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
Image
I am often asked if 25bp really makes any difference? If not, why does it matter when the Fed makes its first move? The Fed would like you to believe that 25bp really isn't all that important. Indeed, they don't want us focused on the timing of the first move at all, reiterating that the path of rates is most important. Yet I have come to believe that the timing of the first rate hike is important for two reasons. First, it will help clarify the Fed's reaction function. Second, if the experience of Japan and others who have tried... Continue reading
Posted 3 days ago at Tim Duy's Fed Watch
Image
Fedspeak from the Jackson Hole conference suggests that the more hawkish FOMC participants are sticking to their guns. Cleveland Federal Reserve Bank President Loretta Mester, via the Wall Street Journal: “I want to take the time I have between now and the September meeting to evaluate all the economic information that’s come in, including recent volatility in markets and the reasons behind that,” Ms. Mester said. “But it hasn’t so far changed my basic outlook that the U.S. economy is solid and it could support an increase in interest rates.” Then there is St. Louis Federal Reserve President James Bullard,... Continue reading
Posted 6 days ago at Tim Duy's Fed Watch
Image
This September meeting is the gift that keeps on giving. Right now it is giving by the shear quantity of truly bad commentary arguing for a rate hike next month. Let's back up a few weeks. Prior to the recent market rout, September looked like a pretty good bet. And the basic story that justified that view still holds. It isn't complicated. Just a straight forward Phillips curve story. The economy continues to improve, dragging the labor market along for the ride. Any questions about the meaning of a weak first quarter GDP report were wiped away by the second... Continue reading
Posted 7 days ago at Tim Duy's Fed Watch
Monday's action on Wall Street was too much for the Fed. That day, Atlanta Federal Reserve President Dennis Lockhart pulled back his previous dedication to a September rate hike earlier, reverting to only an expectation that rates rise sometimes this year. But today New York Federal Reserve President William Dudley explicitly called September into question. Via the Wall Street Journal: In light of market volatility and foreign developments, “at this moment, the decision to begin the normalization process at the September [Federal Open Market Committee] meeting seems less compelling to me than it did several weeks ago. But normalization could... Continue reading
Posted Aug 26, 2015 at Tim Duy's Fed Watch
The FOMC minutes from the July 28-29 FOMC meeting were released today. Arguably they are stale. Arguably they have been overtaken by events. And because the Fed has been very good about not signaling their exact intentions, arguably you can read anything into them you want. If you want to take a hawkish view, I think you focus on this and similar portions of the minutes: During their discussion of economic conditions and monetary policy, participants mentioned a number of considerations associated with the timing and pace of policy normalization. Most judged that the conditions for policy firming had not... Continue reading
Posted Aug 19, 2015 at Tim Duy's Fed Watch
Image
Will flagging productivity growth trigger a hawkish response from the Fed? That is a question I have been asking myself since Federal Reserve Chair Janet Yellen discounted the cyclical influences of low wage growth in her July 10 speech: The most important factor determining continued advances in living standards is productivity growth, defined as the rate of increase in how much a worker can produce in an hour of work. Over time, sustained increases in productivity are necessary to support rising household incomes…Here the recent data have been disappointing. The growth rate of output per hour worked in the business... Continue reading
Posted Aug 17, 2015 at Tim Duy's Fed Watch
Image
The big event this week is the employment report. Fed watchers will eagerly dive into the data, looking for signs that the labor market made "some" further improvement. "Some" improvement appears to be an important hurdle to clear before the Fed will raise interest rates. How much "some" is necessary? I suspect it's like pornography - you will know it when you see it. Incoming data continues a pattern general mediocrity. Today we received the June income and spending report, which one could have largely backed out of the second quarter GDP numbers. Real incomes edged up 0.2% while real... Continue reading
Posted Aug 3, 2015 at Tim Duy's Fed Watch
Image
The second quarter GDP report, while not a blockbuster by any measure, will nudge the Fed further in the direction of a September rate hike. At first blush this might seem preposterous - 2.3% growth is nothing to write home about in comparison to history. But history is deceiving in this case. It remains important to keep in mind that 2% is the new 4%. Year-over-year growth rates continue to hover around 2.5%: While the 2.3% quarterly rate of the second quarter was below consensus forecasts, the first quarter figure was revised up from -0.2% to 0.6%. That said, the... Continue reading
Posted Jul 30, 2015 at Tim Duy's Fed Watch
Image
