Donald Luskin writes in the Wall Street Journal:
The global economy is slipping into recession. The evidence is showing up in all the usual ways: slowing output growth, slumping purchasing-manager indexes, widening credit spreads, declining corporate earnings, falling inflation expectations, receding capital investment and rising inventories. But this is a most unusual recession– the first one ever caused by falling oil prices.
According to the Energy Information Administration’s Monthly Energy Review database, world field production of crude oil in September was up 1.5 million barrels a day over the previous year. More than all of that came from a 440,000 b/d increase in the U.S., 550,000 b/d from Saudi Arabia, and 900,000 b/d from Iraq. If it had not been for the increased oil production from these three countries, world oil production would actually have been down almost 400,000 b/d over the last year.
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As a new year gets under way [Nobel Laureate Robert] Shiller fears that advanced economies could be on the cusp of another stock market and property bubble that could end in tears….
“I’ve tried to inquire why we are having these booms right now at a time of so-called secular stagnation with low interest rates, and arrived at the thought that low interest rates are promoting these bubbles.”
Last week I discussed the tools that the Federal Reserve will be using to raise short-term interest rates as we enter the next phase of U.S. monetary policy. In brief, the Fed plans to use interest on reserves and reverse repurchase agreements as an offer to borrow back Federal Reserve deposits at an annual rate between 25 and 50 basis points (0.25% to 0.50% interest per year). That offer from the Fed puts an effective floor under the fed funds rate, which is the rate at which institutions would lend these funds overnight to other banks. When the Fed raises its offering rate, the fed funds rate should go up with it. Today I look at the implications of these new procedures for the Fed’s balance sheet.
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We wish all our readers the best of everything this season.
On Wednesday the Federal Reserve announced that it is increasing its target for the fed funds rate to a new range of 25 to 50 basis points (0.25% to 0.5% annual rate). How does the Fed plan to accomplish this, and what does it mean for other interest rates?
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Quick links to a few items I found interesting.
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The BLS reported on Friday that the U.S. unemployment rate was down to 5% in October and November, its lowest level since 2008.
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The dramatic decline in the prices of a number of commodities over the last 16 months must have a common factor. One variable that seems to be quite important is the exchange rate.
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World field production of crude oil increased 2.9 million barrels a day in the 12 months ended last July. That compares with a 3.6 mb/d increase over the entire nine years from Jan 2005 to Dec 2013.
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