Fed Is Loading Torpedo Tubes, USS Economy in Sight

When the yield curve inverts, the US economy capsizes, sure as—well, sure as running some torpedoes into the hull of the USS Economy. David Beckworth’s latest and worthy post regards the rather cavalier attitude at the US Federal Reserve as the central bank, seemingly on automatic pilot, targets rate hikes through next year. The above chart is not comforting. Yet, notes Beckworth, “the FOMC’s own summary of economic projections implies a yield curve inversion over the next year or so.” Oh, is that all? Already, various Fed FOMC members have mumbled something along the lines that “this time is different.… Read More

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Yellen is confused & confuses

She made two apparently contradictory statements on Friday (Sept 14). In one: Former Federal Reserve Chairwoman Janet Yellen said Friday that she is concerned the economy might overheat. “At a time like this, I would be worried that the economy is in a situation where it could overheat,” Yellen told reporters on the sidelines of a conference at The Brookings Institution. “I don’t think it would be very rapid but I think it could occur,” she said. Yellen said her view is based on the empirical relationship between inflation and unemployment — known as the Phillips curve, a closely watched… Read More

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Retail Sales, rising on “gas fumes”

The chart shows that overall retail sales swings to the tune of gasoline prices. The pick-up in overall sales for the past two years shows the close connection between the two. If you take away the gasoline price factor, the US consumer does not look so good. Retail sales are materially worse now than during 2014, before the “Yellen slump” set in. The economy is better than it was in 2015 and 2016, but that is not saying much. The reality is the economy is in depression mode. Early moves to “reflate” were quickly aborted. If you take Lael Brainard´s… Read More

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CPI Core Sans Shelter Rising at 0.6% Annually

There are many who labor in relative obscurity in econo-land, much to the loss of macroeconomics. Kevin Erdmann, author of the blog The Idiosyncratic Whisk, has consistently produced the most insightful commentary on housing and finance on the web, and probably anywhere for that matter. One of Erdmann’s monthly  “chores” is to produce the CPI core sans shelter index. The CPI core minus shelter costs rose at a 0.6% annual rate in the last six months, reports Erdmann. The chart shows the year-on-year core CPI less shelter. If the US has an inflation problem, obviously housing is playing a major… Read More

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“Get ready for here I come”

(Temptations) In the discussion, “Is the world ready for the next downturn”? Thomas Mayer, former Deutsch Bank Chief-Economist, points out: As long as Keynesian economics is the shared mental model of most economists and almost all central bankers and politicians, we proceed from one financial crisis to another. The list is already fairly long: the stock market crash of 1987, the savings and loan crisis of the early 1990s, the bond market crash of 1994, the emerging market crisis of 1998, the dot.com crash of 2000–2003, and the financial crisis of 2007–2008. The list will only end when economists and… Read More

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