Michael Gregory
Michael Gregory
confidence consumer economy fed finished housing labor market momentum people record risk seeing strong super
Is there a risk the Fed has tightened too much? Not with the kind of momentum we're seeing in the economy and not with consumer confidence at record highs. People are wealthier, real incomes are growing, the housing market, while slower, is still super strong and the labor market is still super tight. I don't think the Fed is finished just yet.
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Do they really want to end the party? Of course not, ... They want to tone the party down before something gets broken or damaged, or worse, before someone gets hurt. It's similar to a marathon: if you pace yourself properly you can get to the end without overexertion. That is what the Fed is trying to do here.
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Mortgage equity withdrawal (which keys off prices and rates) is going to ebb substantially and pull consumer spending growth down along with it. When it does, the Fed will pause.
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With business outlays solid and foreign demand picking up, this will likely keep the Fed in the tightening game through the first half of the year.
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There is no question that the economy is slowing, but it's not exactly shrinking, either, ... We are seeing the first tentative signs of slowing, but you have to remember that we are starting at a very high base of growth. The Fed will still err on the side of caution and restraint.
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The question for the Fed is what inflation will look like in 12 to 18 months. The U.S. economy is still growing fast enough to use up slack that's out there in the economy, and that could present an inflation threat down the road.
fed further moved odds past pricing several weeks
Over the past several weeks we've moved from pricing in one further move by the Fed to odds favoring two moves.
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There wasn't all that much of a surprise there. Clearly the risk is still there for the Federal Reserve to raise interest rates.
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As far as the Fed goes, it really isn't inflation on the ground that's a concern, it's inflation down the road. For a very long time, they've offset that with global concerns, but there doesn't appear to be any more world crises to worry about.
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That's certainly going to be the critical number. A number indicating employment growth, particularly increases in wages, could prompt the Fed to move by the end of this month.
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the Fed is going to want to take the more cautious road. Two months is an awful long time to wait to react to evidence, particularly if that evidence indicates the economy is starting to heat up again.
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The market is concerned about not if, but how much over the course of the year the Fed will move. There's been a lot of discussion about more than one rate increase, which is what's concerning the markets.
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Inflation is not a problem right now; that is not really what the Fed is paying attention to.
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There's a general consensus out there that rates are headed higher in the U.S. and Europe, but there's apprehension about it anyway, ... That affecting the euro and that's affecting the bond market.