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The surge in demand for residential mortgages reported by the Fed’s latest Senior Loan Officer Survey could further encourage the FOMC to launch QE3, and perhaps some kind of Funding for Lending programme, at the meeting scheduled for mid-September. … Fed …
7th August 2012
We now think that the Fed will provide more policy stimulus when the FOMC next meets in September. The most likely scenario is a third round of asset purchases (QE3), this time focusing on mortgage-backed securities rather than Treasuries. But we think a …
3rd August 2012
The bigger than expected 163,000 increase in non-farm payrolls in July, up from a muted 64,000 in June, will ease fears that the US economy is following Europe into recession. If this proves to be the start of a run of stronger data, could yet convince …
The Bank of England’s new Funding for Lending Scheme (FLS) got underway last week. If the FLS doesn’t work, more radical action to boost bank lending will be needed. … Full nationalisation could be required to boost …
We no longer believe that US economic growth will accelerate as much next year. The continued drag from the crisis in the euro-zone and the risk that America hits a fiscal cliff at the end of this year means GDP growth next year is more likely to be 2.0% …
2nd August 2012
The more we think about this from the perspective of what the Fed is ultimately trying to achieve, the more we're convinced that the best option would be a cut in the interest rate payable on excess reserves combined with the launch of a new "Funding for …
Despite acknowledging the evident slowdown in US economic growth, the Fed declined to take any additional action at the conclusion of the two-day FOMC meeting today. It did, however, offer a hint that it might be prepared to do more at the next meeting in …
1st August 2012
The soft ISM manufacturing report for July suggests that the economy will continue to grow at the sub-par annualised rate of around 1.5% in the third quarter. While this is not fast enough to reduce the unemployment rate, it is not obvious that it is weak …
The rebound in the Conference Board's measure of consumer confidence to a three-month high of 65.9 in July, from 62.7 in June, suggests that the positive impact from the recent rally in equity prices outweighed the negative from the uptick in gasoline …
31st July 2012
The economy does not have a “stall speed” of between 1.5% and 2.0% that means whenever growth falls below this rate a recession is imminent. This is especially the case when the economy current has so much spare capacity. As long as any euro-zone break-up …
The recent increase in the dollar, to close to a two-year high against the euro, represents another headwind for US exporters when they already have to contend with the easing in demand in Europe and parts of Asia. What’s more, it may exacerbate the …
27th July 2012
The 1.5% annualised rise in GDP in the second quarter shows that the economy has lost a fair amount of momentum this year. Nonetheless, the recent run of data probably hasn’t been quite weak enough to prompt the Fed into launching QE3 at next week’s …
Our econometric model suggests that non-farm payroll employment increased by around 100,000 in July, which would be slightly better than the 80,000 gain in June. This would still mean that employment is not growing at a rate fast enough to reduce the …
26th July 2012
June’s durable goods orders figures provide a upside risk to our forecast that GDP grew at an annualised rate of 1.5% in the second quarter, but not one large enough to warrant changing the forecast. More generally, the data suggest that businesses are …
As it stands at the moment, the incoming news has probably not been quite weak enough to prompt the Fed into providing more policy stimulus, such as a third round of asset purchases (QE3), at the meeting that concludes next Wednesday. … Economy not weak …
25th July 2012
The economic slowdown that began in the spring months has continued into the summer. We estimate that GDP grew at an annualised rate of around 1.5% in the second quarter, down from 1.9% in the first. And the further falls in the ISM activity indices in …
24th July 2012
The drought in parts of America is unlikely to have a major economic impact. At most, the resulting rise in agricultural commodity prices will reverse only a small part of the recent fall in inflation and the decline in agricultural output will reduce GDP …
It is a very close call as to whether the Fed will launch a third round of large-scale asset purchases in the second half of this year. We expect growth to continue slightly below the economy's potential rate. At best, the unemployment rate will edge …
20th July 2012
Joining the dots, it is becoming clear that the Fed, and its Chairman Ben Bernanke in particular, are considering launching a US version of the Bank of England's new Funding for Lending Scheme (FLS), which is designed to boost the volume of UK bank loans …
18th July 2012
Fed Chairman Ben Bernanke acknowledged in his congressional testimony today that the incoming economic data had been "generally disappointing", but offerred no hint that the FOMC was close to launching a third round of large-scale asset purchases. …
17th July 2012
Consumer prices were unchanged in June and the annual inflation rate remained at 1.7%, underlining that the Fed can afford to focus its monetary policy on the slowdown in the real economy. Even though manufacturing output rebounded in June, the level is …
The various monetary aggregates show broad money growth is both strong and stable which, at the margin, makes a third round of quantitative easing look less warranted. In contrast, our own M3 measure was still contracting when the Fed announced QE2 in the …
The latest confidence data suggest that although consumers remain cautious, at least they aren't panicking. Elsewhere, the modest 0.1% m/m increase in producer prices in June is another illustration that the Fed doesn't need to worry about inflation, at …
13th July 2012
This week's congressional testimony from Fed Chairman Ben Bernanke will be closely watched for hints that the FOMC is any closer to launching a third round of large-scale asset purchases. Even though the incoming economic data has deteriorated further …
The modest narrowing in the trade deficit to $48.7bn in May, from $50.6bn, was mainly due to a price-related drop in the cost of imported oil, so there is no reason to believe that second-quarter real GDP growth was any stronger than the 1.5% to 2.0% …
