Ian Shepherdson
Ian Shepherdson
Ian Shepherdson is an award-winning British economist. He is the founder and Chief Economist of Pantheon Macroeconomics, an economic research firm located in Newcastle, England, with an office in White Plains, New York. In February 2015, he was named The Wall Street Journal's US economic forecaster of the year for the second time, having previously won the award in 2003...
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A serious downturn in housing activity will have to wait until there is a meaningful increase in mortgage rates, ... For that, we have to wait until payrolls take off and the Fed signals tighter policy.
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Skeptics will argue this is just a post-war bounce that won't last, but we disagree, ... The ISM was in the mid-50s before the war, thanks to very loose policy, and there's no reason why it can't return to those levels very soon. The Fed does not need to ease again.
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The wage story is gathering real momentum. The Fed is going to 5%, and more if housing does not collapse by mid-year.
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This does not read like a Fed where everyone is looking for a reason to stop.
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The drop in stock prices is no excuse to beginning cutting rates, as some in the market desperately want to believe, ... Given where oil prices are and given what the fundamentals still suggest, I don't see the Fed doing anything for the time being.
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Clearly, these headlines will assuage some of the fears of a consumer collapse, and they mean the Fed will wait till the meeting before easing again. We still look for at least a 25-basis-point easing on Jan. 31.
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The upcoming data will soon enough force the Fed to change its stance, otherwise it will begin to look ridiculous,
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The Fed chairman is not habitually in the business of delivering shocks to the markets unless the circumstances are especially dire. That is certainly a fair description of the situation in the states hit by Katrina, but it does not apply to the rest of the economy.
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The Fed's chief worry is still the labor market. So long as the unemployment rate does not fall further, and clear signs of consumer slowed own emerge, the Fed will be able to leave rates on hold.
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As far as we can tell, just about everyone now expects another 25-basis-point hike on May 16, which rather begs the question why the Fed did not act more boldly today and raise rates by 50 basis points. By the time of the May meeting, a bigger move might be forced upon the FOMC.
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Preparing the markets for a rate hike is a process in which the Fed gradually has to back away from its unduly pessimistic stance of recent months. This will take some time, but the process is now underway.
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This is great news. These are very helpful numbers to those -- including us -- who think the Fed will not raise rates next month.
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The Fed will deal with (the housing-jobs mix) by hiking in January and March and hoping that the housing softening will be sufficient to get them off the hook by May, though I think that's a close call.
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My guess is it won't be very exciting because he already told us three weeks ago what he thinks. He's certainly not going to say anything that suggests the Fed might be thinking about not cutting rates as soon as the market thinks but I don't think he'll want to give the impression that they're going to slash rates even more aggressively.