U.S. Economic Outlook and Monetary Policy
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Transcript of U.S. Economic Outlook and Monetary Policy
U S Economic Outlook andU.S. Economic Outlook and Monetary PolicyGlobal Interdependence Center MeetingBuenos AiresNovember 1, 2012
Daniel SullivanExecutive Vice President and Director of ResearchFederal Reserve Bank of Chicago
0
Labor Market Is Slowly Improving …
10300
Private Nonfarm Payroll Employment (average monthly change, thousands)
Unemployment Rates (percent)
80
Q3‐2012
6-300
Sep‐2012
4-600
22000 '02 '04 '06 '08 '10 '12
-9002000 '02 '04 '06 '08 '10 '12
1
…But Has A Big Gap To Make Up
Employment 7 2 million below a150
Total Nonfarm Payroll Employment (SA, millions)
Employment 7.2 million below a reasonable notion of its maximum sustainable level145 Trend Employment
based on Aaronson, Davis, and Hu (2012) LFP
Growth needed to close the employment gap:– 150,000 / month for 7 years
140
and CBO long run NAIRU projections
, y– 200,000 / month for 5 years– 250,000 / month for 4 years
130
135
Sep‐2012
1252003 '07 '11 '15 '19
2
Crisis Destroyed Much Household Wealth …
225
Loan Performance Home Price Index (Jan-2000=100)
16000
Wilshire 5000 Stock Price Index
200
Incl. Distressed
14000
175
Aug‐2012
12000
26‐Oct‐2012
125
150
8000
10000
1002000 '02 '04 '06 '08 '10 '12
60002000 '02 '04 '06 '08 '10 '12
3
…Which Forced Deleveraging
140 20
Household Obligations(% of DPI)
Household Liabilities (% of DPI)
100
12018
Home MortgagesConsumer CreditOther Debt
Financial ObligationsDebt ServiceAverage since 1980
60
80
100
16
Q2‐2012
40
60
12
14
0
20
1980 '84 '88 '92 '96 2000 '04 '08 '1210
1980 '84 '88 '92 '96 2000 '04 '08 '12
4
Greater Savings Pushed Down Interest Rates
4
TIPS-based Inflation Compensation (percent)
8
Ten Year Treasury Interest Rates (percent)
36
NominalReal
24‐Oct‐2012
1
2
5 yr 24‐Oct‐20122
4
1
0
y5‐10yr ahead
2
0
-2
-1
2005 '06 '07 '08 '09 '10 '11 '12-4
-2
2005 '06 '07 '08 '09 '10 '11 '12
5
Household Demand Now Recovering …
2.0
Single Family Housing Market (millions of units, annual rate)
150
Indices of Overall Consumer Sentiment (Michigan: Q1-1996=100; Conference Board: 1985=100)
1.5
PermitsStarts
118
Conference Board Consumer ConfidenceMichigan Consumer Sentiment
1.0Sep 2012
85
Oct‐2012
0.5
Sep‐2012
53
0.02000 '02 '04 '06 '08 '10 '12
202000 '02 '04 '06 '08 '10 '12
Sep‐2012
6
… But Risks Have Made Businesses Cautious
6575
Nondefense Capital Goods ex. Aircraft (Bils. $, 3-month MA)
Purchasing Managers Index (50+ equals manufacturing expansion)
55
60
65
70
ShipmentsNew Orders
Aug‐2012 Sep‐2012
45
50
55
55
60
65
40
45
50
55
30
35
2000 '02 '04 '06 '08 '10 '1240
45
2000 '02 '04 '06 '08 '10 '12
7
Headwind/Risk I: Global Growth Slowdown
6-200
Real Net Exports(SA, Bils. 2005$)
Real World GDP Growth (4-quarter percent change)
4
5
400
-300Q3‐2012
IMF ForecastsAs of September 2011As of October 2012
2
3
4
600
-500
-400
1
2
-700
-600
-1
0
2006 '07 '08 '09 '10 '11 '12 '13-900
-800
2006 '07 '08 '09 '10 '11 '12
8
Headwind/Risk II: U.S. Fiscal ConsolidationContributions to Real GDP Growth (percent, annual rate)
6 Government Expenditures 13
Disposable Personal Income (Trils. 2005$, SAAR)
2
4
Government ExpendituresOther Contributions
12
Before Social Security, Taxes, and TransfersDisposable Personal Income
