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Marcus Nunes/Feb 23, 2016 That may be the role of industrial production growth presented as YoY growth of the 6-month moving average. Note that it only turns negative after a recession (as defined by the NBER) has already begun. Sometimes quite a way into the recession (as in the 1973, 1981 and 1990 recessions, for example). In January the measure turned negative (-0.2) for the first time after the “recovery” was completed almost six years ago. That´s just one more piece of evidence that goes against the grain of FOMC members, like John Williams who, in a speech yesterday (that… Read More

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James Alexander/Feb 22, 2016 The echoes of 2008 became stronger last week as both headline and core US inflation as measured by the CPI rose faster than expected. It is a very dangerous cocktail when the claque sees inflation yet nominal growth expectations are weak. It caused the Great Recession when central banks misread the situation. Hopefully they will have learned their lesson, but the current tightening bias of the Fed doesn’t give us much confidence. Go to Twitter and enter “core CPI” and you’d see a welter of inflation hawks trumpeting the now clear upward trend in CPI. These… Read More

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James Alexander/Feb 18, 2016 Call me a conspiracy theorist but when three unrelated beasts of the global financial establishment all start talking about the same, previously unfashionable, thing it’s a bit of a coincidence. Maybe Larry’s put it in the agenda of next week’s G20? If it’s not, it should be. George Osborne: The MPC have revised down their forecast for real GDP growth and CPI inflation in the short term, implying weaker nominal growth. This, combined with threats from the international environment, mean we face the risk of a weaker outlook for nominal GDP. If realised this could present… Read More

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James Alexander/Feb 17, 2016 It has been noted already by Market Monetarists and others that George Osborne and his UK Treasury team are concerned about the low level of expected Nominal GDP growth in the UK. The latest January 2016 CPI figures showing just 0.3% YoY growth will only worry them more. The correct inflation number for policy should be the GDP Deflator, not CPI, but it is also pitifully low and dragging down both RGDP and NGDP. But whose responsibility is NGDP growth? It is no good Osborne worrying about it and then doing nothing. The Treasury sets the… Read More

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Benjamin Cole/Feb 13, 2016 February 11, 2016, Washington, D.C.—Defiantly defending the U.S. Federal Reserve’s 3% inflation floor, Fed Chair Janet Yellen’s swatted away questions from U.S. Senators who said lower rates of inflation could be obtained safely. The “public and representatives have embraced thickets of structural impediments to growth,” retorted Yellen. “For the economy to scrape through to minimally acceptable rates of GDP growth requires a bedrock of 3% inflation. Below that floor threatens stall speed, and financial instability.” Yellen noted “the joke is that it takes an Act of Congress to get housing built in many cities of America—and… Read More

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Marcus Nunes/Feb 12, 2016 The next recession could be around the corner, and the Fed isn’t ready for it: Around the world, markets are in chaos. Japan’s stock market plunged 5 percent on Friday, while markets in France, Germany, and the UK all saw big losses on Thursday. The US stock market is doing better than most, but it is also down since the start of the year. Oil hit a new low on Thursday of $26 per barrel. These declines reflect growing concerns that the world economy is headed for another recession. Before 2007 we’d say “if things get… Read More

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Marcus Nunes/Feb 11, 2016 The chart shows that the present (2007) cycle is “outside the chart”. The behavior of employment over the cycles shows two very marked characteristics: 1. Depth 2. Persistence What determines the nature of the two characteristics? One candidate is monetary policy, the stance of which is defined by the growth of nominal spending, i.e. NGDP growth. Note that the present cycle is magnitudes different both in terms of depth and persistence. To make things visually more clear, the chart below considers only the last four cycles. Observe that both depth and persistence correlate very well with… Read More

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Benjamin Cole/Feb 8, 2016 Ester and Mester were never elected by the citizenry, yet arguably they have more influence on American prosperity than any U.S. Senator, or Cabinet member. The dynamic duo is Ester George, the Kansas City Fed President and a 34-year veteran of the central bank, having started as a bank examiner. Loretta Mester, the Cleveland President, is a 31-year soldier, having started as an economist for the Philly Fed. The rhyming deuce are an interesting pair for what they reveal about the U.S. Federal Reserve. Ester and Mester are nearly purely professional creatures of the Fed, having… Read More

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James Alexander/Feb 7, 2016 Scott Sumner made a somewhat light-hearted comment in a recent post that “no-one can predict recessions”. It made me stop and wonder what was the point of Market Monetarism in that case. The essence of MM is that market forecasts of NGDP Growth should guide monetary policy, should be monetary policy. Fair enough. But does this imply, in the case of a negative demand shock, which increases money demand, an immediate increase in base money supply? Perhaps it does and we will all be very happy. In our imperfect current world where the monetary authorities seem… Read More

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Marcus Nunes/Feb 6, 2016 This is the imaginary scale that hangs over the center of the FOMC´s meeting table. Unemployment and inflation are the two objects on the scale. The Fed wants to keep the scale “balanced”. For that purpose, it has a policy framework best described as “gradual normalization”. As Janet Yellen said last September, telegraphing a rate increase in the near future: “But we are getting closer. The labor market has improved. And as I’ve said in the past we don’t want to wait until we’ve fully met both of our objectives to begin the process of tightening… Read More

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