Rory Robertson
Rory Robertson
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Unemployment at 6 percent means the Fed has just lost six full years of progress towards lower unemployment in just six quarters. With its preferred measure of core inflation at the lowest level since the 1960s, the Fed probably requires a run of monthly payroll gains of 150,000 to 200,000 before it will feel any real need to tighten.
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Obviously, a big rise in the core CPI would get the ball rolling toward another hike, but it's far from clear that will be the outcome.
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The Fed ultimately will be forced to cut rates further because we have had this ongoing issue of sub-par growth, disappointment on the jobs front and core inflation edging lower. People are talking about a terrific snap-back in the economy after the war, but I'm skeptical we're likely to see it.
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Financial conditions clearly are quite a bit tighter than they were six weeks ago. I'd be dumbfounded if the Fed was not anxious about this dramatic rebound in yields dampening the rebound in the pipeline.
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This number doesn't tell us much at all -- the seasonal factors are all over the shop. It only means something if it's maintained over the next several weeks.
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If we hadn't had a recession a year ago, and we were watching the fall in employment, a stalling manufacturing sector, falling bond yields and falling stock prices, many people would think we were entering a recession. There's an assumption that the recovery will continue and get stronger next year, when in fact it's possible the economy's tipping over again.
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I am skeptical that this time will be different.
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Just as the market overshot on the downside in yield in May/June, the risk is that it now overshoots on the upside.
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Rising oil prices are quite unhelpful, and falling prices are quite helpful in terms of giving stimulus to the economy. Lower prices feed through pretty well to everyone immediately.
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I think it's going to be 50 basis points because the Fed is worried about the economy, and I think the accompanying statement will reflect that.
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I think the back-up in rates should rate a mention -- it's the most significant thing that's happened to the economy in the past seven weeks.
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There is a very gradual improvement, but the rate of improvement is painfully slow.
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The sharp rise in mortgage rates that is now under way threatens to limit the refinancing boom, limiting the cash that will be dropped into U.S. consumers' hands during the critical holiday-shopping season.
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At this stage, the worst-case scenario for the US economy post-Katrina simply is not playing out.