-2
0
Q3 2012
11
Sep‐2012
-6
-4Q3‐2012
9
10
-10
-8
2007 '08 '09 '10 '1182004 '06 '08 '10 '12
9
Fiscal Cliff
According to current law, many significant changes to taxes and spending are scheduled for January 1, 2013– Substantial uncertainty about what will happen and the impact
on the economy
Many analysts expect an end to only the payroll tax holiday and extended unemployment insurance program– Reasonable estimates of the implied reduction in 2013 growth
range from 0.5 to 1.0 percentage points of GDP
If all possible tax and spending changes occurred– CBO’s midpoint point estimates show an additional 2.0 percentage
reduction in GDP growth in 2013
1010
Unemployment Rate Forecasts: SEP and BCUnemployment Rate (percent)
10
9FOMC Central Tendency
7
8
Blue Chip Consensus
Range between the top 10 and bottom 10 Blue Chip projections
6FOMC central tendency for longer‐run unemployment rate
4
5
2010 2011 2012 2013 2014
1111
2010 2011 2012 2013 2014
*2014 Blue Chip forecasts are from October 2012 Long-run Projections
Recent And Forecast Inflation Below TargetPCE Price Index (12-month percent change)
4
5
TotalCore
2
3
FOMC Long-Run Target
0
1FOMC forecasts*
Sep‐2012
-1
12*Midpoints of the central tendency of the forecasts made by the FOMC participants
Wages And Commodity Prices Tame
15012006
Wages (4-quarter percent change)
Commodity Prices(Index 1967=100 and $/bbl)
12510005
Nonfarm Business CompensationEmployment Cost Index
KR‐CRB IndexBrent Oil
75
100
600
800
3
4
Q2‐2012 Sep‐2012
25
50
200
400
1
2
0
25
0
200
2002 '04 '06 '08 '10 '120
1
2002 '04 '06 '08 '10 '12
13
Traditional Monetary Policy At Its Limit
8
Fed Funds Rate (percent)
History
4
6
History
Taylor (1999) RuleMarket Expectations
0
2
4
Sep‐2012
-2
0
-6
-4
2001 '03 '05 '07 '09 '11 '13
14
September FOMC Actions Begin open-ended purchases of Agency MBS at a pace of
$40B per month
Continue Maturity Extension Program purchases of long-term Treasury securities at pace of $45B per month
Si lt l lli t f h t t T i– Simultaneously selling same amount of short-term Treasuries
Pledge Resolve: If labor market outlook does not improve substantially continue purchasing Agency MBS other assetssubstantially, continue purchasing Agency MBS, other assets, and employ other tools until the outlook does improve
Expect highly accommodative policy to be appropriate for a Expect highly accommodative policy to be appropriate for a considerable period after economic recovery strengthens– In particular, expect near zero funds rate to be warranted at least
through mid 2015
1515
through mid 2015
GDP Growth and Consensus Projections
6
Real GDP Growth (percent change, annual rate)
3
Consensus Blue Chip Forecasts as of October 2012
Q3‐2012
0
-6
-3
-92004 '06 '08 '10 '12
16
Greater Underlying Strength But Big Risks
U.S. household demand strengthening– Debt burdens becoming more manageableg g
Should lead to stronger growth despite continued headwinds– Modestly better in 2013Modestly better in 2013– Significantly better in 2014 as headwinds abate
But there are significant downside risks But, there are significant downside risks– Further slowing in world economy– Possible intensification of European financial crisis– U.S. fiscal cliff– Uncertainty related to downside risks likely already holding
back growth
1717