The Commerce Department this morning reported that gross domestic product grew at an annual rate of 2.0 percent during the third quarter. But the key Chicago purchasing managers' index clocked in with a strong October number, with output climbing at its fastest pace in five years. Investors reacted to both numbers with a bit of a yawn; people are still focused on next week's elections and waiting for the Federal Reserve to lay out its plans for further financial quantitative easing.
Oct 29, 2010 12:24 PM
The debate about whether the Federal Reserve should hike its benchmark rate should have nothing to do with the current (relative) strength of the economy, says Jeff Tyler. Instead, he argues higher rates are needed before the economy can recover properly.
Extremely low interest rates only encourage misallocation of capital and serve as an incentive to create debt. This policy is at the expense of thrift and savings. The way to solve a crisis of excess leverage is to reduce leverage. Seems pretty simple. In order to encourage a reduction of leverage, interest rates must go up, providing incentive to save.
Sep 30, 2010 8:31 AM
Harvard professor Kenneth Rogoff says the slow-and-steady approach — not cutting taxes or adding more government stimulus — is the way to get out of our post-crisis funk and that the best tool for that is inflation.
Given the massive deleveraging of public- and private-sector debt that lies ahead, and my continuing cynicism about the US political and legal system’s capacity to facilitate workouts, two or three years of slightly elevated inflation strikes me as the best of many very bad options, and far preferable to deflation. While the Fed is still reluctant to compromise its long-term independence, I suspect that before this is over it will use most, if not all, of the tools outlined by Bernanke.
Sep 2, 2010 10:00 AM
Jim Picerno keys in on the market's falling inflation expectations, a trend that brings up a lot of questions but few answers about where the economy is headed.
Remember, this is all about managing expectations. Let's not forget that the Fed could, if it was so inclined, push long rates much lower by printing money. There are some very good reasons for why Bernanke and company are reluctant to roll out the nuclear option. But events may be set to overwhelm otherwise cautious thinking on matters of monetary policy.
Aug 23, 2010 9:58 AM
Economists and market types react to the Federal Reserve's move — a surprise to some — yesterday to lift the discount rate at which banks can borrow from it. From the Journal comes a short roundup that's rather there-is-nothing-to-see-here sanguine. Bloomberg talks to Japanese economist who says the dollar's gains will peter out and Mike Shedlock says we shouldn't shrug off the Fed's move but still expect some follow-through.
Say what you want, but this appears to be a change in policy from doing nothing to tightening. At the very minimum this is likely to change perceptions about the resolve of the Fed's willingness to take its exit strategy seriously.
Feb 19, 2010 7:21 AM
Thomas Hoenig, president of the Kansas City Federal Reserve, says the U.S. economy must quickly make a substantial dent in its debt load to avoid more downturns like the one we're crawling out of now.
Finally, there are no short-cuts. We currently must adjust from a misallocation of resources. There is no way to avoid some short-term pain in fixing the fundamentals in our economy. It is inconvenient for the election cycle, and it is undeniably terrible to have at least 10 percent of the labor force out of work. But short cuts now mean people out of work again in only a few years because we again try and avoid difficult adjustments. Outlining a credible course for managing our debt for the future will accelerate the restoration of confidence in our economy and contribute importantly to sustainable capital investment and job growth.
Feb 17, 2010 9:56 AM
Bob Janjuah, RBS' chief strategist, says stocks may rise a bit in the coming months but are set for another steep drop later this year. Driving those moves will be the needed withdrawal of big-time government spending, which will favor some assets and batter others.
In Austerity deflation rules, as do Govvies, very High Quality Credit and only the highest quality big cap global equities/best earnings streams. Currencies do OK. Commodities (gold, crude) don’t.
Feb 10, 2010 10:16 AM
House of Lords member and Keynes biographer Robert Skidelsky points out that a flood of money printed by a central bank only causes inflation if it's actually spent. And since we're barely spending anything these days, our inflation outlook is muted — which doesn't speak well of the strength of the recovery.
After all, when economies recover from recession, they usually grow above trend. This means that prices will rise above trend. The fact that there is no evidence of higher prices in the pipeline means that there is no real evidence of economic recovery.
Jan 20, 2010 9:43 AM
David Rosenberg is focused on the latest NFIB survey's data on small-business owners' intent — or lack thereof — to raise prices and wages in the coming months.
[N]othing matters more to the direction of market rates, not even the fiscal backdrop, than inflation. And the folks that actually have a significant influence over the pricing environment, the two-thirds of the economy otherwise known as small business, are telling you that even with the sales situation still rather shaky, pricing power remains extremely elusive. Something for the inflation hawks to chew on.
Jan 13, 2010 12:22 PM