Is Fed Policy Still Too Tight?

The next round of central bank decisions could rank among the most challenging in recent history, perhaps in decades. Policy hawks and doves can cite a fair amount of evidence for supporting their respective views. The deciding factor, as usual, will be the incoming data. But waiting for clear signs could risk the Fed’s success to date in taming inflation without damaging economic growth. On the other hand, one can argue that policy is still too tight for an economy that appears to be slowing, albeit modestly.

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Macro Briefing: 20 November 2024

US housing starts fell in October, falling 3.1% from September and 4.0% below the year-ago level. “Hurricanes Helene and Milton are likely to have affected housing activity during October,” advises Haver Analytics. Christopher Rupkey, chief economist at FWDBONDS, notes: “Despite the weather impact on building down in the South, the recession in residential housing construction remains deep in the woods with no daylight seen for buyers facing supply shortages as they hunt for new single-family homes.”

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Macro Briefing: 19 November 2024

US home builder sentiment rises for a third straight month in November, reaching the highest level since May but remains below the neutral 50 mark. “With the elections now in the rearview mirror, builders are expressing increasing confidence that Republicans gaining all the levers of power in Washington will result in significant regulatory relief for the industry that will lead to the construction of more homes and apartments,” says Carl Harris, chairman of NAHB, which publishes the data. “This is reflected in a huge jump in builder sales expectations over the next six months.”

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Macro Briefing: 18 November 2024

US retail sales rose more than expected in October, reviving doubts about the wisdom of additional rate cuts. “Retail sales data [in October] make many in the markets wonder if another rate cut at the December meeting is warranted at all,” says Christopher Rupkey, chief economist at FWDBONDS. “With fiscal policy expected to shift into high gear on the pro-growth stimulus side, perhaps the Fed’s monetary policy should not be putting another log on the fire to fuel growth by lowering rates, as it could lead to a return of inflation.”

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Book Bits: 16 November 2024

False Prophets of Economics Imperialism: The Limits of Mathematical Market Models
Matthew Watson
Summary via publisher (Agenda publishing/Columbia U. Press)
This book studies the methodological revolution that has resulted in economists’ mathematical market models being exported across the social sciences. The ensuing process of economics imperialism has struck fear into subject specialists worried that their disciplinary knowledge will subsequently count for less. Yet even though mathematical market models facilitate important abstract thought experiments, they are no substitute for carefully contextualised empirical investigations of real social phenomena. The two exist on completely different ontological planes, producing very different types of explanation.

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Macro Briefing: 15 November 2024

US jobless claims fell to a six-month low last week. “While many employment-related indicators point to a significant softening in labor market conditions this year, that change has not carried over to the unemployment insurance data thus far,” says Lou Crandall, chief economist at Wrightson ICAP. An economist at RSM, Tuan Nguyen, writes: “The continued drop in new filings for unemployment benefits, a proxy for layoffs, should suggest a strong rebound in payroll gains this month, which would reaffirm that the disappointing October jobs report was a one-time shock.”

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