Ethan Harris
Ethan Harris
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In the preliminary reading an increase in the index of current conditions was offset by a decrease in the expectations index. We expect a similar breakdown in the final survey.
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In the big oil shocks that really damaged the economy, the tax on the consumer was many times more than that, but that alone wasn't enough. You also had to have people worrying that prices were going higher forever.
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In terms of being a predictor for the national index, the Chicago number has a spotty record.
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Housing prices tend to turn very slowly, and that delays whatever impact they might have on the economy.
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Because growth is looking good and financial conditions are good, they'll keep moving up. But they're close to the end.
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By talking about interest rates rising again, you can precipitate them rising too early in a recovery -- that's why he shouldn't be talking about it.
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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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Coming after the energy shocks and Katrina, it's a remarkable spring-back. The economy seems to have an underlying resilience.
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For the Fed to hike rates now would be the equivalent of a doctor prematurely declaring a patient at full health, discharging them from the hospital and then forcing them to run a mile.
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Even with this dip, the unemployment rate is still about a percentage point above the level where it might threaten inflation. That means there's plenty of wiggle room for the Fed on policy. They're going to be patient and not change the wording of their statement next week.
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Even with a resolution to the situation in Iraq, the economy will still be suffering from some fairly significant headwinds.
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Even with a positive outcome in the war, the economy is going to have lost a lot of momentum by the time it's over. We're not going to see a few weeks of weak data -- we'll see a few months of weak data.
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Eventually that will slow down the U.S. consumer. We've got the seeds of a slowdown coming out of the housing market, but it hasn't really had that much impact yet on the economy.
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That's the big lingering risk factor sitting out there on the horizon. Will we have a gradual adjustment, where the trade deficit gradually improves, or will we have an accident along the way?