Friday, June 23, 2017

New Home Sales stall, but no downturn

 - by New Deal democrat

Well, the May new home sales report is out.  The good news is, it did not confirm last week's negative reports in housing permits and starts.

This post is up at

Thursday, June 22, 2017

The post-hike flattening yield curve

 - by New Deal democrat

An inversion of the yield curve has always signaled at very least a steep slowdown, and usually an oncoming recession. With the Fed hiking short term rates, where do we cut and now?

Below are two graphs, using the Dynamic yield curve tool from In both cases the dark red line is the yield curve as of several days ago (post-hike). The light red line is the previous yield curve from the beginning of this year (first graph) and from last month (second graph):

Note that the curve is pivoting around a point between the 2 and 5 year yields, at about 1.5%. 

At this point, the yield curve is still positive, but if the trend continues, another two rate hikes should be enough to invert at least part of the curve.

Wednesday, June 21, 2017

Existing home sales: positive, but contain your enthusiasm

 - by New Deal democrat

It's a slow economic news week, but while we are waiting for new home sales Friday, we did get existing home sales today.

It was a good report. Not only was there an increase month over month, but it was the 3rd highest number for this entire expansion:

Even better, the three month moving average made a new high for this expansion.

But contain you enthusiasm, because even though existing home sales are about 90% of the market, they are the least economically important (because of all the activity that goes into building a new house).

The bad news is that prices made a new all time high, and inventory remains very constrained.

Absent housing, consumer inflation is running at only a little over 1%. The Fed raising rates is not going to bring on new inventory, and only make the inventory that does exist more expensive for mortgage borrowers.

So now we wait for Friday.

Tuesday, June 20, 2017

A further look at the housing slowdown

 - by New Deal democrat

As promised, I have a further look at last week's poor housing permits and starts numbers, and especially in the context of interest rates.

This is up at

Monday, June 19, 2017

May industrial production: no change in trend

 - by New Deal democrat

This was a post I meant to put up Friday, but was pre-empted by the important housing news.

May industrial production came in unchanged. But that didn't stop Doomers, who had been silent about April's big increase in manufacturing, from trumpeting its 0.4% decline (go ahead, just try to find their acknowledgement of April's good number. You won't.).

So, let's put industrial production in perspective. First, here is the overall stat:

The uptrend since a year ago is still intact.

Next, let's break it down by manufacturing (blue) and mining (red):

The uptrend in each of these since a year ago also still looks intact.

Here is a bar graph of the m/m change in manufacturing:

The 0.4% decline is well within the range of normal monthly volatility.

So there's nothing in the May report which causes me to think that any economic downturn is imminent.

Sunday, June 18, 2017

My weekly Posts Are Up At

US Equity and Economic Review

International Week in Review

A thought for Sunday: "Time goes by, so slowly . . . "

 - by New Deal democrat

It's Sunday, so I take a break from nerdy econ analysis and speak my mind.

Last November 9 we woke up to a living nightmare. The next four years were bound to be awful. The only question was, how awful?

The very tiny silver lining as of now is that, so far, it has been about as limited an awful as it could reasonably be.

The simple fact is, those things that the Executive could worsen all on his own, he is doing so.  But those things that require Legislative action or Judicial approval have either not materialized or have been stopped in their tracks.

The Executive has almost unlimited freedom of action in foreign policy, so it was a foregone conclusion that China and Russia were going to seize the opportunity to expand their power and influence, and they are doing so. Taiwan is already suffering diplomatically, and it isn't a good time to be one of the Baltic States either. The EU is looking aghast at Trump's view of NATO, and will probably vivify their moribund "European Defense Force" at least until 2021.

It is also pretty clear that Trump means to erase Obama from the history books, if for no other reason than Obama humiliated him at the 2011 White House correspondents dinner. So every Executive Order or program undertaken by Obama is being systematically obliterated. This includes deferral of action against illegal immigrants/undocumented workers. There's not much that can be done there, but even so, the Courts have occasionally stepped in, and Trump himself seems to want to allow the Dreamers to stay.

It was also always going to be a bad time to be a Muslim in the US, but even there, the Judiciary has stepped in, stopping Trump's travel ban.

