Federal Reserve | timiacono.com - Part 4

The Fed’s Not-So-Hot Growth Forecasts

Via Deutsche Bank and this item from Pawel Morski’s Twitter feed comes a rather embarrassing summary in chart form of the Federal Reserve’s dismal record at predicting growth for the U.S. economy in recent years. About the only nice thing one could say about this is that they’re at least moving in the right direction.

Let’s just hope that central bank economists don’t underestimate future inflation as badly as they overestimated growth, something we may get a first hint at with tomorrow’s inflation report following today’s big upside surprise for wholesale prices as detailed here earlier.

Here’s the data on student loans and home ownership that’s been getting a lot of attention in the last day or so in chart form from its original source at the New York Federal Reserve.

Just in case it isn’t already obvious, many of those youngsters aged 27  to 30 who should be most able to buy property because they went to college and are making more money than they would otherwise are not doing so, in part at least, due to their student loan debt.

What’s really surprising about this is that, over the last few years, the implied home ownership rate of those with student loans has actually fallen below those who have no student loans, a group that, presumably, includes lots of college graduates who got through college with little or no debt along with those who never felt the need for higher education.

Of course, the bigger picture here is that overall home ownership amongst the younger set has fallen precipitously since the financial crisis, dropping by nearly a third, from over 30 percent to just over 20 percent.

Senator Rob Portman (R-OH) offered up one of the more insightful comments/observations during yesterday’s session with Federal Reserve Chairman Janet Yellen, at least according to this New York Times account of the gathering.

You don’t hear much talk about the relationship between relatively low capital investment and the actions of the central bank to prop up the economy and financial markets, but maybe we will after remarks like this.

“I worry that the Federal Reserve is trying to use its monetary policy hammer to solve a problem that’s really not a monetary problem and at some risk of doing so,” said Senator Rob Portman of Ohio.

Companies, he said, would not invest “no matter how low interest rates go” because they were frozen by uncertainty about the economic outlook.

Mr. Portman suggested the Fed could help by ending its stimulus campaign because it had become a crucial source of the uncertainty.

Of course, Yellen responded by saying monetary policy is not a panacea and, since I didn’t witness this exchange, it’s impossible to know if there were any body language cues that might shed more light on what she really thinks about the subject.

It makes sense that, after 20 years of increasingly large asset bubbles that all ultimately meet their pins, business owners would be increasingly cautious, particularly after the latest one and the Fed’s response to it. The issue is further complicated (and not in a good way) by the fact that just about everyone in the world except the Fed thinks central bank policy has been a major factor in inflating said bubbles and it’s also worth pointing out that this group doesn’t have a very good track record of spotting bubbles as they’re developing.

Jim Grant of Grant’s Interest Rate Observer shares a few thoughts about Federal Reserve Chairman Janet Yellen’s appearance yesterday before the Joint Economic Committee.

Grant explains how Yellen could make herself more clear during such visits:

If she said, for example, we believe in price control, we believe in market manipulation, and we believe in the Phillips curve, the Phillips curve being the trade-off between employment and inflation. Each of these ideas is widely discredited.

Each is dearly embraced by the federal reserve and you can in fact tease out from her remarks that she is a believer in all three of these heresies. It’s not chairman Yellen, but the entire fed is built around these doctrines.

Note that the oddity discussed in the opening seconds is occurring yet again today as bond prices are rising (somewhat disturbingly, along with stock prices) despite the certainty of the central bank buying fewer bonds next month than they did last month. It appears the bond market knows something that neither the Fed or the stock market know.

Page 4 of 129« First...23456102030...Last »
© 2010-2011 The Mess That Greenspan Made