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Fed Policy Outlook: Waiting It Out
by Scott Brown of Raymond James,
The economic outlook largely remains a good news/bad news story. The good news if that the recovery is continuing, even gathering a little more steam. The bad news is that the pace of growth is insufficient to push the unemployment rate down significantly. The Fed has a dual mandate: stable prices and maximum sustainable employment. While these goals may be seen to be in conflict from time to time, Fed officials (and most economists) believe that economic growth can be maximized over the long run by keeping inflation low.
The December Labor Market Data
by Scott Brown of Raymond James,
The ADP estimate of private-sector payrolls rose sharply in December (+297,000), leading many economists to revise their forecasts of the official BLS payroll figure higher. Instead, the BLS data disappointed (+103,000). The unemployment rate fell sharply, generating some confusion regarding the difference between the household survey and the establishment survey. In the end, nothing much has changed in the job market outlook. Economic growth is expected to continue in 2011, just not fast enough to reduce the unemployment rate more significantly.
Job Growth ? The Key To The 2011 Outlook
by Scott Brown of Raymond James,
While the outlook for economic growth has improved, a number of headwinds remain in the near term. Lingering problems in the housing sector, tighter state and local government budgets, and the decrease in the federal fiscal stimulus will restrain overall economic growth. In addition, higher gasoline prices may dampen the pace of consumer spending growth. However, stronger job growth would help counter these pressures, providing fundamental support for the housing market and helping to lift state and local government tax receipts.
What To Watch For In Early 2011
by Scott Brown of Raymond James,
One of the key themes for investors in early 2011 is likely to be a shifting economic picture. The tax cut package has taken the double-dip recession scenario off the table, but the data for the next few months are likely to be mixed, suggesting strong growth in one set of figures and more moderate growth in another. That back and forth should create some opportunities for investors.
Opposing Forces
by Scott Brown of Raymond James,
Economic recoveries are never straight-line expansions. They tend to be uneven across time and across sectors. That means a continuation of mixed economic figures over the near term and further volatility in the financial markets as investors attempt to gauge the underlying strength. Volatility creates opportunities.
Labor Market Update: Still Struggling
by Scott Brown of Raymond James,
The November Employment Report was disappointing. The holiday shopping season apparently got off to a strong start, but that failed to translate into a corresponding jump in retail employment (at least, on a seasonally adjusted basis). Manufacturing jobs were soft. State and local government continued to shed jobs, reflecting budget strains. What?s in store for 2011? The November jobs data aren?t encouraging, but the recovery is likely to remain on track.
The Fed Under Attack
by Scott Brown of Raymond James,
Despite hopes that the anti-QE rhetoric would die down, the noise continued last week, and unfortunately, become more political. One of the key aspects of the Fed is its independence. The Fed is answerable to Congress, and ultimately, to the American people. However, it is not controlled by Congress - nor would we want it to be controlled by Congress. Attacks on the Fed and its latest round of asset purchases aren't helping
Lighten Up, Francis
by Scott Brown of Raymond James,
The increase in the deficit over the last couple of years is due largely to the recession and efforts to minimize the impact of the economic downturn. Quantitative easing isn?t some hair-brained scheme, but is simply another form of monetary policy accommodation. The dollar is down, but not out of line with its longer-term trend. Stop the hysterics, please.
The Fed's Asset Purchases
by Scott Brown of Raymond James,
As expected, the Federal Open Market Committee has embarked on another round of planned asset purchases. There has been much criticism of the move in the financial press. Certainly, there are risks in the Fed?s strategy. However, it?s hardly reckless or ill-advised.
More of the Same
by Scott Brown of Raymond James,
Real GDP rose about as expected in the third quarter. Details were mixed, but remained consistent with the view that the pace of growth, while still positive, is subpar - far below a rate that would be associated with a significant reduction in unemployment. What to expect from here? More of the same, most likely. The economy continues to face a number of serious headwinds, but the recovery is likely to remain on track.