And where Trump needs Legislative action, with the exception of the appointment of Gorsuch to the Supreme Court, so far there has been a big fat goose egg. I figured that Congress would repeal Obamacare in toto by January 31, and get around to the "replace" part approximately never.  Instead, due to Trump's own insistence on a replacement, as of now there is no repeal at all (the House bill is, right now, only a bill).

There's no tax cut for billionaires. There's no raiding of the SS and Medicare trust funds. The privatization infrastructure scam hasn't even gotten a hearing in Congress. And on and on.

Bottom line: there has been no legislation of significance out of the Trump/GOP Congress whatsoever. None. Zilch. Nada.

And we are over 30% of the way from the last Congressional elections in November 2016 to the next ones in November 2018. If they can manage this same record just twice more, we are almost home (maybe).

We are also 10% through Trump's four year term. In four weeks we'll be 1/8 of the way through.

As the lyrics of "Unchained Melody" say, "Time goes by, so slowly..." but time is passing and there will be an end.  In the meantime, so far things are as "least awful" as we could reasonably have hoped.

Saturday, June 17, 2017

Weekly Indicators for June 12 - 16 at

 - by New Deal democrat

My Weekly Indicators post is up at

This week, while the high frequency data remained fairly steady, the Fed and the monthly housing data overshadowed it.

Friday, June 16, 2017

This is a Big Deal: housing permits and starts now a long leading negative

 - by New Deal democrat

I'll have more to say next week, but let me just drop this right now: this morning's housing report was a Big Deal. FRED doesn't have the graphs yet, but here are the numbers from the Census Bureau cite.

Graph of starts and permits:

Note both have turned down significantly this year.

Table of housing starts:

The three month rolling average of starts, which smooths out the volatility, is at a 12 month low. the three month rolling average of single family starts is at a six month low.

Table of housing permits:

The much more stable single family permits is at the median value for the last 12 months. Total permits are at a 12 month low.

In the past it has taken a decline of -175,000+ in permits to be consistent with the onset of recession. Today was -132,000 under January's high.

I have been expecting a slowdown, based on the jump in interest rates since the Presidential election last November. It has clearly arrived, and it is significant enough to tip my rating of the housing market as a long leading indicator all the way to negative, pending next week's report on single family home sales, which becomes all the more important.

Thursday, June 15, 2017

Consumer inflation ebbs, real wages make new expansion high

 - by New Deal democrat

Yesterday I wrote about the retail sales report, and noted that the consumer price report was just as important.

To wit, both recent sources of an uptick in inflation have moderated.  First of all, shelter, which is nearly 40% of the index, and which had been running at almost 0.3% per month in 2016, has decelerated to only a little over 0.2% monthly this year so far:

Meanwhile, energy prices, which had also been rebounding, have also gone back to negative YoY, with downdrafts in 3 of the last 4 months:

The next effect of both of these decelerations has been that headline CPI (red), CPI less shelter (blue) and CPI for energy (green - divided by 5 for scaling purposes), have all sharply decelerated YoY in the last several months:

As a result, headline CPI is only up +1.9% YoY as of May.

The downdraft in consumer inflation means that real wages have resumed growing on a YoY basis:

Moreover real wages have just made another new high for this expansion:

which also means, although not shown, a new nearly 40-year high.
At least some of the slowdown in consumer spending evident in yesterday's retail sales report was probably due to the decline in real wages recently - which is now, obviously, over. That's another reason I am not terribly concerned about yesterday's retail sales report.

Finally, the slight *de*flation in May means that real median household income, which was less than 0.1% under its all time record as of April, as shown in this graph (h/t Doug Short) of Sentier's monthly calculation:

probably finally broke through and established a new all-time record high last month.

Wednesday, June 14, 2017

The Fed is Missing the Inflation Picture

This is over at

Retail sales disappoint -- but don't hyperventilate about it

 - by New Deal democrat

There certainly is a  lot of information to unpack from this morning's retail sales and inflation reports, and what they mean for wages and jobs.  I'll address them in separate posts.

First, retail sales.  They certainly were a disappointment, coming in at -0.3% nominally and -0.2% in real terms.  That being said, the monthly reports are somewhat noisy.   We commonly get several of these a year, as shown in this graph of the monthly change in real retail sales for the last 7 years:

There have been 9 worse monthly reports than this just over the last 3 years!

