This is Tim Duy's Typepad Profile.
Join Typepad and start following Tim Duy's activity
Join Now!
Already a member? Sign In
Tim Duy
Recent Activity
Paul Krugman on the election: The only way to make sense of what happened is to see the vote as an expression of, well, identity politics — some combination of white resentment at what voters see as favoritism toward nonwhites (even though it isn’t) and anger on the part of the less educated at liberal elites whom they imagine look down on them. To be honest, I don’t fully understand this resentment. To not understand this resentment is to pretend this never happened: “You know, to just be grossly generalistic, you could put half of Trump’s supporters into what I... Continue reading
Posted 6 days ago at Tim Duy's Fed Watch
40
Posted Nov 21, 2016 at Tim Duy's Fed Watch
Rent or buy? Often I am asked this question, and I find I lack a satisfactory answer. I realize that people who ask me this question are typically in transitional phases in their lives – moving from young adulthood to real adulthood. The answer is perhaps more obvious on either side of that inflection point, less so in the middle of it. From my experience, these are the pros and the cons: Pros. You earn the untaxed imputed rent (you pay yourself rent) and receive a tax deduction on your mortgage interest. Double subsidy. Assuming a fixed rate mortgage, you... Continue reading
Posted Nov 17, 2016 at Tim Duy's Fed Watch
Image
Some back of the envelope calculations: The Fed's long-run real GDP growth estimate - the rate of potential GDP growth - is 1.8%. According to Federal Reserve Vice Chair Stan Fischer last week: If labor force participation was to remain flat, job gains in the range of 125,000 to 175,000 would likely be needed to prevent unemployment from creeping up. However, if labor force participation was to decline, as might be expected given demographic trends, the neutral rate of payroll gains would be lower. If we assumed a downward trend in participation of about 0.3 percentage point per year, in... Continue reading
Posted Nov 14, 2016 at Tim Duy's Fed Watch
As expected, the Federal Reserve left policy unchanged this month. The statement itself was largely unchanged as well. The near term inflation outlook improved, going from this is in September: Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. To this in November: Inflation is expected to rise to 2 percent over the medium term as the transitory effects of past... Continue reading
Posted Nov 2, 2016 at Tim Duy's Fed Watch
This from Bloomberg surprised me: Michael Gapen, chief U.S. economist at Barclays Plc in New York, said Fischer’s comments “reflect an ongoing divergence of opinion” at the central bank. Fischer “doesn’t see much room for running the economy hot” while Yellen’s views “seem to provide a wide-open door to do that. You have a chair and a vice chair who see policy differently right now,” he said. I don't think there exists a yawning gap between Federal Reserve Vice-Chair Fischer and Federal Reserve Vice Chair Yellen. The perception of this gap stems in part from what I think was an... Continue reading
Posted Oct 17, 2016 at Tim Duy's Fed Watch
Image
Federal Reserve hawks face an array of labor market data that threatens a key pillar holding up their policy view. That pillar is the assertion that monthly nonfarm payroll growth over roughly 100k will soon force unemployment far below the natural rate, thus placing the US economy in grave danger from inflationary forces. By this view, the decline of unemployment long ago justified further rate hikes. Hawks failed to anticipate that the unemployment rate would flatten out at 5 percent despite steady payrolls growth. This outcome does not fit in their worldview. Fundamentally, they were supply-side pessimists. The recent strength... Continue reading
Posted Oct 10, 2016 at Tim Duy's Fed Watch
If there is one thing that I am fairly sure that monetary policymakers hate, it is the idea that the outcomes of their meetings are preordained. November appears to be just such a meeting. To be sure, Fed hawks want to believe the meeting is "live." The sizable group that dissented - or would have dissented if they were voting members - likely sees the case for a rate hike in November as even more pressing than in September. Remember, it is all about preemptive policy action from that contingent. If you thought delay was bad in September, it must... Continue reading
Posted Oct 5, 2016 at Tim Duy's Fed Watch
Image
FOMC doves squeezed out another victory at last week’s meeting. But can they do it again in December? As was widely expected, the Fed held rates steady at the September FOMC meeting. That said, the meeting was clearly divisive, with three dissents, all from regional bank presidents. And the accompanying statement leaned in a hawkish direction – the committee noted that near-term risks were “balanced” and that the case for a rate hike had “strengthened.” Moreover, only three of the participants did not expect a rate hike before year end. And if that was not enough, during her press conference,... Continue reading
