Dennis Lockhart, Atlanta Fed president, made a speech today trumping up the possibility rate hikes as soon as April.
In his speech, Lockhart cited “sufficient momentum evidenced by the economic data to justify a further step at one of the coming meetings, possibly as early as the meeting scheduled for end of April.”
Let’s dive into his speech and also put a spotlight on his claim of “sufficient momentum“.
Kaleidoscopic Context for Monetary Policy
The title of this post comes from the title of Lockhart’s speech to the Rotary Club of Savannah Kaleidoscopic Context for Monetary Policy.
Here are some snips, emphasis his, not mine. Typos not corrected.
An important question is whether to view the fourth quarter as a one-off aberration or a sign of slowing growth. Since we’re still in the first quarter of 2016, it’s a little early to come to a definitive conclusion. But we are able to gauge the strength of economic momentum in real time using a method we call a nowcast (as opposed to a forecast). A nowcast takes each data point as it comes in and adds it to a model-based computation of the growth rate of gross domestic product (GDP) on an annual basis. Such a computation is sometimes called a tracking estimate. The data we have in hand as input to this estimate run through January, with a few data points for February. Our tracking estimate for the first quarter is currently 1.9 percent.
Short of some big shock that turns consumer psychoIogy on its head, I see no reason why consumer spending growth should not continue. I think the conditions supporting this engine of economic momentum are likely to hold steady. I should add to the list the so-called “gasoline dividend.” Although slower than expected to show through in consumption patterns, lower oil prices and lower gasoline prices should bolster the economy through the consumer channel.
The incoming economic data have been, admittedly, mixed since the momentous December meeting of the FOMC (the meeting at which the Committee raised its policy rate for the first time in almost a decade). We policymakers face some ambiguity. In my experience, this is almost always the case. But overall, I see the recent data as positive. I believe a forecast of sustained moderate growth momentum is realistic and remains the likely scenario. In my opinion, there is sufficient momentum evidenced by the economic data to justify a further step at one of the coming meetings, possibly as early as the meeting scheduled for end of April.
Spotlight on Sufficient Momentum – Existing Home Sales
March 21: Existing Home Sales Plunge “Surprising” 7.1%, Price Concessions the Norm; What Happened?
Averaging things outs, we clearly see sales accelerated from February of 2015 through June of 2015. Since then, sales have decelerated.
The sudden plunge in November sales (released December) was due to change in disclosure rules called “Know Before You Owe“.
The bounce in December and January sales was most likely due to delayed closings in November and December. That bounce is now over.
Spotlight on Sufficient Momentum – Retail Sales
March 15: Retail Sales Down, January Sales Revised to -0.4%
Respectable Strength?
It’s amusing watching Econoday attempt to spin every conceivable thing positive. Somehow, retail sales at -0.1% on top of a huge downward revision is allegedly indicative of “respectable strength in February”.
Reader Tim Wallace pinged me with this pertinent comment: “Down 0.1% in January means February retail sales were actually down 0.7% from January’s initially reported number.”
Respectable Not!
Spotlight on Sufficient Momentum – Manufacturing Shipments
March 3, 2016
I put that chart together today with dated updated as on March 3.
There has never been a dip like this outside a recession or leading up to a recession.
Heading into the 2001 recession, the decline in shipments was a leading indicator. In the 2007-2009 recession, shipments were a lagging indicator. I suspect housing overly distorted the prior recession.
Leading or lagging, Lockhart is wrong either way.
GDPNow – March 16
Questions of the Day
Question 1: Is Lockhart even watching the momentum of his own researcher’s model?
Question 2: Is 1.9% and falling really sufficient momentum to hike or does Lockhart have Kaleidoscope Eyes?
Long-time Mish readers know what’s coming up: A musical tribute.
Reflections on Momentum
The next Atlanta Fed GDPNow release takes place on March 24.
I have a difficult time gaming how GDPNow will react to economic reports but I strongly suspect today’s existing homes sales report will knock 0.3% or so off the previous forecast.