The YoY% change in real retail sales barely budged, and remains higher than for most of 2016:

So while yes it is disappointing, there's no reason to hyperventilate.

While on a monthly basis there is way too much volatility, over the longer YoY measure, real retail sales do generally lead jobs by 3-6 months (averaged quarterly to reduce noise):

Since YoY real retail sales in 2017 have been generally better than 2016, there is no reason to think that the jobs situation is going to deteriorate substantially in the next few months.

Tuesday, June 13, 2017

Waiting for the Fed - what happens to bond yields?

 - by New Deal democrat

Everyone expects the Fed to hike interest rates tomorrow.  I take a look at what that might mean for the yield curve over at

Monday, June 12, 2017

Gas prices join oil prices as YoY negative

 - by New Deal democrat

Well, this isn't something I expected to happen at the beginning of this year. For the last 16 months, gas and oil prices have risen off their bottom and the question had been, how much of a YoY increase there would be.

That has all changed in the last month.  A few weeks ago, oil prices went negative YoY.

As of this past weekend, according to GasBuddy, so did gas prices:

Further, since oil prices remain down YoY:

and gas prices at the pump tend to follow oil prices with a slight lag, it looks like consumers will benefit from cheaper gas for a little while longer.  This will tend to be reflected in subdued inflation readings, and so higher real wage gains.

All of which makes it perfectly obvious that the Fed isn't raising rates to fight inflation.

Saturday, June 10, 2017

Weekly Indicators for June 5 - 9 at

 - by New Deal democrat

My Weekly Indicators post is up at

No big changes from the recent paradigm.  We are all waiting on the Fed this week.  If it raises rates, what will happen to the yield curve?

Friday, June 9, 2017

Is the employment situation weaker than we thought? Probably not

 - by New Deal democrat

Via Menzie Chinn of Econbrowser Wells Fargo describes The Quarterly County Employment and Wages report as "a detailed count of employment and wages derived from the unemployment insurance tax rolls and serve as the basis for the annual revisions to the monthly employment series."

And the big news is, it declined -- substantially -- in the last quarterly report, released this week.  Is the employment and wage situation a lot weaker than we thought?  Probably not.  Here's why.

Since it isn't a small sample, but is derived from the total data, I would expect it to show a smooth progression, even at turning points.  But that's just not the case.

To show you how volatile the YoY measure is, here is the last eight quarters of the YoY change in average weekly wages, with the nominal $ amount: 

Q1 2015 +2.1% $1048
Q2 2015 +3.0% $968
Q3 2015 +2.6% $974
Q4 2015 +4.4% YoY $1082
Q1 2016 -0.5% YoY $1043
Q2 2016 +2.2% YoY $989
Q3 2016 +5.4% YoY $1027
Q4 2016 -1.5% YoY $1067

I could do a similar exercise with previous years.  The simple fact is, there is just simply enormous volatility that is difficult to reconcile with reality in this series. [There is huge seasonal volatility, which is why the YoY change is so important. While FRED does have this info graphically for each of the approximately 400 metro areas in the survey, they don't carry the national average!]

By contrast, here is a graph of average weekly wages from the monthly employment report:

And here is the graph of the quarterly report of "usual median weekly wages":

Bottom line: the QCEW is and has been for years a volatile outlier both to the upside and downside.  Until someone can explain why the QCEW is so volatile, I am discounting it.  In the meantime, should any Doomer trumpet the most recent report (as a few did with the Q1 report), google their reporting on any of the positive numbers.  Hint: you won't find it.

Wednesday, June 7, 2017

No, record job openings in JOLTS do not mean that everything is Teh Awesome!

 - by New Deal democrat

Once again most of the commentary on yesterday's JOLTS report for April was that job openings jumped, so everything is Teh Awesome!

<  Sigh  >

To recap one more time... 