Key Dates Approaching
by Scott Brown of Raymond James,
The first week of November looms large for the markets. The November 2 midterm elections are expected to result in a power shift on Capitol Hill - but how much will actually change? The Fed's November 3 monetary policy decision has important implications for interest rates, the dollar, and the economy in general. The October Employment Report (due November 5) will help shape the near-term economic outlook and set expectations for future Fed policy moves.
The Fed, Inflation Expectations, and the Dollar
by Scott Brown of Raymond James,
Will they or won't they? The September 21 policy meeting minutes and comments by senior Fed officials suggest that the Federal Open Market Committee is leaning toward further monetary accommodation (specifically, additional purchases of long-term Treasury securities). However, it's not entirely settled. There are excellent arguments for doing more, but also a number of reasons for the Fed to be cautious. Most likely, the FOMC will pull the trigger on November 3. In the meantime, the uncertainty has added to the volatility in the financial markets.
The Job Market - More of the Same...
by Scott Brown of Raymond James,
The September employment report was a mixed bag. Growth in private-sector payrolls was not far from expectations and the August increase was revised higher. However, job growth is far below what we'd like to see. The unemployment rate held steady, but there was a large jump in the number of people working part time who would rather have full-time employment. There's nothing in the data to suggest a double-dip recession. However, more quantitative easing is on the way.
QE II Set To Sail, But How Soon?
by Scott Brown of Raymond James,
In its September 21 policy statement, the Federal Open Market Committee indicated that it was 'prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.' The key part of that phrase is 'if needed.' Growth and inflation are both too low for the Fed's comfort, but are they low enough to force the Fed's hand? Most officials appear to be leaning in the direction of further quantitative easing, but it's unclear when it will happen.
A Long Recovery Road
by Scott Brown of Raymond James,
It's well known that recessions caused by financial crises tend to be more severe and longer-lasting, and the recovery process is typically lengthy. In a 'typical' recession, consumers postpone purchases of homes and motor vehicles. As the economy recovers, you get a slingshot effect as that pent-up demand comes back into play. However, that's not going to happen this time. The key element in this recovery is time. Fiscal and monetary policy can help limit the downside, but there's no miracle cure. Ultimately, the recovery is dependent on the private sector.
The Fed Outlook: No Good Choices
by Scott Brown of Raymond James,
In his semiannual monetary policy testimony to Congress in July, Federal Reserve Chairman Ben Bernanke said that the Fed 'remains prepared to take further policy actions as needed.' In his Jackson Hole speech on August 27, he outlined possible steps the Fed could take, including expanding its holdings of longer-term securities, but cautioned that 'the expected benefits of additional stimulus from further expanding the Fed's balance sheet would have to be weighed against potential risks and costs.'
August Jobs Report ? No Sign of a Double Dip
by Scott Brown of Raymond James,
As with most of the recent data reports, the August employment report was consistent with a near-term slow patch in economic growth, but not a double-dip. Private-sector growth in nonfarm payrolls remained positive, and figures for the previous two months were revised higher. However, while the job numbers were better than expected, the pace is nowhere near where we'd like it to be.
Looking Further Into The Job Market
by Scott Brown of Raymond James,
The job market has been a critical focus in the economic recovery. People tend to concentrate on net employment figures (overall payroll gains or losses). However, there's a lot going on under the surface. The underlying details hold the key to why the economic recovery is going to be gradual.
How Much of a Threat is Deflation?
by Scott Brown of Raymond James,
The Federal Open Market Committee voted to reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in long-term Treasury securities ? which will keep the level of its security holdings steady over time. By itself, the Fed's decision is not a major move. Long-term interest rates were already very low. The move signals, however, that the Fed could do more if needed. Outright deflation is not likely, but it could result from a more substantial downturn in the overall economy. The Fed's latest move should prevent the economy from weakening a lot more.