The PMI manufacturing index comes out on Marc 22, the new home sales report on March 23, and durable goods orders on March 24.
New data aside, I agree with Lockhart there is “momentum”. However, that momentum is “sufficiently” in the wrong direction.
Mike “Mish” Shedlock
Mish,
Love your stuff.
Question to you;
Say you sit in the secret inside circle of the banking cabal, it is your sworn duty to “earn” a decent return for the members. You must consrtuct the rules for maximun control and gain, could you see the path of the cabal and expand your views on where this is headed?
I wish more writers and analysts would pound home how evil NIRP really is. A free market would never allow for it.
Negative interest rates impossible in any free-market or even near free-market economy.
The idea that one would rather have 90 cents a year from now, than a dollar today is patently absurd.
Mish
Yes, I agree, Mish, negative interest would be an absurdity in a Free Market. But we have not had a free market for money in quite some time. Obviously, monopoly power over the money supply allows for any sort of absurdity that the Monopoly Powers wish to impose, be it QE Forever or negative interest rates of whatever amounts the monopolists wish to impose. Monopoly has its advantages, for the monopolists. Who can resist the temptations of unlimited power?
I would further suggest that since the Central Bank Money Monopoly is effectively in symbiosis with the Treasury Dept and the Congress, as the 2008/9 bailouts clearly evidence, the banks are in the position to change the rules via Congressional action, FED action or Presidential Executive Order at any time. So, -10% interest rates assessed to cash, savings, checking accounts, stocks, precious metal holdings, etc would not surprise me; as the Treasury Dept/FED cabal could do like in 2008/9 and make the Too-Big-to-Fail Banks whole again for any losses on their part. So, from the central banking perspective, negative interest rates of any magnitude have to be viewed as a relatively risk-free maneuver; otherwise they would not be rolled out worldwide, even if the USA goes counter-trend for a while.
Try minus 100% . It is self fulfilling – you give away your money for nothing and that is what it is worth , nothing .
The worth of the money is irrelevant to central banks, as long as the central banks are made whole with replacements (e.g. currency, assets) that have worth or value. So what if the currency is destroyed. They just start over with a new currency. Game goes on.
Basically, the sky is the limit. There might, however, be collection difficulties at -110%, which could happen if federal, state and municipal rates all skyrocketed at the same time. Put in exemptions for those with very little money (the majority), and infinitely negative interest rates and infinitely high taxes on those with wealth might be quite popular. There was ample support for the “head tax” of the French Revolution, the confiscations of the Bolshevik Revolution of 1917…More recently:
“In the mid-twentieth century, marginal tax rates (the rate applied to the last bit of income) in the United States and United Kingdom exceeded 90%. As recently as the late 1970s, the top marginal tax rate in the U.S. was 70%.” -Progressivity in United States income tax – Wikipedia
“Bernie Sanders: A 90 Percent Tax Rate Isn’t Too High” -http://www.newsmax.com/Politics/Bernie-Sanders-tax-wealthy-90-percent/2015/05/27/id/647105/#ixzz43bIuKrfN
90 cents a sure thing a year form now is far better then 50 cents probably a year from now…
These banksters really are pathetic.
“Short of some big shock that turns consumer psychology on its head, I see no reason why consumer spending growth should not continue.”
Such as reality exerting itself. All ponzi schemes rely on confidence. That is why this one will fail like all the others.
Will the next “storm” wipe away, once for all, these sort of “pots & pans vendors” from the real world?
The Fed is raising the rates for only one thing the next crash. While other countries try negative rates basically stealing from their citizens, we will drop interest to zero once again and then go negative. While the pleebs watch all the charades on the media about the presidential election and hired protesters causing all kinds of trouble at rallies, the financial institutions will continue to steal from them.
19,000 people will lose SNAP in our state this month because they are single without dependents and the protests have already begun. Of course if your an uneducated single mother nothing changes as the Dems need your vote!
No one here will protest when rates go negative here.
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“Bernie Sanders: A 90 Percent Tax Rate Isn’t Too High”
Hollande found out a 75% tax rate was too high.
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