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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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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We knew we would have a very weak number because of a collapse in auto sales after two big months in a row and the incentives kind of stop working ... But if you look at the rest of the report, every single major component was up. It was very broad-based growth across many components.
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What we're assuming is that as the Fed hikes rates, the bond market gets pulled along.
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We reached the point where we don't trust our model anymore. That's why we were below the consensus.
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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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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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The market has some adjustment to do, but it will be more of a slow leak than a pop.