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Tim Duy
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Last Friday the Bureau of Labor Statistics released a fairly lackluster employment report. In most ways, the story remains the same – steady improvement in the labor market but no signs of overheating in the form of wage growth. The mix will keep the Fed on track for three rate hikes this year, as the consensus policymaker will view this kind of report as a reason to neither accelerate nor slow the pace of tightening. Continued here... Continue reading
Posted Jan 7, 2018 at Tim Duy's Fed Watch
Quick post today as I am still settling back into the swing of things after some downtime during the holidays. Friday morning the Bureau of Labor Statistics delivers us the employment numbers for December. Wall Street anticipates firms added 191k employees, a healthy pace of job growth, while the unemployment rate holds steady at 4.1 percent. The consensus is also looking for wage growth of 0.3 percent for the month, or 2.5 percent year-over-year. Some thoughts on this forecast... Continued here (blog post).... Continue reading
Posted Jan 4, 2018 at Tim Duy's Fed Watch
The Federal Reserve anticipates continued monetary tightening in 2018, as it seeks to match 2017’s pace of interest-rate hikes with another three quarter-point moves. As always, however, that projection depends on actual economic outcomes. With that in mind, here are five questions the Fed will face in 2018 as it charts a course for policy: Continued here on Bloomberg Prophets... Continue reading
Posted Dec 28, 2017 at Tim Duy's Fed Watch
The December FOMC meeting ended largely as anticipated with a quarter point rate hike, making the Fed good on their expectation of three rate hikes for 2017. What about 2018? The Summary of Economic Projections revealed that the median policymaker still anticipates another three rate hikes in 2018. But will they deliver? The answer to that question depends, of course, on the actual evolution of the economy relative to policymaker’s expectations. But at this point, I wouldn’t bet against them on the dovish side. Continued here... Continue reading
Posted Dec 17, 2017 at Tim Duy's Fed Watch
As the Federal Reserve prepares to hike interest rates at this week’s Open-Market Committee meeting, market participants are bidding up short-term rates -- moving toward the Fed expectations of more increases in 2018. That move could continue when the central bank reaffirms its commitment to further tightening next year. Continued here at Bloomberg Prophets... Continue reading
Posted Dec 11, 2017 at Tim Duy's Fed Watch
The FOMC meeting next week is anticipated to end with a rate hike. Indeed, this is for all intents and purpuses already a done deal. The employment report won’t change it. But the employment report could either add or subtract to FOMC concerns that the pace of activity remains sufficient to push the economy toward overheating sooner than later. The consensus forecast reasonably expects an outcome that leans toward the former, with job gains well above that necessary to hold the unemployment rate constant. That outcome would leave the Fed committed to their inflation forecast and hence inclined to maintain... Continue reading
Posted Dec 7, 2017 at Tim Duy's Fed Watch
Thinking about the path of policy next year, this quote from Chicago Federal Reserve President Charles Evans (via the New York Times), seems like an important issue: I think the economy is doing very well. I think it continues to show strength. The second half is looking like very good growth: 2.5 to 3 percent growth. And this is to be measured against our assessment that sustainable growth is more like 1.75 percent. So 2.5 to 3 percent is very strong growth, which should continue to lead to improved labor market activity. Unless something structural improves to increase trend growth,... Continue reading
Posted Dec 6, 2017 at Tim Duy's Fed Watch
The minutes of the Oct. 31-Nov. 1, 2018 FOMC meeting made a bit of a splash with their mixed message. The minutes revealed widespread concern with the weak inflation numbers of the past year. Yet the minutes also showed that committee members were committed to a December rate hike. Damn the torpedoes, full speed ahead! Why the mixed message? Two words: “gradual” and “lags.” Continued here (blog and newsletter)... Continue reading
Posted Nov 26, 2017 at Tim Duy's Fed Watch
Incoming data indicate the US economy retains momentum as 2017 draws to a close, clearing the way for the Fed to hike rates in December. Inflation, however, remains on the soft side and continues to make some FOMC members nervous. That said, the consensus looks set to downplay those concerns amid an environment of solid economic growth and declining unemployment rates. I think it will be a challenge for FOMC members to shift gears to steady policy until growth moderates sufficiently to stabilize unemployment rates. Continued here… Continue reading
