Worcester Business Journal Economic Forecast Breakfast February 13, Jeff Fuhrer, EVP and Senior Policy Advisor Federal Reserve Bank of Boston

Transcription

1 Worcester Business Journal Economic Forecast Breakfast February 3, 25 Jeff Fuhrer, EVP and Senior Policy Advisor Federal Reserve Bank of Boston

2 X Not this lady X Not this guy 2

3 26:Jan 26:Sep 27: 28:Jan 28:Sep 29: 2:Jan 2:Sep 2: 22:Jan 22:Sep 23: 24:Jan 26:Jan 26:Jul 27:Jan 27:Jul 28:Jan 28:Jul 29:Jan 29:Jul 2:Jan 2:Jul 2:Jan 2:Jul 22:Jan 22:Jul 23:Jan 23:Jul 24:Jan $ trillions Funds rate, percent Unprecedented depth and duration of recession 2. Extraordinary policy responses 3. Complications going forward as a consequence Employment, recession peak=. Range of all Average of all postwar Current (27-present) Federal Reserve Assets ($ trillions) 6 Months after recession onset Sources: Bureau of Labor Statistics (employment), Board of Governors of the Federal Reserve H.4., Haver Analytics Funds rate Agency and MBS CB Swaps CPFF TAF Treasuries SIX YEARS Of ZERO INTEREST RATES (and counting) 3 of

4 Contribution of government spending and investment to GDP growth Average, Current recovery. Subtracting near zero in Taxes, transfers less contractionary in Less craziness improves confidence, reduces uncertainty Quarters into recovery Sources: Bureau of Economic Analysis, Haver Analytics 4 of 5

5 Annual percentage growth $ Billions Consumer spending is now better supported by income growth Real consumer spending Real disposable income One key to sustained income growth: more rapid wage increases :Q 22:Q 23:Q 24:Q Increase in household net worth Housing assets Stock market assets Consumer sentiment looks good Consumer sentiment Consumer spending growth 24:Jan 26:Jan 28:Jan 2:Jan 22:Jan 24:Jan and OIL, which we will come to in a minute. Sources: Bureau Economic Analysis (spending, income, saving rate), Flow of Funds Accounts (HH wealth), Core Logic (house prices), Board of Governors H.5 release (mortgage rates), Haver Analytics 5 of 5

6 27:Jan 27:Sep 28:May 29:Jan 29:Sep 2:May 2:Jan 2:Sep 22:May 23:Jan 23:Sep 24:May 25:Jan 2:Jan 2:Jul 2:Jan 2:Jul 22:Jan 22:Jul 23:Jan 23:Jul 24:Jan 24:Jul 25:Jan $ trillions Percent $ per barrel Funds rate -yr. Treasury yield Fed Bal. Sheet (right) Core PCE inflation PCE inflation West Texas Intermed Sources: Board of Governors H.5 release (funds rate, -year rate), H.4. release (balance sheet), Bureau of Economic Analysis (PCE, Core PCE), Wall Street Journal (WTI), Haver Analytics 6 of 5

7 Thousands Employment growth (3-month average) Jan 3-mo Emp Unemp and lots of 6 progress on Total nonfarm -8 unemployment Private nonfarm 5 - Unemployment rate (right) 4 27:Nov28:Nov29:Nov2:Nov2:Nov22:Nov23:Nov24:Nov Sources: Bureau of Labor Statistics, Haver Analytics 7 of 5

8 Percent of those labor force Percent of labor force Broader unemployment measures, especially those that include part-time work, have improved somewhat Broader measures of labor market slack Add part-time for economic reasons (6.7 M) Add marginally attached (.5M) Add discouraged workers (.7M) Civilian unemployment rate (8.7 M) Working part-time for economic reasons, 955-present But these measures remain somewhat elevated Sources: Bureau of Labor Statistics, Haver Analytics 8 of 5

9 US $ per barrel Holy mackerel! Effects on US spending Effects on inflation Effects on US oil production Oil price per barrel, WTI Hurts US producers income more than in previous years Effects on Russia/financial stability 9 of 5

10 $/ruble Percentage points Percentage points Spending effects.6 Equivalent to a GDP increase of.8 Effect on consumption Financial stability -year Treasury yield S&P5, 8//4=. (right) Inflation effects, last 6 mos Effect on headline inflation -.5 Effect on core inflation Russia, $ value of the ruble of 5

11 Q2 Q3 Q4 24 Q2 Q3 CPI inflation GDP growth Significant concern about weak Euro-area growth, deflation Low inflation an issue in many developed economies Growth concerns in key Asian countries Esp. Japan (recession?), China Russian economy Small direct effects on US (<% of trade) Financial market effects? Geopolitical risks Ukraine/Russia Middle East Greece (again) Chinese real GDP Euro-area growth and inflation Japanese GDP GDP growth - CPI ex fd. and en :Q 23:Q 24:Q :Q 23:Q3 24:Q 24:Q3 Sources: Statistiches Bundesmat (German IP), Eurostat (Euro CPI), National Bureau of Statistics China, Haver Analytics of 5

12 2% Inflation: persistently below 2% :Jan 2:Jul 22:Jan 23:Jul FOMC inflation goal Wages, compensation (4-qtr. growth) ECI Average hourly earnings Nonfarm compensation Core PCE inflation (2-mo.) Total PCE inflation -. 27:Q2 29:Q2 2:Q2 23:Q2 All three measures: No wage pressures Sources: BEA (PCE inflation, profit share), Bureau of Labor Statistics and CBO (unemployment gap, chained core CPI, import prices, labor costs), Haver Analytics (Treasury inflation expectations) 2 of 5

13 27:Dec 28:Jun 28:Dec 29:Jun 29:Dec 2:Jun 2:Dec 2:Jun 2:Dec 22:Jun 22:Dec 23:Jun 23:Dec 24:Jun 24:Dec 27:Dec 28:Jun 28:Dec 29:Jun 29:Dec 2:Jun 2:Dec 2:Jun 2:Dec 22:Jun 22:Dec 23:Jun 23:Dec 24:Jun 24:Dec Dec. 27= 27:Dec 28:Jun 28:Dec 29:Jun 29:Dec 2:Jun 2:Dec 2:Jun 2:Dec 22:Jun 22:Dec 23:Jun 23:Dec 24:Jun 24:Dec Dec. 27= Dec. 27= Employment since recession onset NE US MA Worcester Mass. improving, better than average for NE House price recovery? MA US NE Worcester House prices have turned up, less rapidly than US given the shallower decline Housing starts Gradual housing NE MA US recovery US MA Leading indicators Good news: leading indicators suggest continued growth. 3 of 5

14 Fundamentals continue to improve Labor markets have improved significantly, although some slack remains High inflation not an issue, but some concern about inflation persistently on the low side (here and abroad) Overall outlook: 2.5-3% GDP growth for % inflation for % unemployment (year-end 25) Key Risks: Europe, Japan, China slowing viz huge declines in oil and other commodity prices Geopolitical risks Greece, Ukraine, Middle East, Africa, 4 of 5

15 28:Dec 29:Nov 2:Oct 2:Sep 22:Aug 23:Jul 24:Jun 25:May 26:Apr 27:Mar 28:Feb $ trillions Interest rates to normal? Balance sheet to normal? As economy gets to normal. We re not in Kansas anymore Funds rate Fed balance sheet (right scale) Challenges: Controlling interest rates when there s lots of money in circulation Communicating about our normalization and exit When are we going to raise rates? How to tell people what they need to know, without promising something we can t deliver? 5 of 5