Posts filed under “Think Tank”
ISM mfr’g fell to 52.6 from 52.9 in Aug and was below expectations of a gain to 54. It is however above 50 for a 2nd straight month but there was a cooling in New Orders which had jumped in the prior two months. They fell about 4 pts to 60.8 but remain well above the low of 23.1 in Dec ’08. Backlogs rose 1 pt, up for a 3rd month. Employment was little changed. Export Orders fell .5 point but remains near the highest since Aug ’08. Prices Paid fell 1.5 pts after Aug’s 10 pt rise. Inventories, the key component that will help drive Q3 growth, rose almost 8 pts to 42.5, the highest since Oct ’08. 13 of 18 industries reported growth, up from 11 in Aug. Bottom line, the guts of the data show that rebuilding inventories and a bounce in export orders have been the main driver of improvement. The ISM also follows a trend over the past week of #’s missing growing expectations implying that up, up and away may just be up for now.
Aug Personal Income rose .2%, .1% more than expected and July was revised up by .2%. Spending rose 1.3%, .2% higher than forecasted and most of the gain in the durable goods category was due to the Clunker program. Durable goods purchases, which reflect auto’s, rose 5.3% vs a 1.3% gain in July. The headline…Read More
With benign neglect with the continued depreciation of the US$ the unofficial policy of US officials, it’s been left to our trading partners to verbally jawbone a reversal. Ahead of the G7 meeting this weekend, Trichet said “excess volatility” in the FX market may have “adverse implications.” This is code for “I don’t like the…Read More
Complete text of Vice Chairman Donald L. Kohn’s speech:
Central Bank Exit Policies
At the Cato Institute’s Shadow Open Market Committee Meeting, Washington, D.C.
September 30, 2009
I am pleased to be on this panel on exiting from the unusual policies the Federal Reserve and other central banks have put in place to ameliorate the effects of the financial turmoil of the past two years. Chairman Bernanke has made a concerted effort to explain the thinking of the Federal Reserve in this regard, because it is so important that the public understand we have the means to meet our objectives of fostering stable prices and high employment. I will briefly underline some aspects of the Federal Reserve’s framework for exiting that I believe to be especially critical to that understanding.1
Conditions for Exit
In its most important aspects, the decision about when to begin exiting from the unusual policies is not materially different from any decision to start tightening monetary policy. We will need to begin to remove the extraordinary degree of accommodation in its various dimensions when we judge that exiting from the current stance of policy will be necessary to preserve price stability as the economy returns to higher levels of resource utilization. Because it takes people time to adjust their spending and pricing decisions in response to a change in interest rates or other aspects of financial conditions, like other monetary policy decisions, that judgment will need to be based on a forecast of economic developments, not on current conditions. So we must begin to withdraw accommodation well before aggregate spending threatens to press against potential supply, and well before inflation as well as inflation expectations rise above levels consistent with price stability.
I cannot give you a small list of variables that will trigger an exit; as always, our forecasts will use all available sources of information. And I can’t predict how rapidly we will have to raise short-term interest rates from around zero or remove other forms of accommodation; that too depends on how the economy seems to be recovering and the outlook for inflation. Clearly, the present degree of accommodation–as gauged by nominal and real short-term interest rates and the size of our balance sheet–is extraordinary, and we will have to take account of how that is influencing spending and inflation expectations when deciding when and how fast to tighten.
Tools for Exit
We have the framework to exit from these policies when we need to do so. And the tools at our disposal will allow us to do so at the pace and in the sequence we judge will best meet our objectives.
Vice Chairman of the Fed Kohn in a speech titled ‘Central Bank Exit Policies,’ is laying out the ‘conditions for exit,’ ‘the tools for exit,’ and the ‘communication about exit.’ In contrast to comments from Warsh and Plosser about having to raise rates as quickly as they cut, Kohn is saying “I can’t predict how…Read More
The Sept Chicago PMI was much weaker than expected and back below 50 at 46.1. Expectations were 52 vs 50 in Aug. Maybe call it the Clunker hangover as New Orders fell 6 points to 46.3, a 3 month low and Order Backlogs fell 9 points to 36.7. Employment was little changed at 38.8. Inventories…Read More
ADP said the private sector shed 254k jobs in Sept, 54k more than expected but it’s down from a loss of 298k in Aug and is the smallest decline since July ’08. Again, most of the cutbacks were in small and medium sized companies and also in the goods producing sector as manufacturing shed 74k…Read More
Add the President of the World Bank, Robert Zoellick to the calls over the past few days of a desire for a strong dollar as he is saying the US “can and should have a strong dollar.” The dollar has been benefiting for the past two days from the vocal support given to the US…Read More
Consumer Confidence at 53.1 is below the estimate of 57 and down from 54.5 in Aug. It is well off the low of 25.3 in Feb ’09 but the improvement seen is almost all in Expectations. Present Situations (how people feel today as opposed to their belief about the future) fell almost 3 pts to…Read More
The July S&P/Case-Shiller 20 city Home Price Index said prices fell 13.3% y/o/y, less than the expected decline of 14.2%. It is the smallest decline since Feb ’08 and it takes the index to the highest since Jan ’09 as it rose 1.61% m/o/m. At 144.23, it is down 30% from the all time high…Read More