One Policymaker s Wait for Better Economic Data

Transcription

1 EMBARGOED UNTIL MONDAY, JUNE 1, 2015 AT 9:00 A.M. EASTERN TIME OR UPON DELIVERY One Policymaker s Wait for Better Economic Data Eric S. Rosengren President & CEO Federal Reserve Bank of Boston June 1, 2015 Capital Workforce Partners Hartford, Connecticut bostonfed.org

2 How Should We Evaluate Recent Weakness in Economic Data Temporary Factors or Broader Changes? No one in New England needs reminders of the severe winter Economic data come out with a lag so the data are forcing us to dredge up those bad memories The severe winter clearly impacted some economic activity, as it was difficult to Get to work Go out shopping Eat out at a restaurant But data were weak before and after the storms 2

3 What are the Implications for Monetary Policy? Real GDP declined by 0.7 percent in the first quarter of 2015 Real GDP growth was 2.2 percent in Q and looks to be roughly 2 percent in Q If such a slow pace of growth persists, it is unlikely to be associated with further declines in the unemployment rate Reasons for optimism positive growth in personal income, low gas prices, improved household net worth But so far, improvement is in the forecast, not the data 3

4 Economic Data Suggest there is Still Reason to be Patient The FOMC criteria for raising short-term rates are twofold: First, further improvement in the labor market Second, being reasonably confident that inflation will move back to our 2 percent target Need the economy to grow above potential Risks remain asymmetric given rates near zero, monetary policymakers have limited ability to offset a negative shock from abroad 4

5 Figure 1: Private Sector Forecasts for Real GDP Growth Forecasts as of November Quarterly Percent Change at Seasonally Adjusted Annual Rate Blue Chip Consensus Forecast (Average) Survey of Professional Forecasters (Median) Actual :Q4 2015:Q1 2015:Q2 2015:Q3 2015:Q4 Source: Blue Chip Economic Indicators, Federal Reserve Bank of Philadelphia, BEA, Haver Analytics 5

6 Figure 2: Survey of Professional Forecasters Mean Probabilities for Real GDP Growth in 2015 Forecasts as of February and May Mean Probability (Percent) February 13, 2015 May 15, Less than to to to to to to to or More Source: Federal Reserve Bank of Philadelphia, Haver Analytics 6

7 Figure 3: Statewide Average Temperature Ranks February 2015 Note: Rank over the period Source: National Oceanic and Atmospheric Administration (NOAA) 7

8 Figure 4: Real GDP Growth 2010:Q1-2015:Q1 6 Quarterly Percent Change at Seasonally Adjusted Annual Rate :Q1 2011:Q1 2012:Q1 2013:Q1 2014:Q1 2015:Q1 Note: A dashed line marks the first quarter of each year. Source: BEA, Haver Analytics 8

9 Figure 5: Real GDP Growth Preceding First Tightening Following Last Three Recessions Date of Recession Trough Date of First Tightening Real GDP Growth Previous Two Years Previous Two Quarters November 1982 January 5, % 3.1% March 1991 February 4, % 3.7% November 2001 June 30, % 2.6% Source: BEA, NBER, Haver Analytics 9

10 Figure 6: Blue Chip Forecast for Growth in Real Personal Consumption Expenditures Forecast as of November Quarterly Percent Change at Seasonally Adjusted Annual Rate Blue Chip Consensus Forecast (Average) Actual 2014:Q4 2015:Q1 2015:Q2 2015:Q3 2015:Q4 Source: Blue Chip Economic Indicators, BEA, Haver Analytics 10

11 Figure 7: Regional Retail Sales January April Index Level January 2013 = 100 Northeast Midwest South West Jan-2013 Jul-2013 Jan-2014 Jul-2014 Jan-2015 Source: Bank of Tokyo-Mitsubishi UFJ, Haver Analytics 11

12 Figure 8: Personal Saving Rate January March Percent of Disposable Personal Income Jan-1995 Jan-1999 Jan-2003 Jan-2007 Jan-2011 Jan-2015 Recession Source: BEA, NBER, Haver Analytics 12

13 Figure 9: Recent Trends in Oil Prices, Stock Prices, Housing Prices and Employment January April Dollars Per Barrel 2500 Index Spot Oil Price, West Texas Intermediate Crude Oil 0 Jan-2013 Jan-2014 Jan S&P 500 Composite Stock Price Index 1000 Jan-2013 Jan-2014 Jan lndex FHFA Purchase-Only House Price Index Millions of Jobs Nonfarm Payroll Employment Jan-2013 Jan-2014 Jan Jan-2013 Jan-2014 Jan-2015 Source: BLS, EIA, FHFA, S&P, Haver Analytics 13

14 Figure 10: Inflation Rate: Change in Total and Core Personal Consumption Expenditures (PCE) Price Indices January March Percent Change from Year Earlier 4 3 2% Inflation Target Total PCE Core PCE -2 Jan-2005 Jul-2007 Jan-2010 Jul-2012 Jan-2015 aa Recession Source: BEA, NBER, Haver Analytics 14

15 Figure 11: Longer-Run Unemployment Rate Projections of Federal Reserve Governors and Federal Reserve Bank Presidents June March Percent Range and Median for Longer-Run Unemployment Rate Projections Jun-2014 Sep-2014 Dec-2014 Mar-2015 Date of Forecast Source: FOMC, Summary of Economic Projections (SEP), Minutes of FOMC Meetings 15

16 Figure 12: Inflation Rate Projections of Federal Reserve Governors and Federal Reserve Bank Presidents March Percent Change, Fourth Quarter to Fourth Quarter Range and Median for PCE Inflation Rate Projections Source: FOMC, Summary of Economic Projections (SEP), Minutes of FOMC Meetings 16

17 Figure 13: Federal Funds Rate Projections of Federal Reserve Governors and Federal Reserve Bank Presidents March Percent Range and Median for Federal Funds Rate Projections Yearend 2015 Yearend 2016 Yearend 2017 Source: FOMC, Summary of Economic Projections (SEP), Minutes of FOMC Meetings 17

18 Figure 14: Spread: Ten-Year Treasury Yield to Federal Funds Effective Rate January April Basis Points Average Spread Spread -200 Jan-1995 Jan-2000 Jan-2005 Jan-2010 Jan-2015 n Recession Source: U.S. Treasury, Federal Reserve Board, NBER, Haver Analytics 18

19 Concluding Observations The economy has been softer in the first half of this year than many forecasters expected It is too soon to know if this is a reflection of broader changes in the economy For monetary policy to begin normalization, we need to be confident that we will return to full employment and 2 percent inflation over the next couple of years That evidence is not yet reflected in the data This, in my view, makes a compelling argument for continued patience in monetary policy 19