Lara Rhame
Lara Rhame
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We saw the unemployment rate actually holding throughout most of this slowdown, and only about four months ago we were at a 4.5 percent unemployment rate, ... The average recession sees a lot of job losses, so we've got a lot of catching up to do.
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If we're in a situation where rates are higher because the economy's great, the housing market is going to be last thing I'll be worried about.
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Most people at the Fed seem to feel that the national economy is strong enough to absorb the effects of Katrina. That to me seems that you will not see the Fed rate hike derailed.
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When we started the year, the markets were reticent to buy into either a strong U.S. economy or the Fed raising rates to 5 percent. What has changed is the market's very stubborn resistance to accepting the fact that the dollar has a pretty high carry compared to the rest of the world.
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This whole question of the impact on interest rates is really complicated, but a lot of smart people at the Fed and elsewhere have said it's not really a big issue -- it's only suppressing long-term interest rates at the margin.
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We're not pricing in rate hikes any time soon, and today's data won't change that. Inflation is off the radar screen for policy makers.
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Everybody has to learn a little more economics than they want to learn, now that we're drawing more and more of a distinction between actual GDP and final domestic demand, which is GDP minus inventories. Inventories can surprise. It's hard to make a solid forecast about them, and the Fed said that. I think the market continues to overestimate Fed rate cuts.
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There's a growing effort within the Fed to look for other ways to add liquidity into markets and to sustain the interest-rate-led growth we've had. I think they are going to move to a bias to ease policy again, but I'd look for the ease somewhere else. It won't be a rate cut.
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This is not a 'ripping off the Band-Aid' kind of situation, where you know how much the pain will be and that you'll be fine afterwards. We don't know how well the economy has healed. The Fed remains very concerned ... that they might overshoot and give the economy such a shock they'll have to cut rates again.
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The weaker-than-expected housing number still leaves housing at a fairly high level of activity but will raise some eyebrows as markets worry about the (Federal Reserve) overshooting (with rate hikes).
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Market expectations have priced a rate cut in. When markets are pricing it in like that, the Fed can't afford to give a downside surprise in this environment.
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I don't see the scope for the ECB to match the Fed in terms of raising rates and this will continue to support the dollar. The ECB tends to lag the Fed and even if they hike, the yield differentials are still favorable to the dollar.
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The consumer is the last support here, and it's not getting any help. The savings rate plus the confidence plunge add up to enough reasons for the Fed to give consumers a psychological boost.
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Interest rates are low, the stock market is higher, and we hear all this talk about a tax-cut package,