By Robin Wigglesworth
A slew of economic news and data has come out over the past 24 hours, some good, some bad, and some outright ugly. But if one thing is clear, the economic recovery of advanced economies is far from assured. Here are five highlights, and things to keep in mind.
1: Markets believe the Fed will keep stimulating the economy
Janet Yellen, the nominee for the Federal Reserve chairmanship, will highlight now the US economy is performing “far short” of its potential at her Senate testimony on Thursday, according to prepared remarks released on Wednesday evening. Deutsche Bank’s Jim Reid points out that while the “tones are certainly dovish, it’s impossible to infer precise policy thoughts from her remarks”. That hasn’t stopped financial markets from rallying on the hope that the presumptive new Fed chairwoman will keep pumping money into the global economy for longer than previously expected. Read more
For the last three years, there has been no breakfast for journalists on the opening day of Jackson Hole, while we write up a dramatic, market-moving speech by Ben Bernanke. It’s a more sedate start this year with a thoroughly wonkish paper by Stanford’s Robert Hall.
There is not much new in it on policy. It starts with a fairly straightforward rundown on why the economy got into such a mess when interest rates hit zero after the financial crisis, and it ends by agreeing with last year’s paper by Michael Woodford on what to do with monetary policy (QE doesn’t work, you need commitments about future policy, not just guidance).
The meat of Mr Hall’s paper is about why inflation did not fall much after the crisis despite high levels of unemployment. This has been a surprise during the last few years: unemployment has not driven down wages in a way that led to deflation. Read more
By James Politi in Washington
Capping a week flooded with US economic data, July’s job figures are out. So, what did we learn this time around?
1) A mixed bag but the jobs report could favour a later taper
Federal Reserve officials hoping that the July jobs report would provide a decisive answer to their dilemma over when to start tapering the asset purchases are likely to have been sorely disappointed.
The data were a classic mixed bag – with the unemployment rate dropping 0.2 percentage points from 7.6 per cent to 7.4 per cent but payroll growth slowed, running below expectations.
But on the margins, the data are likely to offer proponents of a later taper just a bit more ammunition than supporters of an early taper. The Fed is likely to give more weight to the weaker payrolls “establishment” survey than the stronger but more volatile household survey, which measures joblessness.
The question for fans of slowing down asset purchases at the FOMC’s next meeting on September 17-18 is whether a slight slowing in job creation is sufficient to deter them, and it may not be. And luckily for FOMC members, they still have more than six weeks of data – including another jobs report – to make up their minds. Read more
The market thinks the June jobs report is taperific and that looks basically correct: at this pace of payrolls growth a September slowing of QE3 seems likely. But there are enough complications to make the market reaction – 10-year Treasury yield up eighteen basis points at 2.68 per cent – look over the top. Read more
(1) There is no need to panic. After the purchasing managers’ index for manufacturing came in below 50 on Monday there was some cause to worry about the health of the economy – but the rise in the services PMI, from 53.1 in April to 53.7, suggests that consumer demand is still there.