Michael Kevane

We are in October 2014, and unemployment already down to 5.9%, a full percentage point below the March 2013 projections.

According to the most recent projections available at the time of this response (March 2013) most FOMC meeting attendees do not expect the unemployment rate to reach the 6.5% threshold until 2015. The central tendency of the projections for the unemployment rate ranges from 7.3 to 7.5% at of the end of 2013, 6.7 to 7.0% at the end of 2014, and 6.0 to 6.5% at the end of 2015.

via SF Fed | Recently the Federal Open Market Committee...

For the last five years of economic expansion, Congress has been unwilling to use fiscal policy to try to encourage faster growth. That has left the Fed as the only game in town, and the Bernanke Fed again and again turned to quantitative easing and ultralow interest rate policies to try to shock the economy into speedier expansion. Ms. Yellen was the No. 2 official at the Fed for most of this time, and helped engineer the policies.But this has contributed to an imbalanced form of growth in the United States. Many of the first-order effects of the Fed’s bond buying have been, for example, to drive up the stock market and to help lower mortgage rates. Because stocks are disproportionately owned by the wealthy and the upper middle class have been in best position to refinance their mortgages, the benefits of Fed policy for middle and low-income workers have been more indirect.

via What Janet Yellen Said, and Didn’t Say, About Inequality – NYTimes.com.

There are two problems when I read the very nice summary:  (1) If the stock market rises 3% this week, does that mean his analysis of last week is wrong?  Always a bad idea to theorize about the longer term in order to explain short-term stock market fluctuations.  (2) He does not explain why deflation is going to be a bad phenomenon… do his readers know?

The world economy still hasn’t recovered from the last recession. Moreover, investors lack confidence that policy makers have the tools they would need to avert a new slide into recession after years of throwing everything they have at it to try to encourage recovery and prevent deflation, or falling prices. Coincidentally, commodity prices are declining largely because of supply, but the timing of that decline is bad: It makes the risk of deflation that much more severe.  Add it all up, and the markets aren’t betting on catastrophe per se; if they were, stock prices would be down more. But they are betting that central banks and other policy makers aren’t going to be able to get a handle on global deflationary forces that have been unleashed. That means we could be in for a slow grind in which global growth and inflation both stay below where people across the advanced world would like it to be.

via The Depressing Signals the Markets Are Sending About the Global Economy – NYTimes.com.

Investors flocked to the relative safety of government bonds on Wednesday, pushing yields on United States Treasuries and on German bunds sharply lower. The yield on the 10-year United States Treasury note — a benchmark for many interest rates — fell the most since March 2009, slipping below the psychologically important 2 percent level for the first time in many months. Bond yields and prices move in the opposite directions from each other.Much of the selling in United States stocks, traders said on Wednesday, was being driven by hedge funds unloading big positions in benchmark stocks that for most of the year have shown strong returns. With the end of the year approaching and markets falling fast, these momentum investors have turned tail.

via Stocks Turn Volatile on Global Growth Worries – NYTimes.com.

The fund brought its estimate for global growth down to 3.3 percent from 3.7 percent, and reduced its forecast for 2015 to 3.8 percent. The fund pointed to weaker growth in China, Europe, Japan and Latin America Brazil in particular as the main culprits behind the broad retrenchment.  By contrast, the outlook or the American economy, fresh off its very strong jobs report last week, was revised sharply upward, to 2.2 percent this year from 1.7 percent.  In an interview on Friday, Christine Lagarde, the managing director of the fund, said global growth risked being stuck in a rut for a long time. “If nothing gets done in a bold way, there is a risk of new mediocre” level of growth for the global economy, she said. “And that’s particularly clear now, because growth potential has already gone down.”Numerous countries, especially in Europe, have still not shed problems from the financial crisis and continue to face high government and household debt as well as persistent unemployment, Ms. Lagarde said. In addition, divergent monetary policies between the United States and Europe appeared likely to perpetuate a growth gap on both sides of the Atlantic, in which the American economy forged ahead while much of the Continent lagged behind.

via I.M.F. Lowers World Growth Forecast, Pointing to U.S. as a Bright Spot – NYTimes.com.