Posted Nov 20, 2017 at Tim Duy's Fed Watch
It was supposed to be easy. When the Federal Reserve started hiking the federal funds rate, longer-term interest rates would rise. After all, they were at very low levels, restrained by a low-term premium. The “Greenspan conundrum” of the past two cycles, when long rates failed to respond in line with higher short rates, couldn’t happen a third time in such circumstances. But it didn’t work out that way.... Continued at Bloomberg Prophets... Continue reading
Posted Nov 20, 2017 at Tim Duy's Fed Watch
At some point every year I sense a need to reset and clarify my baseline views on the economy and monetary policy. This is that time. Continued here... Continue reading
Posted Nov 13, 2017 at Tim Duy's Fed Watch
Lots of news from last week, most of which supported the Fed’s current anticipated rate path of one 25bp hike in December followed by three more in 2018. The only potential obstacle on that path is the persistent weakness of inflation. But the ongoing decline in the unemployment rate, along with the promise of further declines in the months ahead, will dominate lingering concerns at the Fed regarding the inflation numbers. Continued as newsletter… Continue reading
Posted Nov 5, 2017 at Tim Duy's Fed Watch
The U.S. appears set to enter a more risky phase of the business cycle as the Federal Reserve attempts to glide the economy into a so-called soft-landing. For President Donald Trump’s likely nominee as chair, Jerome Powell, this means tightening policy enough to settle the economy into full employment, but not so much that it trips into recession. Navigating this transition will be challenging for investors and the Fed alike. Market participants should be wary of assuming that a slowing economy means a recession is near. At the same time, central bankers need to be wary that they don’t slow... Continue reading
Posted Nov 2, 2017 at Tim Duy's Fed Watch
Newsletter version here… Central bankers will meet this week, but only to sign off on the existing policy stance. Although it pains this fedwatcher to admit, the FOMC meeting is arguably the least important event of the week. It competes with a slew of critical data, including the employment report for October, to be released Friday. Plus, we should learn President Trump’s pick to lead the Fed when Yellen’s term expires next February. An FOMC meeting widely expected to yield no change in policy and likely little in the accompanying statement simply can’t compete with this week’s news flow. Continued... Continue reading
Posted Oct 29, 2017 at Tim Duy's Fed Watch
Let’s revisit this from San Francisco Federal Reserve Resident John Williams: If you look until 2015 or so, the inflation data basically followed our models, emphasizing the role of weakness in the economy. Where this mystery has happened is really in the last year or two. I view both inflation picking up faster than expected in early 2017 and now the pullback as just part of the variability that’s going to happen. I don’t see any signs that somehow the inflation process is fundamentally changed. I’ve been doing this a long time, and the Phillips curve has been declared dead... Continue reading
Posted Oct 22, 2017 at Tim Duy's Fed Watch
If we ignore inflation, then nothing is really standing in the way of a rate hike in December. Of course, given that arguably the primary job of a central bank is to meet its definition of price stability, the Fed shouldn’t really ignore inflation. Policymakers, however, would counter that they are not ignoring inflation. They are simply favoring the inflation forecast over actual inflation. And they would further argue they have good cause – with the economy chugging along, it is only a matter of time before resource constraints become evident and price pressures rise. That’s their story, and they... Continue reading
Posted Oct 18, 2017 at Tim Duy's Fed Watch
The Federal Reserve remains committed to a December rate hike, persistent low inflation not withstanding. With unemployment below Fed estimates of its longer-run natural rate, most FOMC participants do not need evidence of stronger inflation to justify further rate hikes. Ongoing solid job growth will be sufficient cause for tighter policy, especially in what they perceive to be an environment of loosening financial conditions. The main risk from this scenario is that the US economy enters the next recession with diminished inflation expectations, which could further hobble central bankers already facing the prospect of returning to the effective lower bound... Continue reading
