Ethan Harris
Ethan Harris
best cuts economy maintain move promise quarter rate remains
The best tack is to move by a quarter point, with the promise that there will be more cuts to come if the economy remains weak. You can't maintain that promise with big bulky rate cuts.
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The basic story of the consumer is that he's OK in the near term and at risk in the medium term.
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The adjustment to higher prices has been fairly orderly. It's not a 70's style shock. Oil prices do have an effect on the economy but it's not dramatic. It's a problem but not at the top of the list.
coming consumer likely slow spending
It's very likely consumer spending will slow down significantly in coming months.
asian banks central current dollar downward helping investors large low market pile pressure prop relative shy start support trading treasury yields
This large inflow is an important prop for the Treasury market, helping keep yields in their current low trading range. Not only is the inflow large relative to new Treasury supply, it may also help stabilize the market when it comes under pressure. If investors start to shy away from the U.S. market, the dollar comes under downward pressure and the Asian central banks pile in to support the U.S. market.
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This kind of adds to the sense of a rookie in the institution. They are going to have to learn the ropes for a while before they are going to be influential.
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This is why people talk about radical moves down in the dollar. They just can't see an improvement of the trade balance happening any other way.
adding board financial governors initially markets monetary players policy terms
They're adding to the intellectual firepower of the board of governors in terms of regulatory and financial markets issues, but initially they won't be important players in the monetary policy front.
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There's definitely going to be nervousness around the event and a kind of inertia. My wife has already asked me not to come into work that day.
above change fed level means might next patient percentage plenty point rate room statement threaten wiggle
Even with this dip, the unemployment rate is still about a percentage point above the level where it might threaten inflation. That means there's plenty of wiggle room for the Fed on policy. They're going to be patient and not change the wording of their statement next week.
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Even with a resolution to the situation in Iraq, the economy will still be suffering from some fairly significant headwinds.
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Even with a positive outcome in the war, the economy is going to have lost a lot of momentum by the time it's over. We're not going to see a few weeks of weak data -- we'll see a few months of weak data.
coming eventually housing impact seeds slow
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.
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That's the big lingering risk factor sitting out there on the horizon. Will we have a gradual adjustment, where the trade deficit gradually improves, or will we have an accident along the way?