Rory Robertson
Rory Robertson
downside market risk yield
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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The Fed is trying to do what it can, but the history of the past 200 years is that big booms tend to end badly -- big equity market booms in particular. The Fed so far has done a magnificent job of holding the show together, but we don't know what effects of the bubble are still in the pipeline.
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If gross domestic product prints 2.75 or 3 percent, it's broadly where the market is. People put very little weight on the fact that any pressure on inflation in the U.S. is quite modest and that's breeding low and steady bond yields.
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I'm not sure how markets might react. On one hand, you could see the shorts kicking in, pushing it higher, but on the other hand, you could see investors feeling a bit nervous because the Fed is saying things are worse than they thought.
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The markets were a little disappointed that the Fed didn't give any explicit hint that a pause is around the corner.
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The markets are coming to understand that policymakers will be inclined to keep rates very low for an extended period -- the FOMC (Fed rate-setting committee) can still only dream that the economy will be strong enough in 2002 to justify a rate hike.
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The lesson from Australia is, as long as interest rates stay relatively low, the market will cool, not crash.
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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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The thing driving service prices is wage growth, and after two years of sub-par economic growth, we've got wages decelerating. If the Fed doesn't get the economy growing at an above-trend pace in the next couple of years, deflation will arise.
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The thing that helped the economy so much was a drop in interest rates, which meant lower mortgage rates, which meant consumers have been able to tap the wealth in their homes by refinancing and taking equity out of their homes. With rates having backed up so sharply, refinancing is not such a bargain any more.
factors maintained means next number several
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.
skeptical time
I am skeptical that this time will be different.
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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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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.