For the first time in 5 years, markets were actually unsure what the Fed was going to do, with yesterday’s fed funds options calling it an even chance that the Fed would settle for a 25-basis-point cut or go all the way to 50. Capital Chronicle had prepared amusing posters as to just how to interpret a 25-basis-point as opposed to a 50-basis-point cut. Fifty it was, disappointing perhaps knzn who wanted a 175-basis-point cut, but delighting economic researchers like Refet Gurkaynak and Eric Swanson who both emailed me their high spirits at finally getting another data point for what happens when the Fed surprises the markets.
Category Archives: recession
The Decoupling Scenario: Pre-Assessment
The U.S. economy appears to be slowing. Predictions of continued growth probably rely on assumptions the rest of the world continues to grow. How reasonable is this view?
By how much will the Fed cut rates?
Once again we’re seeing a big divergence between what the markets expect the Fed to do and what the Fed expects the Fed to do.
Dueling Recession Probability Estimates
Macroeconomic Advisers says the probability of recession is less than 50%.
Saving Glut Reversed? A Historical Analogy and Conjecture about US Adjustment
One interpretation of recent global capital flows is that the collapse in investment in East Asia post-crisis, combined with stable saving rates in ex-China developing Asia, led to an excess of saving in that region (so really the term of “investment drought” is better). Note that there was no excess saving until the collapse of unsustainable lending associated with bubbles, or crony capitalism, or — in other models — behavior of investors implicitly “insured” against losses. While this is a voluminous literature, it’s interesting to me that few analysts have observed that a similar occurence can not be ruled out in the current unfolding drama in the ever expanding but always containable subprime mortgage crisis.
Europe Slows
Part of the optimism regarding the economic outlook is based upon the robust growth — to date — in the rest of the world (see this post on the subject). The Euro zone looks like it’s in for some slower growth, though.
July auto sales
This is not just another bad sales month.
US Economic Growth: Retrospect and Prospect
Some interesting tidbits can be gleaned from the BEA’s recent release. First, despite the acceleration in growth in 2007Q2, the level of output in 2007Q2 is less than what we thought — as of 28 June — it was in 2007Q1. Second, q/q consumption growth now looks weaker than it did before. Third, while net exports provided a big boost to GDP growth, a large chunk of that effect is attributable to import compression, rather than export acceleration. How one views the durability of the net export effect depends in large part upon how one views the sources of import and export trends.
Recession Indicators: Where Do They Stand?
Recession probability index rises to 26.2%
Definitely some things to be encouraged about by the latest GDP report, but the overall impression of economic weakness remains.