In the one and only complete business cycle that we have for this data:

  • First, hires peaked. They started a long plateau in 2005, making a 3 month peak in late 2005, with no meaningful progress thereafter. 
  • Second, quits peaked. They started to plateau in early 2006, making a 3 month peak in spring 2006, with no meaningful progress thereafter.
  • Finally, openings peaked in Q1 2007
Hires and quits are the only *hard* economic data in the series. "Openings" can be aspirational trolling for a future bank of resumes or, worse, designed to fail and lay the groundwork for cheap  H1-B foreign slaves.

So, here is the entire history of hires and quits:

Noisy, but it sure looks like both have established plateaus again.  Here's the YoY look:

Hires are flat YoY, and quits have decelerated from roughly +10% to +5%.

Here's the close-up of monthly data for the last 24 months, with both hires and quits set to "zero" for April 2015:

Hires made a peak in December 2015, and are actually lower now than they were 24 months ago. Quits recently peaked in January. Beginning next month, they are going to have much more difficult YoY comparisons. For example Quits in April were only 1% higher than 11 months ago in last May.

The pattern looks very much like 2006.

Finally, here are job openings:

New record! Whoop-de-doo. At least we aren't in the equivalent of mid or late 2007. 

The good news is, there is nothing in April's JOLTS data suggesting any imminent economic downturn.  The bad news is, it adds to the accumulating evidence of late cycle deceleration in the jobs market.

Tuesday, June 6, 2017

In which I disagree with Prof. Tim Duy

 - by New Deal democrat

You should NEVER rely on any one single indicator. No indicator is perfoct -- in this case, the yield curve.

This post is up at

Monday, June 5, 2017

YoY job growth and the Fed funds rate

 - by New Deal democrat

Continuing with a more detailed look at the current employment situation, one of the least noisy series - that also has a very long history - is the YoY% change in payrolls:

In general YoY payroll growth increases until about midpoint in an expansion, and then decelerates until finally turning negative shortly into the next recession.

So the first thing to note is that YoY employment growth peaked in early 2015, and has been decelerating ever since.

But there are several counterexamples -- notably the 1960s, 1980s, and 1990s -- where YoY employment had several peaks. That's what I want to take a further look at today.

All three of the above counterexamples coincided with expansions in which there were also multiple Fed interest rate cycles.

Just how close is the match?  Take a look at YoY payroll growth (blue) compared with the YoY change in the Fed funds rate (red):

There were at least 3 notable peaks in the YoY change in the Fed funds rate in the 1960s, and two each in the 1980s and 1990s. And they correlated quite well -- within several months -- of both the peaks and troughs in YoY job growth.

In fact the relationship is decent enough that, as a general rule, when the YoY change of the Fed funds approaches or exceeds YoY job growth, the expansion is in trouble (with 1994 being the only exception).  Note that in all but two of the above cycles, the YoY change in the Fed funds rate was +2% or higher:

The exceptions were 2000, with a 1.75% YoY increase in Fed funds, and 1955, with a 1.5% increase. The 1955 exception is particularly noteworthy, since that was also a case where the yield curve never inverted.  This underscores the point that one cannot rely upon and increase in short term interest rates as the primary determinant of when an expansion in a deflationary era will end.

To return to my main point, I emphasize that I'm not claiming any causal relationship here, just that the same underlying reasons that give rise to the Fed tightening and loosening have historically also similarly affected employment growth.

Which brings me to the current expansion.  Here's a close-up:

The current situation violates the paradigm since 1955 in that there was no increase in the Fed funds rate as the rate of job growth rose.  Now, in a negative development, we have increasing interest rates in the face of declining YoY employment.  But we still haven't had enough of an increase that would have correlated in the past 60 years with an oncoming recession.

If the Fed should raise rates again later this month, it will certainly be problematic.  Will the Fed reverse quickly enough should there be a further stumble in employment, to extend the expansion, as in the 1980s and 1990s? Frankly, I doubt it, but we'll see.

A Day in the Life of the jobs market, May 2017

 - by New Deal democrat

Fifty years ago, when I was a little teenybopper, this album came out and blew me away:

Why bore you with this ancient Boomer reminiscence?

Because the unemployment rate has only been lower than last month's 4.3% in only six of the last 50 years, and only two of them in the last 46 years:

Since February 1970, the only time the unemployment rate has been less than it is now is from 1999 into 2001.