The July FOMC meeting yielded the widely expected outcome of no policy change. Very little change in the statement either - pulling out any useful information is about as easy as reading tea leaves or chicken bones. But that won't stop me from trying! On net, I would count it was somewhat more hawkish as the Fed gears up to hike rates later this year. By no means, however, did the statement make any definitive signal about September. The Fed continues to hold true to its promise to make the next move about the data. The era of handholding fades... Continue reading
Posted Jul 29, 2015 at Tim Duy's Fed Watch
Image
The Wall Street Journal reports that most economists still expect the Fed to raise rates in September: Financial market participants tend to be less confident, with odds of a September hike running around 35%. Still, the consideration of any rate hike may seem odd given the lackluster nature of the US economy. Notably, inflation wallows below trend and anemic wage growth suggests significant remaining labor market slack. The Fed, however, looks at the progress towards its goals, which on the unemployment side has been substantial, as well as the perceived need to act ahead of actual inflation. In short, the... Continue reading
Posted Jul 16, 2015 at Tim Duy's Fed Watch
Image
Federal Reserve Chair Janet Yellen will be playing a game of mixed messages with Congress tomorrow as she explains why she believes a rate hike approaches in spite of lackluster data. Today's data didn't help. The June retail sales report was a disappointment, slipping from May levels with generally soft internals in addition to downward revisions to previous months. Consequently, core spending growth is decelerating on a year-over-year basis to 2013 rates: Maintaining the 2014 growth bump has been something of a challenge, to be sure.The report triggered downgrades to the second quarter growth forecast as it offset upward revisions... Continue reading
Posted Jul 14, 2015 at Tim Duy's Fed Watch
Image
The US economy is an island of mediocre tranquility in the midst of the stormy sea of the global economy. Tranquil enough to keep the Fed eyeing its first rate hike despite the surrounding storm, but sufficiently mediocre that they feel no reason to rush into that hike. As such, the Fed will remain on the sidelines until the forecast points toward sunnier skies. Uncertainty from Greece and China are likely raising the bar on the domestic conditions that would justify a rate hike. Monetary policymakers are increasingly convinced that the first quarter weakness in US data was largely an... Continue reading
Posted Jul 8, 2015 at Tim Duy's Fed Watch
Image
A rare Thursday release of the employment report is on tap for tomorrow, and all eyes will be watching to see if it falls in line with the other, more optimistic US data of late. Indeed, it increasingly looks like this year's growth scare was driven by temporary factors, not a fundamental downturn in the US economy. Consequently, anything reasonably close to expectations would bolster the case of those FOMC members looking for a first rate hike later this year, as early as September. The ISM report for June was in-line with expectations, with fairly good internal components. Note in... Continue reading
Posted Jul 1, 2015 at Tim Duy's Fed Watch
Federal Reserve policymakers just can't catch a break lately. Riding on the back of strong data in the second half of last year, they were positioning themselves to declare victory and begin the process of policy normalization, AKA "raising interest rates." Then the bottom fell out. Data in the first half of the year turned sloppy. Although policymakers on average - and Federal Reserve Chair Janet Yellen in particular - could reasonably believe the underlying momentum of the economy had not changed, that the data reflected largely temporary factors, the case for a rate hike by mid-year evaporated all the... Continue reading
Posted Jun 29, 2015 at Tim Duy's Fed Watch
Federal Reserve policymakers just can't catch a break lately. Riding on the back of strong data in the second half of last year, they were positioning themselves to declare victory and begin the process of policy normalization, AKA "raising interest rates." Then the bottom fell out. Data in the first half of the year turned sloppy. Although policymakers on average - and Federal Reserve Chair Janet Yellen in particular - could reasonably believe the underlying momentum of the economy had not changed, that the data reflected largely temporary factors, the case for a rate hike by mid-year evaporated all the... Continue reading
Posted Jun 29, 2015 at Tim Duy's Fed Watch
Image
Coming on the heels of a dovish FOMC meeting and press conference, it might be surprising that San Francisco Federal Reserve President John Williams is still looking for two rate hikes this year. Via Bloomberg: “We are getting closer and closer,” to raising rates, he told reporters on Friday after delivering a speech in San Francisco. Williams, a voter this year on the policy-setting Federal Open Market Committee, was head of research at the regional bank when it was led by now-Chair Janet Yellen. “My own forecast would be having us raise rates two times this year,” he said. “But... Continue reading
Posted Jun 22, 2015 at Tim Duy's Fed Watch
Image
The FOMC meeting ended largely as expected with a nod toward recent data improvement but no change in policy. It is still reasonable to believe that lift-off will occur in September, but only if incoming data removes any residual concern about the sloppy data from earlier this year. Still, as Federal Reserve Chair Janet Yellen emphasized today, the lift-off itself is less important than the subsequent path of rates. That path remains subdued. The FOMC statement itself was little changed - see the Wall Street Journal statement tracker here. Key is the opening line that validates the belief that the... Continue reading
