Ethan Harris

Ethan Harris
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Real estate is a topic that has vaulted to center stage, ... The real reason the topic is hot and belongs on the front page of research reports is that the housing market is becoming more of an engine of economic growth, but is also the biggest risk to future growth if the boom goes bust.
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The third quarter was the sweet spot for profits from an economic perspective. You had this pickup in growth, but you didn't have the pickup in costs. In terms of growth, this is the best quarter we're going to see.
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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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But the obvious effect is on utility consumption, which will affect industrial output in the economy. People consume more electricity, that places more demand on natural gas, coal, power, and electrical systems.
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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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There's a chronic risk to the bond market from global economic recovery. Probably the most potent story is Japan.
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Are the economic indicators looking like a recession? Absolutely. But you can still hold out hope that the war is resolved in a month or so and the economy can stage some kind of recovery.
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The national economy usually weathers these storms with relatively minor damage. Second, the hurricane is a 'supply shock' -- a disruption to productive potential -- not a 'demand shock.' The same factors that threaten growth -- higher commodity prices, shipping bottlenecks, reduced local productive capacity -- also threaten inflation.
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There is a history both in appointments under the Bush administration and the Fed chairmanship itself of people off the list being picked. Bush does seem to have a proclivity to pick people with a more business background for his economic positions.
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Clearly the economy still has plenty of momentum with a little hint of inflation risk in the background.
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What's happened between now and then is that we've accomplished everything we've set out to achieve, ... Then they were trying to get the economy to the state it is in now, so the attitude now is, 'lets not screw anything up.'
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With few signs that consumer prices are about to break to the upside ... along with signs that aggregate demand remains robust, we expect the Fed will not only vote to keep rates constant, but will leave the growth and inflation bias statements unchanged.
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We think inflation is going to remain benign going forward.
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We see a number of reasons for the Fed to drop its 'measured pace' language.