That's not trivial.  If you are under retirement age, then if you are unemployed, your odds of finding a job now are better than almost 90% of the entire time since you reached working age -- or better.

While we all know this isn't the entire story, I want to take a slightly different look by starting with the U-6 underemployment rate, and comparing the "slices" of the jobs market from there.  Here are the "slices:"
  • employed full time
  • employed part time voluntarily
  • employed part time because no full time job is available
  • unemployed but looking
  • not in the labor force but want a job
  • not in the labor force and not interested in a job
The U6 underemployment rate in May was 8.4%.  Let's see when it has been that rate before (red in the graph below. note that most of these statistics are only available back to 1994):

The underemployment rate now is where it was in 1997 and the end of 2005.

Further, the ratio of full time to part time workers (including both voluntary and involuntary part-timers) is also where it was in 1997(blue in the graph below, compared with red = U6)):

as is the proportion of those who aren't even looking, and aren't in the labor force, but want a job now:

What is higher is, among those who are part-timers, the percentage of those who are so employed because they couldn't find a full-time job:

This is more like it was in 1996.

Turning to the U3 unemployment rate from the 1990s, we see that it was in the 5.0%-5.5% range in 1996, and the 4.5%-5.0% range in 1997:

The bottom line is that, when we leave aside those who tell the Census Bureau that they *aren't* interested in working now, we see that the situation now is roughly equivalent to the time when there was a 5.0% unemployment rate in the booming 1990s economy.

On top of that, there is some number of people, mainly currently on disability, or caring for their children or parents at home, who would probably re-enter the jobs market and be interested in a job, if wages were better.

That's a Day in the Life of the jobs market in May 2017.

Saturday, June 3, 2017

Weekly Indicators for May 29 - June 2 at

 - by New Deal democrat

My Weekly Indicators post is up at  Coincident data turned more mixed this week.

Friday, June 2, 2017

May jobs report: nothing more nor less than a decent late cycle report

- by New Deal democrat

  • +138,000 jobs added
  • U3 unemployment rate down -0.1% from 4.4% to 4.3%
  • U6 underemployment rate down -0.2% from 8.6% to 8.4%
Here are the headlines on wages and the chronic heightened underemployment:

Wages and participation rates
  • Not in Labor Force, but Want a Job Now: down -146,000 from 5.707 million to 5.561 million   
  • Part time for economic reasons: down -53,000 from 5.272 million to 5.219 million
  • Employment/population ratio ages 25-54: down -0.2% from 78.6% to 78.4%
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.03 from $21.97 to $22.00,  up +2.5% YoY.  (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)
Holding Trump accountable on manufacturing and mining jobs

Trump specifically campaigned on bringing back manufacturing and mining jobs.  Is he keeping this promise? 

  • Manufacturing jobs fell by -1,000 for an average of +2500 vs. the last severn years of Obama's presidency in which an average of 10,300 manufacturing jobs were added each month.   
  • Coal mining jobs rose by +400 for an average of +300 vs. the last severn years of Obama's presidency in which an average of -300 jobs were lost each month
March was revised downward by -29,000. April was also revised downward by -37,000, for a net change of -66,000.  

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mixed but on balance positive.
  • the average manufacturing workweek was unchanged at 40.7 hours.  This is one of the 10 components of the LEI.
  • construction jobs increased by +11,000. YoY construction jobs are up +191,000.  
  • temporary jobs increased by +12,900.

  • the number of people unemployed for 5 weeks or less decreased by -181,000 from 2,335,000 to 2,154,000.  The post-recession low was set 18 months ago at 2,095,000.
Other important coincident indicators help  us paint a more complete picture of the present:
  • Overtime rose +0.1 from 3.2 to 3.3 hours.
  • Professional and business employment (generally higher- paying jobs) increased by +38,000 and is up +622,000 YoY.

  • the index of aggregate hours worked in the economy fell  by -0.2  from 114.4 to 114.2  
  •  the index of aggregate payrolls fell  by -0.1   from 168.0 to 167.9.   
Other news included:         
  • the alternate jobs number contained  in the more volatile household survey decreased by   -233,000 jobs.  This represents an increase of 1,865,000  jobs YoY vs. 2,366,000 in the establishment survey.    
  • Government jobs fell  by  -9,,000.     
  • the overall employment to population ratio for all ages 16 and up fell -0.2% from  60.2% to 60.0 m/m  and is  up +0.3%  YoY.     
  • The  labor force participation rate fell -0.2% m/m and is up +0.1% YoY from 62.9% to 62.7%.     

