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Monthly Economic Outlook
Near-Term Weakness, Recovery Next Year
September 10, 2008
Summary:
- Economic data remain mixed, consistent with lackluster growth and a weakening labor market. The housing correction, tight credit, and high energy prices will continue to restrain growth in the near term.
- Lower energy prices should help lift consumer purchasing power into early 2009.
- Fed officials’ opinions are mixed, with some fearful of inflation and some worried about more pronounced financial problems. Short-term rates should remain on hold.
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The Fed Moves Back To Neutral
August 7, 2008
Summary:
- Economic data have remained mixed, consistent with lackluster growth and a weakening labor market. The housing correction, tight credit, and high energy prices will remain considerable restraints on growth.
- A sharp decline in prices of oil and other commodities will provide only modest relief for consumers and businesses in the near term. Headline consumer price inflation should decline.
- After stepping up the inflation rhetoric in June and adopting a small tightening bias at the June 24-25 policy meeting, the Fed moved to a neutral bias on August 5.
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No Second Half Recovery
July 7, 2008
Summary:
- Economic data have remained mixed, but generally weak. Higher food and energy prices and a weakening job market will restrain consumer spending growth.
- The outlook for Federal Reserve rate hikes has been scaled back from a month ago, but the Fed is still expected to raise rates before the economy recovers.
- The price of oil remains the key wildcard in the outlook. A stabilization in oil prices would help improve consumer purchasing power over time. A decline in oil prices would help bring the recovery closer.
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A Shift In The Fed’s Focus
June 12, 2008
Summary:
- Federal Reserve policymakers, along with foreign central bank officials, have expressed greater concerns about inflation, stressing the importance of keeping inflation expectations contained. Rather than “slamming on the brakes,” central bank rate hikes would essentially “take the foot off the accelerator.”
- Readings on the health of the consumer have been conflicting. Anecdotal evidence suggests a serious squeeze on household budgets from higher food and energy costs. However, retail sales results have been relatively strong, apparently aided by tax rebates.
- The price of oil remains a major wildcard in the economic outlook. A stabilization of food & energy prices should help to moderate headline inflation and improve consumer purchasing power into 2009.
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Fear’s Here, But So’s Hope
April 10, 2008
Summary:
- Recent data suggest an increased likelihood that the economy has entered a recession. The job market, in particular, has deteriorated significantly.
- A tightening in bank and nonbank credit, record oil prices, and further declines in home prices have generated further downside risks to the growth outlook.
- The Fed’s efforts to promote liquidity and support growth should lead to improved conditions in the second half of the year. The stock market will improve before the economy does, but there will likely be much second guessing on the strength and timing of the recovery.
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An Economy On The Edge
March 13, 2008
Summary:
- The U.S. economy appears to be growing at a sluggish pace, on the edge of a recession. Monetary and fiscal stimulus will provide some support in 2H08.
- Downside risks to growth remain. Further declines in home prices could amplify and extend the housing correction. Higher energy prices and a soft job market could dampen consumer spending growth more than anticipated. Credit market conditions remain strained.
- The Fed has extended efforts to provide liquidity to the troubled credit markets and is poised to cut shortterm interest rates further. However, inflation fears should limit the Fed’s ability to move more aggressively.
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On The Cusp, Will Help Arrive In Time?
February 7, 2008
Summary:
- The U.S. economy appears likely to grow at a relatively slow pace in early 2008. Monetary and fiscal policy should provide some support in the second half.
- Downside risks to growth remain. Home prices could fall further. A softer job market could further dampen consumer spending growth.
- After cutting short-term interest rates by 125 basis points in late January, Fed policymakers signaled that they are prepared to cut rates further. However, inflation worries should prevent the Fed from cutting the Fed funds target as much as the previous easing cycle.
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Addressing Increased Downside Risks
January 11, 2008
Summary:
- The U.S. economy appears likely to grow at a relatively slow pace in early 2008.
- Downside risks to the growth outlook have become “more pronounced,” according to Fed Chairman Bernanke. Consumer spending will be restrained in the near term by higher energy prices, lower stock prices, and lower home prices. Weaker job growth would further dampen the consumer spending outlook.
- Bernanke indicated that the Federal Reserve “stands ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.”
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The 2008 Outlook – Avoiding Peril
December 14, 2007
Summary:
- The U.S. economy appears poised to grow at a below-potential pace in early 2008, picking up over the course of the year as the drag from residential homebuilding fades.
- However, there are a number of downside risks to growth. The housing correction could be more severe than expected. A slowdown in corporate profits could restrain business fixed investment and new hiring. Credit conditions could tighten further. Higher energy prices could restrain consumer spending growth.