Posted Sep 26, 2016 at Tim Duy's Fed Watch
A roundup of Fed-related stories and viewpoints ahead of the FOMC meeting. First, Jeanna Smialek at Bloomberg sees danger lurking in the new dot plot: Janet Yellen will frame a decision this week to forgo an interest-rate increase as necessary to achieve the Federal Reserve’s economic goals. Donald Trump and his supporters are likely to frame it as political. That’s because the central bank on Wednesday will also release fresh “dot plot” projections which will probably show policy makers see one quarter-point rate hike by the end of the year. Such a forecast would be widely interpreted as a sign... Continue reading
Posted Sep 20, 2016 at Tim Duy's Fed Watch
Image
The unemployment is closing in on the Fed's estimate of the natural rate of unemployment: Consequently, Fed hawks are pushing for a rate hike sooner than later in an effort to prevent the economy from "overhearing." This overheating is argued to set the stage for the next recession. For instance, see San Francisco Federal Reserve President John Williams: History teaches us that an economy that runs too hot for too long can generate imbalances, potentially leading to excessive inflation, asset market bubbles, and ultimately economic correction and recession. A gradual process of raising rates reduces the risks of such an... Continue reading
Posted Sep 6, 2016 at Tim Duy's Fed Watch
Thanks. You know what? I was at grad school with a Gretchen Mester. And sometimes that slips in without me thinking about it.
Toggle Commented Sep 6, 2016 on Rate Hike Hopes Fading Fast at Tim Duy's Fed Watch
1 reply
Image
The next FOMC meeting is just two weeks away. Fed hawks had hoped that this was their moment in the sun. I suspect they will need to wait another three months before their next opportunity to act. Signs of a second half rebound are likely too tentative for the doves to tolerate a rate hike. I don't think they will roll over as easily as they did last December. The August employment report was not terrible. Not by any measure. On the positive side, labor supply is reacting to both demographic changes and stronger demand: The demographic shift - essentially,... Continue reading
Posted Sep 6, 2016 at Tim Duy's Fed Watch
Image
The August employment report has come to be seen as the deciding factor in the Fed's upcoming decision on rates. See Sam Fleming at the Financial Times here. Maybe this is the case, maybe not. I hope not. Hinging policy on the first print of nonfarm payrolls - a volatile, heavily revised number - would be pretty low quality policy making. I keep coming back to this by Federal Reserve Chair Janet Yellen from back in December: ...total real private domestic final purchases (PDFP)--which includes household spending, business fixed investment, and residential investment, and currently represents about 85 percent of... Continue reading
Posted Sep 1, 2016 at Tim Duy's Fed Watch
Image
As I mentioned in my last post, the Borneo river we traveled is not safe to drink. In addition to its use for washing and as a sewer, there are fairly extensive gold mining operations in the river. A typical gold mining barge: As you can tell, like the fishing boats, these are handmade. Very ingenious devices. The motors pump the silt from the bottom of the river over the chute at the of the barge. The heavier sentiments sift out, and I am told are subsequently treated with mercury to leach out the gold. Sometimes you will see a... Continue reading
Posted Aug 10, 2016 at Tim Duy's Fed Watch
Image
This post is not about monetary policy. No metaphors, no hidden messages. It is about orangutans. Mostly. Hot, humid weather greeted my family and freiends as we emerged from our plane. After many, many hours - days, actually - of travel, we finally had arrived in Panlangkaraya, Indonesia on the island of Borneo. If you have traveled to tropical lands, you know the feeling as the heavy air engulfs the tired and disoreinted traveler as they walk onto the tarmac. But you also know the feeling of excitement as you prepare for a completely new experience that is 180 degrees... Continue reading
Posted Aug 9, 2016 at Tim Duy's Fed Watch
How long can doves at the Federal Reserve stand their ground? The fight within the U.S. central bank continues at this week's Federal Open Market Committee (FOMC) meeting as both hawks and doves jockey for dominant position. This battle will go to the doves; the Fed is not expected to raise its interest rate target just yet. Both the hawks and the doves know this. Both camps also know that this meeting is about laying down markers for the September meeting. And while the doves have the upper hand this month, the current flow of data will increasingly place them... Continue reading
Posted Jul 26, 2016 at Tim Duy's Fed Watch
Image