Posted Jun 17, 2015 at Tim Duy's Fed Watch
This month my FOMC preview is over at Bloomberg. The intro: The Federal Open Market Committee meets this week to discuss the path of monetary policy. Any possibility of a rate hike at the meeting’s conclusion on Wednesday was already crushed under the weight of weak data early in the year. To be sure, the data support the transitory nature of the weakness, justifying Federal Reserve Chair Janet Yellen’s optimism last month, but it remains too little, too late. Instead, turn to September as the next opportunity for the first rate hike of this cycle. To read the rest, please... Continue reading
Posted Jun 16, 2015 at Tim Duy's Fed Watch
Image
The May employment report should help ease concerns about the health of the economy, but will have little impact on the outcome of next week's FOMC meeting. Fed officials had largely already written off the June meeting, and I think it is too little too late to expect them to reverse course now. Instead, the report puts the focus squarely on September. Nonfarm payrolls gained 280k for the month, with upward revisions adding 32k to the previous two months. The March slowdown now looks like what it was - the typical kind of variability we see in this report: The... Continue reading
Posted Jun 5, 2015 at Tim Duy's Fed Watch
Image
As is well known, second quarter GDP growth is not off to a strong start, at least according to the Atlanta Federal Reserve staff: If this forecast holds, then the first half of 2015 will be very weak if not flat, slow enough that commentators might be tempted to refer to growth as at "stall speed". But quarterly GDP numbers are fairly volatile. Would two consecutive weak quarters be terribly unexpected, or even suggestive of a troubling undercurrent in the economy? It is somewhat difficult to panic about the GDP numbers just yet, especially in the context of the continuous... Continue reading
Posted May 14, 2015 at Tim Duy's Fed Watch
Image
The Personal Income and Outlays report for March was released today. The pace of spending accelerated to 0.3% in real terms, the highest since last November and indication that the economy is perhaps shaking off some of its winter blues. On the other hand, inflation undershot the Fed's target for the 35th consecutive month, with core-inflation climbing just 1.3% over the past year. I would be a little wary that Fed officials won't find room for a somewhat more optimistic read on the data. Indeed, core-inflation on a monthly basis is also recovering from a winter stumble: The annualized monthly... Continue reading
Posted Apr 30, 2015 at Tim Duy's Fed Watch
Image
The FOMC concluded their meeting today, and the result left Fed watchers struggling to find something interesting to say. The really offered no insight into the economy with the opening paragraph: Information received since the Federal Open Market Committee met in March suggests that economic growth slowed during the winter months, in part reflecting transitory factors. The pace of job gains moderated, and the unemployment rate remained steady. A range of labor market indicators suggests that underutilization of labor resources was little changed. Growth in household spending declined; households' real incomes rose strongly, partly reflecting earlier declines in energy prices,... Continue reading
Posted Apr 29, 2015 at Tim Duy's Fed Watch
Image
The employment data hit an air pocket in March, in line with a variety of softer economic news in the first quarter. That said, it likely will have little near term impact on Fed policy; I anticipate they will tend to dismiss the number as expected volatility in the overall upward path of job growth. Job growth was paltry 126k in March and, in what might be a greater indication that US labor markets are hitting an inflection point, the January and February numbers were revised downward. The three-month moving average dipped sharply, while the 12-month moving average is leveling... Continue reading
Posted Apr 3, 2015 at Tim Duy's Fed Watch
Image
I came back from Spring Break vacation to find a detailed speech by Fed Chair Janet Yellen that further lays the groundwork for rate hikes to begin later this year. The speech is a remarkably clear elucidation of her views and provides plenty of insight into what we should be looking for as the Fed edges toward policy normalization. A speech like this once a month from a Federal Reserve Governor would, I think, go a long way toward enhancing the the Fed's communication strategy. One of the most important takeaways from this speech is the importance of labor market... Continue reading
Posted Mar 30, 2015 at Tim Duy's Fed Watch
Image
The FOMC concluded its two-day meeting today, and the results were largely as I had anticipated. The Fed took note of the recent data, downgrading the pace of activity from "solid" to "moderated." They continue to expect inflation weakness to be transitory. The risks to the outlook are balanced. And "patient" was dropped; April is still off the table for a rate hike, but data dependence rules from that point on. Growth, inflation and unemployment forecasts all came down. Especially important was the decrease in longer-run unemployment projections. The Fed's estimates of NAIRU are falling, something almost impossible to avoid... Continue reading
Posted Mar 18, 2015 at Tim Duy's Fed Watch