- The Federal Reserve and other central banks are well aware of credit market difficulties and have made efforts to provide liquidity to the markets. While central bank action will not bring the housing correction to an end or stop the economy from slowing, it should prevent a more severe economic downturn.
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Facing Risks
November 8, 2007
Summary:
- After solid growth in 3Q07, the economy is poised for a near-term slowdown, with a return to moderate growth (with moderate inflation) in 2008. There are downside risks to growth and upside risks to inflation.
- Higher oil prices will dampen consumer spending growth and the weaker dollar will add to inflation pressures. However, the biggest worry may be that credit conditions will tighten further.
- Following a 25-basis-point rate cut on October 31, the Fed signaled that short-term interest rates will be held steady – but the short answer is “it depends.”
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Finding The Right Balance
October 12, 2007
Summary:
- Recent data have been consistent with moderate, below-potential economic growth. Inflation pressures appear mixed, but balanced on average.
- Short-term credit market conditions have stabilized, but remain far from normal. Liquidity remains spotty.
- Following a more aggressive policy response in September, Federal Reserve officials made no presumption about future moves. However, another ease may be likely be the end of the year.
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Moderate Outlook, Increased Downside Risks
September 13, 2007
Summary:
- Economic indicators have been mixed, but moderate. The housing market correction and continued problems with subprime adjustable-rate mortgages will remain a drag on overall growth into 2008.
- However, the ongoing liquidity crisis has boosted downside risks to the growth outlook.
- Federal Reserve officials have responded to credit market problems by lowering the discount rate and making other efforts to provide liquidity. The Fed is likely to lower the Fed funds rate target, but probably less than is expected by many financial market participants.
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A Nervous Optimism
August 9, 2007
Summary:
- Financial market volatility has increased. Credit has gotten tighter for some businesses and consumers.
- Economic growth is likely to be mixed, but moderate, in the near term. Core inflation should edge lower.
- Federal Reserve officials are unlikely to lower shortterm interest rates to calm market fears. However, should labor market conditions deteriorate significantly, the Fed would be more inclined to act. Most likely, growth will be slow enough to allow the Fed to move to a more neutral policy position by early 2008.
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Choppy Waters
July 9, 2007
Summary:
- Economic growth appears to have been mixed, but moderate, in 2Q07. Expect more of the same in 2H07.
- Food and energy price increases should continue to pressure overall inflation in the near term, but core inflation is gradually moderating.
- Federal Reserve policy is likely to remain on hold for the foreseeable future, but officials will remain
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Same Outlook, Different Worries
June 8, 2007
Summary:
- Economic growth is expected to pick up somewhat, although conditions will remain mixed across sectors.
- There are a number of risks to the outlook: higher energy prices, a further correction in the housing market, slower productivity growth, and higher bond yields.
- Core inflation is likely to moderate gradually, but Fed officials remain united in their concerns about upside risks to the inflation outlook . Short -term interest rates should remain on hold. Long-term rates seem likely to settle into a somewhat higher range in the near term.
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Still A Moderate Outlook
May 10, 2007
Summary:
- The general outlook (lackluster-to-moderate growth in 1H07, followed by a gradual pickup in growth as the drag from homebuilding fades) remains intact.
- Downside risks to growth remain, but may not be as threatening as they appeared a month or two ago. While core inflation is likely to moderate in the near term, there are upside risks over the intermediate term.
- Fed officials remain united in their view that inflation is “the predominant risk” in the economic outlook. However, monetary policy is likely to remain on hold, probably through the end of the year.
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April 13, 2007
Summary:
- The economic outlook hasn’t changed much in the last couple of months. While first quarter remained soft, growth is expected to pick up over the course of the year as the drag from homebuilding fades.
- Important downside risks include a sharper decline in the housing market, prolonged weakness in business investment, slowing productivity growth, and (once again) the impact of high gasoline prices.
- Fed officials are united in their view that inflation is “the predominant risk” in the economic outlook. However, recognizing downside risks, policymakers have sought greater flexibility, abandoning the assumption that the next move will likely be a rate hike.
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March 9, 2007
Summary:
- Global concerns appeared to be a factor behind the recent stock market correction, but worries appear largely misplaced or overemphasized.
- Economic data have continued to suggest mixed but moderate growth. However, weak business spending and slower productivity growth bear watching.
- Fed officials are likely to still see higher inflation as “the predominant risk,” but monetary policy is likely to be unchanged over the next several months.
View the entire report (PDF)
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