Interesting mix of data today that will give monetary policymakers plenty of food for thought. My guess is that it will probably drive a deeper division in the Fed between those who looking to secure two hikes this year rather and those good with just one or none at all. Retail sales came in stronger than expected, although prior months were revised down. Various measures of sales excluding gas are perking up compared to last year: While prior expansions churned out some better spending numbers, the consumer is clearly not in some kind of recessionary free-fall. Remember, 2% growth is... Continue reading
Posted Jul 15, 2016 at Tim Duy's Fed Watch
Image
I snuck out of town last week and am catching up on Fed/economy news. Highlights from the past week: 1.) The labor report comes in better than expected. Nonfarm payrolls rose by 287k in June compared to the downwardly revised 11k gain in May. These results speak to the volatility typically seen in the employment data. See also Matthew Boesler on impact of end of the school year on the data. On a twelve month basis, job growth has eased only moderately. But on a three month basis, the slowdown is more pronounced: You have to decide if this is... Continue reading
Posted Jul 11, 2016 at Tim Duy's Fed Watch
The first Fed speaker of the post-Brexit era delivered a decidedly dovish message. Confirming the expectations of market participants, Federal Reserve Governor Jerome Powell made clear that the Fed was in a holding pattern until the dust settles. Much of the material is similar in content to his May speech, but the shift in emphasis and nuance indicate a substantially policy path. Powell summarizes the economic situation as: How should we evaluate our current performance against the dual mandate? I would say that we have made substantial progress toward maximum employment, although there is still some room for improvement. We... Continue reading
Posted Jun 28, 2016 at Tim Duy's Fed Watch
With global financial markets reeling in the wake of Brexit - Britain's unforced error as a political gamble went too far - the Fed is back on the sidelines. A July hike was already out of the question before Brexit, while September was never more than tenuous, depending on the data falling in place just right. Now September has moved from tenuous to "what are you thinking?" Indeed, the debate has shifted in the opposite direction as market participants weigh the possibility of a rate cut. The Fed is probably not there yet, but internally they are probably increasingly regretting... Continue reading
Posted Jun 27, 2016 at Tim Duy's Fed Watch
The best-laid plans can come undone by the tiniest of things. In this case a slip in the data—a low print on nonfarm payrolls that may prove no more than a statistical bump—put a June interest rate hike out of reach for the Federal Reserve and probably a July one as well. That leaves September in focus as the next chance for the U.S. central bank to tighten policy—if the data hold... Continued at Bloomberg.... Continue reading
Posted Jun 14, 2016 at Tim Duy's Fed Watch
Image
Federal Reserve Chair Janet Yellen has been vexed by an inflation problem. Now she is also vexed by an inflation expectations problem. Last week she said (emphasis added): Uncertainty concerning the outlook for inflation also reflects, in part, uncertainty about the behavior of those inflation expectations that are relevant to price setting. For two decades, inflation has been relatively stable, reacting less persistently than before to temporary factors like a recession or a swing in oil prices. The most convincing explanation for this stability, in my view, is that longer-term inflation expectations have remained quite stable. So it bears noting... Continue reading
Posted Jun 12, 2016 at Tim Duy's Fed Watch
Next week's meeting of the Federal Open Market Committee (FOMC) includes a press conference with Chair Janet Yellen. These are five questions I would ask if I had the opportunity to do so in light of recent events. 1. What's the deal with labor market conditions? You advocated for the creation of the Federal Reserve's Labor Market Conditions Index (LMCI) to serve as a broader measure of the labor market and as an alternative to a narrow measure such as the unemployment rate... Continues at Bloomberg.... Continue reading
Posted Jun 10, 2016 at Tim Duy's Fed Watch
Image
Lot's of Fed news over the past few days that add up to a simple takeaway: June is off the table (again), the stars have to align just right for a July rate hike (not likely), and September is coming into focus as the next possible rate hike opportunity. September, however, assumes that the employment report is more of an outlier than part of a trend. that's what the Fed will be taking out of the data in the coming months. Nonfarm payrolls grew by a disappointing 38K in May, low even after accounting for the Verizon strike. Downward revisions... Continue reading
Posted Jun 6, 2016 at Tim Duy's Fed Watch