Reading the Fed Lips

Extracts from  Presentation to the Mesa Chamber of Commerce
Mesa, Arizona

By John C. Williams, President and CEO, Federal Reserve Bank of San Francisco


(all emphasis is of this blog writer) 

"Research  at the San Francisco Fed and elsewhere has highlighted that even after the BEA’s seasonal adjustment, first-quarter GDP growth tends to come in well below that in other quarters.1 To get a measure that avoids seasonal patterns, SF Fed economists ran a second round of seasonal adjustment, not just on GDP, but on gross domestic income (GDI) and something called GDP Plus, a new measure of economy-wide activity that combines GDP and GDI and strips out the extraneous noise.2

After making this modification for recurring seasonal patterns, the data show GDP actually grew about 1½ percent in the first quarter. GDI and GDP Plus grew at about 3 and 2¾ percent, respectively.

I expect growth to average about 2¾ percent for the remainder of the year, then slow to a more sustainable pace next year.

Not only has there been solid job growth, but the data show most of those new jobs are full-time and higher paying. We have also seen a dramatic decline in long-term unemployment over the past few years.

our employment goal is in sight. Economists tend to think of full employment as having reached the “natural rate” of unemployment, the rate we should expect in a fully functioning economy. Most put it between 5 and 5.5 percent; my estimation, to be exact, is 5.2 percent.

It’s also important to remember that when we do raise rates, we will not be instituting tight policy; we’ll be easing back on extremely accommodative policy, and those are two very different things. Policy will continue to be accommodative, and the Fed’s $4 trillion-plus balance sheet will continue to provide substantial stimulus.  "

Our Comment: He seems to reaffirm the Fed view of rate hike  and seems to suggest that the Sept-Dec 2015 might be  a good time to raise rates. Emerging economies have been given adequate and long notice. The Fed cannot be blamed if it protects US interests. The Chinese stock market issue is a grave one  and with the IMF pointing out the inadequacies of Greek funding, emerging economies are going to see less demand and more pressures. 

Strong on the dollar, weak on the emerging equities and currencies, strong on the Yen.  

This blog renders no investment advice. The views expressed here are without any risk or responsibility.