11th July 2012
Two data releases this morning offered only limited support to the claim made yesterday by Richmond Fed President Jeffrey Lacker that the economy is already close to full employment. … Unemployment a cyclical rather than structural …
The fairly sharp decline in the NFIB's latest small business optimism index suggests that it isn't just larger export-orientated firms that have seen a drop off in demand over the past few months. … Small business confidence …
10th July 2012
Although it is very clear that the US economy has lost a lot of momentum, there are no real indications that it will soon come to a complete standstill or even go into reverse. The latest ISM surveys and various leading indicators are certainly consistent …
9th July 2012
The 80,000 rise in payroll employment in June provides further evidence that the US economy has lost momentum since the turn of the year, but that the recovery is not grinding to a complete halt. … Employment Report …
6th July 2012
The slowdown in Europe has been a greater drag on the US economy than the softening in China. With the euro-zone on the cusp of a deep recession, this trend will only become more pronounced. The direct hit to US GDP growth may be fairly small. …
5th July 2012
There are a couple of reasons why the plunge in the ISM manufacturing index in June may be overplaying the extent of the recent slowdown. Even so, the clearer signs that events in Europe and China are becoming a greater drag on the US support our …
3rd July 2012
The fall in June’s ISM manufacturing index to below 50 for the first time since the last recession is the surest sign yet that the US is catching the slowdown already underway in Europe and China. But the index does not suggest that another recession is …
2nd July 2012
It is striking just how quickly the easing in demand in Europe and certain parts of Asia has taken a toll on America’s industrial recovery. Thankfully, other parts of the economy have been affected by less, with the housing market in particular continuing …
29th June 2012
The sharp deterioration in America’s net international investment position last year could be alarming as this is a key indicator of future financial crises. But a closer inspection shows that the US is a long way from being tarred with the same brush as …
28th June 2012
Our econometric model suggests that at least some of the recent softening in jobs growth was reversed in June, with non-farm payroll employment rising by around 125,000. That would be almost twice as large as May's 69,000 increase, but would still …
The stagnation in durable goods orders in recent months is a clear sign that, in response to the easing in global demand, America’s industrial recovery is running out of steam. … Durable Goods Orders …
27th June 2012
A further fall in gasoline prices to close to $3 a gallon, from a recent peak of $4, will provide a near-term kick to real consumption growth just at a time when it appears to be fading fast. But a sustained and significant surge in consumption growth …
26th June 2012
The fourth consecutive monthly fall in the Conference Board measure of consumer confidence, to 62.0 in June from 64.4 in May, is a clear indication that the turmoil in equity prices remains a drag on sentiment. We suspect that the decline in gasoline …
The Fed appears to be edging closer to launching a third round of asset purchases (QE3), but it will not pull the trigger unless the economy loses more momentum and/or the threat to US financial markets posed by the euro-zone becomes much greater. We …
25th June 2012
We now expect the annual core CPI inflation rate to decline only modestly this year, from 2.3% in May to slightly below 2.0% by year-end, before falling more markedly next year to 1.5% by end 2013. … Drop back in core inflation likely to be …
21st June 2012
In the end, the Fed opted to extend its Maturity Extension Programme (aka Operation Twist) for another six months, but there was no new large-scale asset purchase programme (QE3). Nevertheless, the accompanying statement again warned that "strains in …
20th June 2012
Headline CPI inflation dropped below the Fed's 2% target rate in May for the first time in 16 months and, with gasoline prices still falling, it looks like it could be down to around 1.5% within another few months. Stripping out food and energy, core …
19th June 2012
Chairman Ben Bernanke recently appeared to play down the need for more action from the Fed, arguing that the extent of the US slowdown may have been "exaggerated". Looking at the pattern of the monthly gains in employment over the past three years, there …
18th June 2012
The 0.4% m/m drop in manufacturing output in May and the slump in consumer confidence to a nine-month low are further illustrations of how rapidly the economy has lost momentumafter a very strong start to the year. … Ind. Prod'n (May) & Consumer …
15th June 2012
Plummeting energy prices and favourable base effects drove headline CPI inflation below the Fed's 2.0% target in May, for the first time in 16 months. The annual rate actually fell to 1.7%, from 2.3%, and with retail gasoline and crude oil prices …
14th June 2012
The stalling in underlying retail sales growth in May suggests that the recent easing in jobs growth has started to curtail spending. We doubt, however, that the economic recovery has come to a complete halt, not least because the latest sharp fall in …
13th June 2012
The intensifying crisis in the euro-zone coupled with signs that the US economic recovery is faltering have led to speculation that the Fed will provide more monetary stimulus at the next two-day FOMC meeting, which concludes on Wednesday 20th June. Fed …
Unless the economy loses a lot more momentum or the eventual financial contagion from the crisis in Europe is much greater than we expect, the Fed is unlikely to launch a third round of asset purchases. However, the Fed may respond to the weaker tone of …
12th June 2012
Households appear to be making a concerted effort to hold safer assets. In fact, in the first quarter they bought more Treasuries than the Fed and overseas investors combined. Should foreign appetite for Treasuries wane, households may therefore be …
11th June 2012
The narrowing in the trade deficit in April is encouraging, especially given that the latest fall in the oil price will reduce the cost of imported oil. More worrying, however, are the growing signs that the crisis in Europe is taking a toll on US …
8th June 2012
