Weekend Reading: Samuel Pepys: Diary: Friday 19 July 1667

August 2, 2019: Weekly Forecasting Update

Nowcasting Report FEDERAL RESERVE BANK of NEW YORK

Federal Reserve Bank of New York: Nowcasting Report: "The New York Fed Staff Nowcast stands at 1.6% for 2019:Q3. News from this week's data releases decreased the nowcast for 2019:Q3 by 0.6 percentage point. Negative surprises from ISM manufacturing data and lower than expected trade data drove most of the decrease...

These past two weeks have seen three pieces of real news that have altered the outlook: it is not true to say that little has changed:

  1. A large twenty basis-point reduction in ten-year Treasury interest rates.
  2. Trump's relaunching and intensification of his trade war.
  3. New data pushing down out our estimate of the level of manufacturing production in the third quarter of 2019 by almost a full percentage point.

Nevertheless, the United States is not in or even likely to be on the verge of a recession. Germany, however, appears to be in recession.

Daily Treasury Yield Curve Rates

Daily Treasury Yield Curve Rates

 


Talking Points:

  • The Federal Reserve has, largely through jawboning, eased policy substantially over the past six months.
  • The trade wars that Trump is waging is a major source of uncertainty, and a possible recession risk.
  • U.S. potential economic growth continues to be a hair above 2%/year.
  • There are still no signs the U.S. has entered that phase of the recovery in which inflation is accelerating.
  • There are still no signs of interest rate normalization: secular stagnation continues to reign.
  • There are still no signs the the U.S. is at "overfull employment" in any meaningful sense.
  • The Trump-McConnell-Ryan tax cut has been a complete failure at boosting the American economy through increased investment in America.
    • But it has been a success in making the rich richer and thus America more unequal.
    • And it delivered a short-term demand-side Keynesian fiscal stimulus to growth that has now ebbed.
    • Those who beat the drum for it owe us an explanation for why they got it wrong.
    • They have not provided one: shame on them.

  • A change from one month ago: Trump has relaunched and intensified his trade war.

  • A change from one month ago: A no-deal Brexit is now not just a possibility, but more likely than not.

  • A change from three months ago: A no-deal Brexit is now not just a possibility, but more likely than not.

  • A change from six months ago: The Federal Reserve has, largely through jawboning, eased policy substantially over the past six months.


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