Bill Cheney
Bill Cheney
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With today's report, the odds of a negative quarter of GDP growth have increased substantially, and the chances of a full-fledged recession just went up -- perhaps approaching 50-50. Job losses cut directly into the spending of the newly unemployed, and indirectly tend to have a very real impact on the confidence of those who are still working. If demand falls, firms will lay off more employees, and the downward spiral could put us over the edge into a bona fide recession before the Fed's actions can take effect.
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If unemployment sticks at about 6.0 percent and starts coming down, the Fed will probably feel it has to start tightening fairly soon.
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I think we're toward the end of a period of real weakness and, by the third quarter, all the money (Fed Chairman Alan) Greenspan and the Fed have been pumping out will start to be spent.
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Looking ahead beyond the current gloom, there is a serious risk that we already have inflationary forces baked into the system. By late spring, the Fed could be cranking up interest rates even faster than they cut them.
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At this point I am guessing that the Fed is pretty committed to raising rates in January but after that all bets are off.
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Monetary policy is the perfect instrument for these circumstances. The Fed can keep pushing as needed, but still can turn on a dime and pull back as soon as spending starts to rebound.
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The economy is neither roaring nor stalling; it's clearly out of the soft patch and moving along at a decent pace, and that's all the Fed needs right now.
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This is kind of number that will let the Fed relax and keep cutting rates as long as they see a need.
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The Fed chairman has a lot of latitude to do things the way he wants to. I don't see why he wouldn't carry the day the way he wants to.
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The Greenspan Fed has inaction down to a fine art. They stood by through much of the late 1990s, allowing a very beneficial reduction in unemployment without suffering any inflationary consequences. When they do have to move, they do so quickly and surgically.
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Santa's workshop will be operating pretty much at full capacity. There just probably won't be much elf overtime.
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Inflation is a potential risk. It's not a reality yet.
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It's another in the long series of the no-news-is-good-news story about inflation.
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I think the job market is on a roll. Businesses are doing pretty well these days. Profits are growing nicely. I think businesses are at a point where they feel more comfortable adding people.