Monthly Archives: August 2010

The financial markets have now discounted some form of Fed easing at tomorrow’s FOMC meeting, and it seems to me unlikely that policy makers will allow these expectations to be completely dashed. If that were to happen, the setback to both bond and equity markets could be quite large, and the Fed will not want to risk this with economic data tending to weaken in recent weeks.  Read more

The US monthly employment data for July were not far off economists’ expectations, but they suggest that the labour market is now showing precious little improvement, and the initial reaction of markets was one of disappointment. The number of private sector jobs in the economy rose by just 71,000, which would normally be insufficient to keep unemployment from rising. However, the unemployment rate remained unchanged at 9.5 per cent, largely because the potential labour force is now falling as workers become discouraged about their prospects of finding work. All in all, this is a fairly gloomy picture for those seeking work in the US. Read more

The Federal Open Market Committee meeting next Tuesday promises to be the most interesting for about 12 months, since the outcome is far from certain.

The recent slowdown in the US economy seems to have caused some members of the committee to soften their stance on monetary policy, and the markets have begun to speculate about a possible easing in policy. If this comes, it is likely to be very slight, since I doubt that the Fed has seen enough evidence yet to convince them that the economy is slowing in a dangerous way.

However, some members of the committee seem to be getting increasingly worried that the US may be about to fall into a deflationary trap, like the one which has affected Japan in the last decade. James Bullard, the president of the St Louis Fed, released a very interesting paper last week which analyses the Japanese precedent in some detail. Although he does not consider this the most likely development in the US, he does think that it is sufficiently probable to require contingency planning, in much the same way as the government might prepare for a terrorist attack which it hopes and expects will not happen. Read more

The financial markets have been acting very serenely in the face of continuing evidence that the US economy is slowing markedly during the third quarter. Read more

The ISM Survey of the US manufacturing sector (published on Monday) offers the first reliable glimpse of activity in the US economy in the third quarter of the year. It is not encouraging. Read more

The second quarter GDP figures for the US were published last Friday. The financial markets do not usually get very agitated about these figures, because the official quarterly data lag the many sources of more timely information on the economy. But this is an unusually sensitive time for the US economy. Read more