This was generally a positive report, with declines in both the U-3 and U-6 unemployment and underemployment rates, and declines in those who are not in the labor force but want a job, and those who are working part time for economic reasons. YoY nominal growth in wages increased back to +2.5%. Most of the other internals were also positive.

The important negatives were the declines in the employment to population ratio and the labor force participation rate -- which is the real reason for the decline in the unemployment rate.  It's also noteworthy that manufacturing jobs actually declined this month. That both of the last two months were also revised lower is also not a good sign.

All in all, this was a decent late cycle report, nothing less and nothing more.

Thursday, June 1, 2017

Another long leading indicator may have peaked

 - by New Deal democrat

A little noticed aspect of a report last week looks pretty significant.

This post is up at

Wednesday, May 31, 2017

Gas prices on verge of turning negative YoY

 - by New Deal democrat

There are two important aspects to the inflation rate right now. One, as Dean Baker reminds us today, is that most of core inflation has been caused by housing, via "owners equivalent rent."  Take that out, and inflation is only 1%:

The second important aspect is that almost all the variation in headline inflation is due to the price of gas.

At the beginning of this year, I thought one of the big issues would be whether gas prices would continue to increase off their January 2016 bottom at a similar rate as they did last year, or whether the increase would be more subdued. We have a pretty definitive answer at least for now, and it is the latter.

Here's the graph of gas prices since the beginning of 2014:

And here is the same information shown as a YoY% change:

Gas prices were up less than 3% YoY as of yesterday.if the continue to go sideways for another week or so, they will actually be down YoY.  This is already the case with crude oil prices:

In the last few years, gas prices have made their seasonal peak in June. If we are near the peak for this year, this bodes well for a subdued inflation rate, which means it also bodes well for real wage growth and real median household income, for which here is the latest monthly report:

Sent from my iPad

Monday, May 29, 2017

Of Memorial Day and Confederate statues

 - by New Deal democrat

Memorial Day is a particularly fitting time to write about the issue of Confederate monuments. That's because Memorial Day originated as a day set aside to honor the Civil War dead, not just those who fought for the Union, but those on both sides, including those who died in service of the Confederacy.  It was part of the process of magnanimous victory which enabled the country to heal, perhaps epitomized nowhere better than when both William Tecumseh Sherman and Joseph Johnston served as pallbearers for Ulysses S. Grant.

Part of that process was the erection of monuments in the South to honor their dead, at Civil War battlefields, and also at cemeteries throughout the South. For example, here is one in Foysth Park in Savannah:

I don't remember if it this monument or not, but supposedly there was a mix-up in the deliveries of two civil war statues, and about 50 years later Savannahan's learned that atop their monument was - a Union soldier!  A cemetery in Maine is supposedly watched over by a Confederate.  Go figure.

And at Gettysburg, virtually every State whose troops were included in the clash erected monuments in their honor.  Here is Virginia's:

These two types of monuments, which are either historical battlefield monuments, or are a means of honoring the fallen, are similar to the decorated graves of two British soldiers who fell in the battle of Lexington and Concord in 1775:

I also recall a few years ago that Turkey made a point of its felicitous care of the cemetery of the thousands of fallen Australian and other British Commonwealth soldiers at Gallipoli, shown here:

So I differentiate between Confederate battlefield and cemetery memorials which document a specific historical event or honor the dead, and those which honor the cause of slavery, sedition, and secession, such as monuments to Confederate Generals at County or State buildings.  The only "heritage" being honored there is that of white supremacy.  I doubt very much that black people feel their hearts particularly swelling as they contemplate those statues.

Of course, if those counties and States gave equal prominence to statues commemorating the evil of slavery, such as this:

then maybe they would have a point.

Until then, as far as I am concerned, it is about time for the civic honoring of the Confederacy to end.

