On March 21, Atlanta Fed president Dennis Lockhart had “Kaleidoscopic” visions of rate hikes as soon as April.
In his speech to the Rotary Club of Savannah, 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.”
Lockhart also cited the Atlanta Fed GDPNow Model. Today we can update that model.
The title of Lockhart’s March 21 speech to the Rotary Club was “Kaleidoscopic Context for Monetary Policy“.
My March 21 rebuttal was Kaleidoscope Eyes.
Here are some snips.
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?
I suspected then, and even more so today, that Lockhart had advance warning of the Richmond Fed report and was foolishly willing to roll the dice on it.
Other logical explanations include the possibility Lockhart lost his mind, and/or Fed Chair Janet Yellen wanted Lockhart to float trial balloons for hikes.
I suppose there could be other reasonable explanations, but I cannot think of any at the moment.
Regardless, I cautioned about the small samples of the regional Fed diffusion indices while specifically noting: “The PMI manufacturing index comes out on March 22, the new home sales report on March 23, and durable goods orders on March 24.”
Momentum Since Lockhart’s Speech
- On March 21, the same day as Lockhart’s speech, I commented Existing Home Sales Plunge “Surprising” 7.1%, Price Concessions the Norm; What Happened? … Data was so bad the National Association of Real Estate cheerleaders showed concern. “Know Before You Owe” kinks have been worked out. The “surprise” downtrend continues.
- On March 23, I commented New Home Sales Near Consensus on Muddle-Through Track … It’s easy to spot the lack of momentum in housing starting a year ago. This is a muddle-through track, and a weak one at that.
- Today I noted Durable Goods Orders Plunge 2.8%; Will a Falling Dollar Soon Help? … The answer to my falling dollar question is “no”. I used a chart to explain why.
Following the existing sales report I expected that affect on GDPNow would have been about -0.3% or so with a caution there were other reports coming up.
We now have those economic reports and they ranged from outright bad to muddle-through at best.
Here’s the net result from GDPNow
Latest forecast: 1.4 percent — March 24, 2016
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 1.4 percent on March 24, down from 1.9 percent on March 16. After this morning’s durable goods manufacturing report from the U.S. Census Bureau, the forecast for first-quarter real equipment investment growth declined from 0.9 percent to -1.4 percent while the forecast for the change in inventory investment in 2009 dollars declined from -$9 billion to -$11 billion. The forecast for real residential investment growth fell from 14.6 percent to 7.8 percent after Monday’s existing home sales release from the National Association of Realtors and yesterday’s new home sales and construction cost releases from the Census Bureau.
There is not sufficient momentum for much of anything but rate cuts and a recession.
For whatever reason, Lockhart went out on a limb, and today that limb broke off.
Mike “Mish” Shedlock