Economy's booming. Who needs a rate cut?

Discussion in 'Economics' started by Hansel H, Oct 31, 2007.

  1. Almost 4% growth. Inflation will be main concern now.
  2. Doji7


    Are those numbers real?
  3. Who knows. But real or fictitious they'll have some temporary effect. Maybe it's a lead-in to a 0% rate cut.
  4. an incorrect PCE deflator will allow the gov. to post and GDP number it wants......

    street level GDP is likely negative IMHO....
  5. Only "justifiable" reason is the housing market. None of the traditional justifications work here.
  6. Btw, a lot of the financial press is ripping Bernanke such as

    Bernanke supposedly did this for the market, but I don't think the market will be too pleased. The above author echoes your sentiments:

    "Not that the broad economy is showing many signs of wounding, outside of housing. Wednesday's 3.9% growth in third-quarter gross domestic product doesn't appear to herald the onset of rate-cut-justifying recession. Deep into the current cycle, this economy is still growing steadily and creating new jobs.

    The argument for the cuts is that this is the last ray of sunshine before a dark economic winter. Many economists -- includng the Fed's own -- are forecasting that growth will slow in the last three months of this year, in part because of the knock-on effect of the housing downturn and the subprime mortgage mess, before picking up again in 2008. Those of this turn of mind point to the unexpectedly low consumer confidence numbers announced earlier this week as evidence and a cause for jitters ahead of the all-important holiday shopping season.

    But, as we have noted before, when the time comes to judge whether an aggregate 75 basis points' worth of cuts was the right plan, the test it will have to pass is this: Did it breathe air into dying embers or blast pure oxygen into a fire of inflation?

    What's happening with the dollar, oil and gold suggests the latter. The greenback is at a record low against the euro, oil is at record highs and gold is fast approaching $800 an ounce, a high-water mark of its own. While a cheaper dollar does have the benefit of making U.S. exports cheaper--and export growth was a main driver of the economy's overall expansion in the third quarter--it also makes imports more expensive, and a further cut in U.S. rates will only push the dollar lower against those currencies against which it is already weak.

    So far the impact of the falling dollar has been blunted by the fact that China is a more important trading partner than Europe, and the yuan still remains effectively pegged to the dollar. So Chinese imports are not getting much more expensive, Meanwhile, European exporters' willingness to cut margins to preserve share in their important U.S. markets is a second reason that consumer price inflation in the U.S. remains constrained.

    Core inflation--consumer prices with volatile energy and food prices stripped out--is the inflation indicator the Fed watches. In the third quarter it was 2.1% up on the same quarter a year earlier. Seems modest, and lower than the 2.7% growth rate in January. But on Main Street, people still eat and consume energy. By that barometer, prices are rising. And it is not just oil and other energy sources. Food prices from wheat to milk have jumped.

    Commodity prices are a leading indicator of inflation. On world markets, prices of raw materials are up--agricultural products are only the latest to the party--and the value of the dollar in which so many are traded continues to go the opposite way. That combination does not make for cheaper imports at either the gas pump or the grocery store shelf.

    And at some point the falling dollar will make even Chinese imports more expensive and test the willingness of European exporters to accept lower profits magnified by their increasingly less valuable dollar earnings, once translated back into euros and sterling.

    Those are the future flames Bernanke is stoking in order to keep Wall Street happy now. But where is it written that the role of good central banking is to keep investors protected from their own folly?"
  7. the data fiasco is getting harder and harder to justify....

    when oil hits $125 and $900 gold... Bernanke's lolipop world will resemble Fantasia......

    what's he gonna do then...raise rates 50 bps
  8. The fed will keep cutting rates to help the banks