Look at the trend for this year, adjust for the slowdown in housing, the slowdown in consumer spending, and then the pullback in hiring as businesses see their demand falling. Anyone want to place a bet that by November that middle line isnt crossing the bottome line?
Hey, CR is there anyway you could post an image of the graph (The Effect of Appraisal Data from Refinance Loans on the HPI) from page 4 of the 2006 Q1 OFHEO HPI data on your site?
Seems like there's a lot of misinterpretation and misuse of the HPI data showing up in some media reports... an image of that graph might help with "educating" people.
I think it's clear now that the Q1 HPI numbers were pumped up by appraisals which apparently lag actual sales prices.
There is something that I think is odd and dont understand. The U.S. seems to have weak job growth. Some say that this will allow the Federal Reserve to put interest rates on pause or in such a situation maybe even lower interest rates. However, from other sources it seems as if inflation is increasing and this inflation is not caused by wage/labor increases. In other words, true asset inflation (isnt that the most insidious type?) In the face of rising inflation, the Federal Reserve should increase interest rates, correct? It seems like an odd conundrum to me. Being a non-economist, I just wonder is this what you are referring to when you ask what to do? Will a pause kill a two-headed snake?
As always, you are the best blog for clearly stating economic news!
Nothing like painting yourself into a corner. Can't wait for the paint to dry, so your shoes have to get wet. I think pause or not, the rates go up. If the FED pauses I don't think it will be kind to Dollar.
Kett82, What to do? Raise or pause. As Timba noted, bad things could happen either way. The FED will try for the best policy answer - and that still might not be very good.
I think the Fed is screwed. They should keep hiking in order to tame inflation, cut imbalances in the system and to get enough ammo saved up so when they have to cut rates again, they'll have enough in the tank to have an impact. Remember how much they cut back in '01? The Fed Funds rate isn't that high to allow for big cuts once the economy slows. If we stay at 5% and the Fed then has to aggressively cut, do we go the way of Japan and get to 0%/negative real rates? Deflation is not what we want.
On "cooked" inflation figures, things appear ok but we all feel the inflationary pressures so "ex-food and energy" is a sham. If the Fed hikes more, the housing mkt could crash (~30% of borrowers who took out a mortgage last year have either zero or negative equity in the homes) and consumers would stop spending quickly. It would get ugly. If the Fed stops hiking, then the US$ will weaken further(boosting inflation in some sectors) and the bond market may take matters into its own hands and dump USTs (rising 10 yr bond rates) which in turn could slam housing given all of the ARMs out there. With wage inflation really spiking in China and raw material prices at ~20 yr highs, at some point they will have to try to pass those costs onto consumers. Too much liquidity out there and not enough fear. Greenspan sure got out while the getting was good because Bernanke is left with a lot on his plate.
In fairness to Greenspan, his contribution to this mess IMO is 9/11 influenced. If 9/11 had never happened, I doubt the need to "prop" the economy up quicker to support the Neo-Cons war plans would have been necessary. Most likely the imbalances that have fostered the previous decade would have continued, but not at the same level. Maybe the housing bubble would have been more controlled as the recessionary period would have lingered a year longer.
However, since we did do what we did, the fallout is gonna come quicker, the bills are coming due and the cheap money becoming nothing more than paper. Bush's time is up. He was given his 5 years, which he completely wasted. Now we must pay the price of our sins.
Look at the trend for this year, adjust for the slowdown in housing, the slowdown in consumer spending, and then the pullback in hiring as businesses see their demand falling. Anyone want to place a bet that by November that middle line isnt crossing the bottome line?
rate pause?
Bad Shift, its close - inflation is still too high and the economy appears to be slowing. What to do?
I think it might be prudent to pause in June.
Best Regards.
REQUEST (off topic):
Hey, CR is there anyway you could post an image of the graph (The Effect of Appraisal Data from Refinance Loans on the HPI) from page 4 of the 2006 Q1 OFHEO HPI data on your site?
Seems like there's a lot of misinterpretation and misuse of the HPI data showing up in some media reports... an image of that graph might help with "educating" people.
I think it's clear now that the Q1 HPI numbers were pumped up by appraisals which apparently lag actual sales prices.
Dear Mr. CR,
There is something that I think is odd and dont understand. The U.S. seems to have weak job growth. Some say that this will allow the Federal Reserve to put interest rates on pause or in such a situation maybe even lower interest rates. However, from other sources it seems as if inflation is increasing and this inflation is not caused by wage/labor increases. In other words, true asset inflation (isnt that the most insidious type?) In the face of rising inflation, the Federal Reserve should increase interest rates, correct? It seems like an odd conundrum to me. Being a non-economist, I just wonder is this what you are referring to when you ask what to do? Will a pause kill a two-headed snake?
As always, you are the best blog for clearly stating economic news!
Nothing like painting yourself into a corner. Can't wait for the paint to dry, so your shoes have to get wet. I think pause or not, the rates go up. If the FED pauses I don't think it will be kind to Dollar.
ac, will do.
Kett82, What to do? Raise or pause. As Timba noted, bad things could happen either way. The FED will try for the best policy answer - and that still might not be very good.
Best to all.
I think the Fed is screwed. They should keep hiking in order to tame inflation, cut imbalances in the system and to get enough ammo saved up so when they have to cut rates again, they'll have enough in the tank to have an impact. Remember how much they cut back in '01? The Fed Funds rate isn't that high to allow for big cuts once the economy slows. If we stay at 5% and the Fed then has to aggressively cut, do we go the way of Japan and get to 0%/negative real rates? Deflation is not what we want.
On "cooked" inflation figures, things appear ok but we all feel the inflationary pressures so "ex-food and energy" is a sham. If the Fed hikes more, the housing mkt could crash (~30% of borrowers who took out a mortgage last year have either zero or negative equity in the homes) and consumers would stop spending quickly. It would get ugly. If the Fed stops hiking, then the US$ will weaken further(boosting inflation in some sectors) and the bond market may take matters into its own hands and dump USTs (rising 10 yr bond rates) which in turn could slam housing given all of the ARMs out there. With wage inflation really spiking in China and raw material prices at ~20 yr highs, at some point they will have to try to pass those costs onto consumers. Too much liquidity out there and not enough fear. Greenspan sure got out while the getting was good because Bernanke is left with a lot on his plate.
Wow, I'm depressing. Sorry.
In fairness to Greenspan, his contribution to this mess IMO is 9/11 influenced. If 9/11 had never happened, I doubt the need to "prop" the economy up quicker to support the Neo-Cons war plans would have been necessary. Most likely the imbalances that have fostered the previous decade would have continued, but not at the same level. Maybe the housing bubble would have been more controlled as the recessionary period would have lingered a year longer.
However, since we did do what we did, the fallout is gonna come quicker, the bills are coming due and the cheap money becoming nothing more than paper. Bush's time is up. He was given his 5 years, which he completely wasted. Now we must pay the price of our sins.