Ethan Harris
Ethan Harris
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Ultimately, for the economic recovery to sustain itself, we have to see the labor market improve. As the tax-cut benefits fade, consumers will look for more fundamental reasons to spend money, and there will have to be some job growth.
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We needed 20 percent economic growth in the third quarter to get rid of all of the excess capacity in the economy. The Fed is still going to be concerned about disinflation.
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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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In total, we learned very little about the future of the economy or Fed policy except that the Fed is not ready to hike rates in the very near future.
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Obviously we have a pretty weak economy and this was not unexpected. We knew they were going to have to revise it downward.
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Are the economic indicators looking like a recession? Absolutely. But you can still hold out hope that the war is resolved in a month or so and the economy can stage some kind of recovery.
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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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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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The Fed is going to have a bias to be very easy in terms of policy, not just in the next couple of months, but well into the future.
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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.