Ethan Harris
Ethan Harris
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The indicator that economists use to predict the housing market is the affordability index -- the ratio of monthly income to monthly mortgage payments. As the economy picks up, the typical family's monthly income will slowly accelerate, but the monthly mortgage cost is quickly jumping, much faster than income could possibly move.
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The Fed has made it clear that it will take quite ugly news to get them to move in advance of any clarity around the Iraq situation. That means the March 18 meeting seems too early to expect a cut.
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The market has some adjustment to do, but it will be more of a slow leak than a pop.
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I'm not sure I believe the Labor Department. On Friday, there must have been a below-normal number of people applying for benefits.
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The combination of still-strong growth and rising inflation has prompted a string of hawkish Fed speakers all arguing strenuously for the need to keep inflation contained,
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Even in a healthy economy, you have layoffs. The Challenger number is more useful as a story telling device than an indicator.
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I think the economy is already in the process of slowing to a more moderate pace. Oil has both an immediate impact on spending and lagging impacts. Even though oil has stabilized in recent weeks, we still have to play out effects. We're still waiting for the shock value of the winter heating bills hitting people.
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It's not a question of a sudden explosion in prices. It's more an erosion of the low-inflation psychology.
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The Fed is saying that 'we're being tested here, we're being tested on our anti-inflation credibility,' ... They need to sound tough. They need a pretty good bark to go with their bite.
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I don't think this should alter anybody's views about the Fed in a major way.
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It's much too early for the Fed to be thinking about hiking interest rates. It would be a very dangerous action on their part in this fragile initial stage of the recovery.
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But the obvious effect is on utility consumption, which will affect industrial output in the economy. People consume more electricity, that places more demand on natural gas, coal, power, and electrical systems.
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They keep fiddling with the language, and the general tone of the directive keeps getting a little less dovish. Being 'patient' sounds a little less like they're keeping rates on hold than a 'considerable period' -- though you'd need to study a dictionary closely to figure that out.
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Payrolls were well below the whisper number, so there's been a big sigh of relief in the market,