The Fed Policy Outlook - Further Efforts?
by Scott Brown of Raymond James,
The economic data of recent weeks has confirmed that the recovery has hit a soft patch. Overall growth still appears to be positive, but the pace has slowed. Downside risks to growth have increased. Meanwhile, the Fed has spent much of the last several months working on its endgame. One part of that, reducing its holdings of mortgage-backed securities, could be accomplished gradually over time, by simply letting securities mature. The Fed may decide this week to use these proceeds to buy more mortgage-backed securities. This would be a small step, but it would be symbolically important.
Clear as Mud
by Scott Brown of Raymond James,
The details of the GDP report suggested what many had already suspected ? that the recovery has slowed. The personal savings rate rose in 2Q10, consistent with near-term restraint in consumer spending growth. Inventories rose at an even faster rate in the second quarter, and while these data will be revised, the pace is unsustainable, consistent with a near-term moderation in manufacturing. There's nothing in the report to suggest a double-dip, however, just a near-term slowdown in the pace of growth.
The Fed's View
by Scott Brown of Raymond James,
Federal Reserve Chairman Ben Bernanke will testify on the Fed's semi-annual Monetary Policy Report to Congress this week. This is usually a big deal for the markets. However, there's much less suspense this time around. The Fed's views were already included in the minutes of the June 22-23 policy meeting. Fed officials lowered their projections of near-term growth and inflation, and about half saw the risks to their growth outlooks as tilted to the downside. However, policymakers felt that the shift in the near-term outlook did not warrant stimulus.
Animal Spirits and the Economic Outlook II
by Scott Brown of Raymond James,
The U.S. economic recovery appears to have entered a moderation phase, where growth is likely to remain positive in the near term but may not be as strong as was hoped for a few months ago. Recoveries from financial crises take time. This was never expected to be a sharp recovery and improvement in the labor market was projected to be very gradual. Recoveries are never smooth, but it seems clear that consumer and business psychology will play important roles in the near term.
Animal Spirits and the Economic Outlook
by Scott Brown of Raymond James,
Near-term economic expectations have softened over the last few months and the risks to the growth outlook have become tilted more to the downside. There's nothing to suggest that a double-dip recession is imminent or even likely over the next few quarters. However, the one element that's hard to get a handle on is psychology. Fears of a double-dip could become self-fulfilling if enough firms stop hiring.
Excessive Fiscal Tightening ? A Major Worry
by Scott Brown of Raymond James,
Studies of past recessions show that downturns associated with financial crises tend to be more severe and longer-lasting, and have gradual recoveries. Studies also point to a common error made in these recoveries - that is, policy is often tightened too soon. Chairman Bernanke is a student of the Great Depression, so the Federal Reserve seems unlikely to make that mistake. However, there is a growing public mood to do 'something' about the federal budget deficit. While well-intentioned, excessive fiscal tightening is bad economics.
Inflation Expectations
by Scott Brown of Raymond James,
The Federal Open Market Committee's expectation that economic conditions are likely to warrant exceptionally low levels of the federal funds rate "for an extended period" is conditional on three things: low rates of resource utilization, subdued inflation trends and stable inflation expectations. Economic growth is not expected to be strong enough to push the unemployment rate down significantly, the trend in inflation is likely to remain benign, and despite some worries about accommodative Fed policy and large federal budget deficits, inflation expectations are also likely to remain low.
The Recovery Marches On...
by Scott Brown of Raymond James,
Real GDP rose at a 3.0% annual rate in the revised estimate for Q1, down from 3.2% in the advance estimate, although the story didn't change much. This was the third consecutive quarterly increase in real GDP. More importantly, the economy appears to be transitioning to a more sustainable recovery, less reliant on the shift in inventories and the government's fiscal stimulus, and supported more by consumer and business demand. Job growth, a key element in a sustainable economic recovery, has returned. Unfortunately, the economy still faces a number of headwinds in the near term.
Results 551–577
of 577 found.