Posted Oct 15, 2017 at Tim Duy's Fed Watch
Newly minted Nobel laureate Richard Thayler weighed in on equities today. Via Bloomberg: A buoyant and complacent stock market is worrying Richard H. Thaler, the University of Chicago professor who this week won the Nobel Prize in economics. “We seem to be living in the riskiest moment of our lives, and yet the stock market seems to be napping,” Thaler said, speaking by phone on Bloomberg TV. “I admit to not understanding it.”... ...“I don’t know about you, but I’m nervous, and it seems like when investors are nervous, they’re prone to being spooked,” Thaler said, “Nothing seems to spook... Continue reading
Posted Oct 10, 2017 at Tim Duy's Fed Watch
Scott Sumner is perplexed by Fed chair candidate Kevin Warsh. He reads the 2010 FOMC transcripts and finds Warsh explaining: First, my views on policy. As I said when we met by videoconference, my views are increasingly out of step with the views of most people around this table. The path that you’re leading us to, Mr. Chairman, is not my preferred path forward. I think we are removing much of the burden from those that could actually help reach these objectives, particular the growth and employment objectives, and we are putting that onus strangely on ourselves rather than letting... Continue reading
Posted Oct 10, 2017 at Tim Duy's Fed Watch
The headline figure on nonfarm payrolls report came in well below already withered expectations, but the disappointment was more than compensated for in the details of both the establishment and household survey. The Fed is looking for data that allows them to overlook the weak inflation data. This was just that sort of data Continued as a PDF newsletter here or blog below... Nonfarm payrolls sank by 33k, and prior months were revised down. The three-month average is just 91k, which would put the job growth in-line with the range Fed officials believe is consistent with a steady unemployment rate.... Continue reading
Posted Oct 8, 2017 at Tim Duy's Fed Watch
The employment report for September will be released this morning. It is widely expected to disappoint as it comes in the wake of a tough hurricane season. But those weak numbers are not expected to dissuade the Fed from hiking in December. And unexpectedly strong numbers would only help prod along those officials getting cold feet from the weak inflation data. Continued here... Continue reading
Posted Oct 5, 2017 at Tim Duy's Fed Watch
The ISM manufacturing report for September came in stronger than expected. To be sure, hurricane impacts accounted for some of the boost, particularly in supplier deliveries and prices; anecdotal responses made this clear. But it isn’t all hurricanes. Manufacturing has been gaining steam since last year. The sector continues to throw off the 2015/2016 weakness associated with the oil price decline and rise in the dollar. I often feel this improvement has been overlooked. Continued here…. Continue reading
Posted Oct 3, 2017 at Tim Duy's Fed Watch
Big data week ahead that ends with the employment report for September. Considering the ongoing inflation weakness, one would think the Fed would be looking for a series of very strong job reports to justify a rate hike in December. But with Fed officials largely convinced that the soft inflation numbers are transitory, a middling jobs report would likely be sufficient to keep them on track, and even a weak report if they can attribute disappointing data to the busy hurricane season. Continued here... Continue reading
Posted Oct 1, 2017 at Tim Duy's Fed Watch
Federal Reserve Chair Janet Yellen made clear two things this week. First, that her and her colleagues are somewhat confounded by the inflation data. And second, that confusion does not yet deter them from their plan for gradual rate hikes. December is still on. Continued in newsletter form here... Continue reading
Posted Sep 27, 2017 at Tim Duy's Fed Watch
The battle over that final rate hike of 2017 continues as some policymakers find it increasingly difficult to ignore weak inflation numbers in recent months. Such concerns, however, do not appear likely to take center stage in December. Indeed, the Fed looks fairly committed to a rate hike at that meeting. But the consensus on that meeting and beyond is being held together by forecasts of a rebound of inflation next year. It will be hard to maintain that consensus if inflation numbers don’t soon give more hope to those forecasts. Continued here in new, experimental newsletter format... Continue reading
Posted Sep 25, 2017 at Tim Duy's Fed Watch