Ethan Harris
Ethan Harris
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I think we know corporate profit growth can't stay at the rate we've seen in recent quarters. They (employers) have been squeezing the work force pretty aggressively, squeezing productivity out of workers and holding the line on wages. It's a matter of how much corporate profits slow down.
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What we're looking for is evidence of the corporate side of the economy gaining confidence and making real commitments in its own spending. There, I'd say the news is at best mixed,
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Imagine you're a bank. The corporate sector isn't interested in borrowing, so you can't lend to it. So where do you go? Well, mortgages. They pay a reasonable rate. They're seen as a safe investment. Load up on mortgage-backed securities.
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Clearly, Corporate America is still in hunker-down mode, reluctant to increase budgets for equipment and slow about increasing employment, ... That puts a weight around the neck of the recovery and keeps it at a moderate pace.
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The labor market's going to have a long, slow climb. Corporate America is going to use whatever means it can to boost output without hiring. They're going to wait and wait for confirmation that growth is really picking up before they move into serious job hiring.
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I think what people will see is that commentary from Fed officials will sound almost identical to their commentary prior to this meeting. Nothing's really changed at the Fed.
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It generally just adds to the case for investors taking a little more cautious view on risk and demanding higher returns on investments.
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Rising rates could have a tremendous impact on slowing consumer spending. Consumer spending has been about 6 percent, when adjusted for inflation. Rising rates could bring it down to 2 or 3 percent.
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Whoever is chosen, the new chairman will go through a proving period.
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That basically, in my mind, cancels out the benefits of the lower tax rates,
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When you get a new chairman in place you're going to have a more democratic and less predictable, less transparent Fed. The new chairman won't get the same automatic respect Greenspan has. It's not that (central bankers) will turn into a bunch of farm-yard animals, but there will be a more normal discussion going on.
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We think the ISM services number is one of the worst monthly pieces of data there are. On a month-to-month basis, it has no correlation with service sector employment, and on a quarter to quarter basis, it has no correlation with service sector gross domestic product.
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We are obviously experiencing slower growth and the payroll numbers don't really reflect that yet, which is why they will be an important indicator. Companies have been cutting back the number of hours their workers put in and in some cases cutting back their workforce altogether, and that is what people will be looking for in the numbers.
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Usually the federal government takes a much more limited role in natural disasters.