It turns out people are better employment forecasters than economists. A report from New York Fed economists finds that confidence measures gleaned from consumer surveys are very tightly correlated with the path of U.S. employment.
The paper offers some illustrative charts that make a rather convincing case.
The chart below plots the Present Situation Index against the unemployment rate, whose scale is inverted so that high levels represent strong labor market conditions (low unemployment) and vice versa. One readily apparent feature is that the two series move together very closely throughout the period and, most notably, during all five of the recessions since 1977. It’s hard to tell from inspecting the chart, but the highest correlation (0.89) occurs at a two-month lead; that is, the Present Situation Index is even more strongly correlated with the unemployment rate two months into the future than it is with the concurrent rate.
WASHINGTON (Reuters) – The U.S. economy expanded at a “modest to moderate” pace in most of the country between early July and late August, according to a Federal Reserve report that was just strong enough to reinforce the prospect of a pullback in monetary stimulus.
With most Fed officials seemingly bent on moving away from controversial asset purchases aimed at keeping long-term rates down, investors are expecting the Fed to begin reducing the pace of its $85 billion monthly bond buys at policymakers’ next meeting later this month.
Much, far too much, has been said and written about the circus that is the unofficial ‘race’ for the Federal Reserve’s chairmanship. Without rehashing the curious battle between former Obama adviser Larry Summers and Fed Vice Chair Janet Yellen, Oppenheimer Funds chief economist Jerry Webman makes a good point about why a Summers appointment could create the appearance of partisanship in the conduct of monetary policy:
Historically, U.S. presidents have had mixed results from putting ‘their man’ at the head of the Fed table. President Truman thought he had an accommodative chairman in William McChesney Martin and got the man who famously took away the punch bowl. President Nixon also looked for a more accommodative chairman and unfortunately got one. I’m more impressed with Presidents Reagan, Clinton and Obama, who reappointed their predecessor’s man and got independent and (mostly) sound monetary policy. Sure Bernanke moved to the Fed chair from the chair of President Bush’s council of economic advisors, but even to his critics he’s never appeared to be a partisan figure – certainly not a GOP operative.
Not to mix too many animal metaphors but, generally speaking, monetary policy hawks also tend to bulls on the economy. That is, they are leery of keeping interest rates too low for too long because they believe growth prospects are stronger than economists foresee, and therefore could lead to higher inflation.
That is not the case, however, for Richmond Fed President Jeffrey Lacker, a vocal opponent of the central bank’s unconventional bond-buying stimulus program, particular the part of it that focuses on mortgages. He reiterated his concerns last week, saying the Fed should begin tapering in September by cutting out its mortgage bond buying altogether.
If there was ever a time to be worried about whether the Federal Reserve’s bond-buying stimulus is having a positive effect on the economy, the last few months were probably not it. Everyone expected government spending cuts and tax increases to push the economic recovery off the proverbial cliff, while the outlook for overseas economies has very quickly gone from rosy to flashing red. But the American expansion has remained the fastest-moving among industrialized laggards, with second quarter gross domestic product revised up sharply to 2.5 percent.
Yet for some reason, at the highest levels of the U.S. central bank and in its most dovish nooks, the notion that asset purchases might not be having as great an impact as previously thought has become pervasive.
NEWPORT NEWS, Virginia (Reuters) – The U.S. Federal Reserve should begin reducing purchases of mortgage bonds, part of its monetary stimulus program, at its meeting next month, Richmond Fed President Jeffrey Lacker said on Thursday.
The outlook for the U.S. labor market had improved substantially since the Fed launched its most recent bond-buying stimulus last year, meeting the central bank’s stated precondition for a retreat from such purchases, Lacker said.
WASHINGTON (Reuters) – Lawrence Summers may be a poster-child for the lucrative revolving door between Wall Street and Washington. But Federal Reserve Vice Chair Janet Yellen, his chief opponent in the tight race to replace Ben Bernanke at the helm of the U.S. central bank, is not exactly struggling financially.
Yellen, a former university professor who until recently was seen as a favorite to take the top spot at the Fed when Bernanke’s second term ends early next year, holds assets worth between $3.8 million and $11.1 million, according to 2012 disclosure forms released on Tuesday. Including the holdings of her husband, a nobel-prize-winning economist, she owns between $4.8 million and $13.2 million worth of assets.
With all the QE-bashing that went on at the Federal Reserve’s Jackson Hole conference this year, it was difficult not to get the sense that, barring a major economic disappointment before its September meeting, the central bank is on track to begin reducing the monthly size of its bond purchase program, or quantitative easing.
If anything, the fact that this expectation has become more or less embedded in financial markets means that the Fed might as well go ahead and test the waters with a small downward adjustment of say, $10 billion, from the current $85 billion monthly pace, while waiting to see how employment conditions develop in the remainder of the year.
, Aug 25 (Reuters) – The recent selloff in
emerging markets is a classic case of being careful what you
When the Federal Reserve was ramping up its asset purchases
to support a flagging U.S. economy, many officials overseas
criticized the United States for putting undue upward pressure
on their currencies. Most memorably, Brazilian Finance Minister
Guido Mantega suggested rich countries were engaged in a
“currency war” or a race to devalue to gain a trade advantage.
JACKSON HOLE, Wyoming (Reuters) – Emerging market nations can be adversely affected by large swings in investment and, therefore, must develop tools to control credit flows or risk relinquishing any independent monetary policy, a study shows.
These findings were presented at the Kansas City Federal Reserve’s monetary policy symposium at Jackson Hole, which highlighted the global impact of the unconventional monetary policy of the United States and other major central banks.