Now if we can just remove the status of Andrew Jackson on horseback and in military regalia from the park across the street from the White House:

and give it to the Cherokee to do with as they see fit, we would be making some real progress.

Sunday, May 28, 2017

US Bond Market Week in Review

     Last week, I discussed the views of 4 Federal Reserve presidents to discern their current interest rate policy.  This week’s column finishes that analysis.  I would like to offer a personal thanks to Minneapolis Federal Reserve president Neel Kashkari who responded to a Twitter question and pointed me to his latest essay on his policy stance.  Not only did it make my weekend, but in showed what a wonderfully powerful tool social media could be.

     In an online essay, Dallas Fed President Kaplan described a fairly healthy economy.  He sees a de-leveraged consumer was the primary driver of GDP growth.  He projects a slight increase in non-residential fixed investment.  Regarding the Fed’s goals, he noted that the U-6 unemployment rate was near its pre-recession low, indicating the labor market is near full employment. 

     And the Dallas Fed’s trimmed mean PCE is just below the Fed’s 2% target:


Here is his statement on monetary policy:

Based on these considerations, I have argued that future removals of accommodation should be done in a gradual and patient manner. In that regard, I continue to believe that three rate increases for 2017, including the March increase, is an appropriate baseline case for the near-term path of the federal funds rate. 

     Chicago Fed President Evans also believes the economy is near the Fed’s unemployment and inflation targets.  Consumer spending has been strong thanks to healthy balance sheets and strong job growth.  Business investment has been weak, but the strong dollar has lowered international demand (and therefore the need for domestic investment) while weaker oil prices have hampered the oil industry.  He also made a very interesting point: because we’re in a slower growth environment, the pace of rate hikes will be slower.  Put another way, slow growth means weaker prices pressures which implies a weaker pace of rate increases.  Here is his statement on the pace of rate increases:n

I think the progress made toward the FOMC’s dual mandate goals justifies our recent rate increases, and my current outlook envisions the fed funds rate moving up over the next few years along a path roughly consistent with the median FOMC projection.

     Philadelphia Fed President Harker sees three rate hikes this year.  He sees the following labor market situation: “The unemployment rate has dropped to its lowest point in a decade, quits are up, and we’re starting to see upward pressure on wages. I estimate 2.5 to 3 percent wage growth this year, which is good. It’s what has been missing from this recovery.”  He also believes inflation is already near the Fed’s target.  Here is his statement on monetary policy:

First and foremost, based on the strong economic outlook, I continue to see three rate hikes for 2017 as appropriate. That, as ever, is assuming that things unfold in line with my projections.

     NY Fed President is also on the record for 2 more rate hikes:

The Fed has penciled in two more rate hikes this year and Fischer said Friday this remains his forecast.

“So far, I haven’t seen anything to change that,” he said.

He stressed the Fed is “not tied” to a total of three rate hikes this year and the actual pace of tightening depends on the data.

     The lone dissenter from recent rate hike talks is Neel Kashkari of the Minneapolis Fed. He offered his reasoning in a recent essay.  First of all, he notes that most Fed governors are treating the 2% inflation target as a ceiling rather and the median estimate of prices.  He offered the following analogy:

For example, if you are driving down the highway alongside a cliff, you will err by steering away from the cliff, because even one error in the other direction will cause you to fly over the cliff. In a monetary policy context, I believe the FOMC is doing the same thing: Based on our actions rather than our words, we are treating 2 percent as a ceiling rather than a target. I am not necessarily opposed to having an inflation ceiling. The European Central Bank has a 2 percent ceiling instead of a symmetric target. However, I am opposed to stating we have a target but then behaving as though it were a ceiling.

This is a very important point, which I believe to be largely correct.  He also noted that other inflation measures – specifically expectations and labor costs -- are also contained.  And unlike other Fed governors, he believe there is sufficient labor market slack to warrant maintaining the current rate policy.  Here, he cites the employment to population’s ratio as evidence:

He also references the still high U-6 rate for support (however, see Dallas President Kaplan’s analysis above).  Overall, I would expect Kashkari to continue being the lone dissenter.

     A large majority of Fed governors are in the hawkish camp now.  Unless there is a fundamental change in the economy, expect at least 2 more rate hikes this year.