In Between Days

by CC January 4, 2012 12:21 am • Commentary

Pragmatic Capitalism

It’s way too early to pop the champagne here, but the latest PMI’s from the big three regions (China, USA and Europe) all showed signs of improvement.  The recession story is on the back burner in the USA as 10% budget deficits continue to fuel steady, but low growth in the world’s largest economy (via Thomson Reuters):

“While economists still fret about the European economic woes spilling over into the U.S. and creating tailwinds for what remains the world’s largest single economy, it is worth noting that the paths of the manufacturing sectors in the United States, Europe and China appear to be diverging. The chart below compares the results of purchasing managers’ indexes for all three regions. With the last handful of ISM readings, the U.S. manufacturing industry appears to be staging a solid if not spectacular upward move, while both the European and Chinese measurements suggest that manufacturing activity in both is contracting rather than expanding.”


he Federal Reserve, in a move that could push back expectations of when near-zero U.S. interest rates will rise, will begin publishing its policymakers’ forecasts for borrowing costs.

The step is a significant milestone in Fed Chairman Ben Bernanke’s push for greater policymaking transparency, and it could offer the economy a bit more of a lift by better aligning financial market bets with the main view at the central bank.

The Fed has held the overnight federal funds rate close to zero since December 2008 and has bought $2.3 trillion in bonds in a further effort to stimulate growth. In statements after its last four policy meetings, it said it expected to keep rates ultra low until at least the middle of 2013.


Economists and others weigh in on the Fed’s announcement that it will start publishing forecasts for interest rates.

The Fed’s intention with this move is to alleviate the uncertainty regarding future monetary policy that many believe is an impediment to a fuller economic recovery. But an even larger source of uncertainty for businesses, households, and financial markets – namely, fiscal and regulatory policy – remains unchanged. This is outside the Fed’s jurisdiction. There is still disagreement over a number of key issues at the Fed. These include: the current balance of risks between inflation and recession, what the Fed’s long-run policy goals and targets should be, and how much discretion should the Fed take when adopting policy. According to the minutes, the committee will try to (slowly) tackle some of these issues starting at the next meeting. Agreement on enhanced communications could prove to be the easier one to make. –Paul Edelstein, IHS Global Insight

That is a crucial input into forecasting models and providing that data is absolutely a way to clarify to markets what Fed members are thinking. Along with yet more indications that the Fed is favoring a QE3 style program, we reiterate our belief that absent a meaningful and sustained improvement in the U.S. economy, the likes of which we do not currently forecast, the Fed will launch another bond buying program later this year. –Dan Greenhaus, BTIG LLC

The Fed isn’t the first to try and influence long-term interest rates by publishing its own rate forecasts – central banks in England, Norway, New Zealand and Sweden have all being doing it for some time. But while we admire the Fed for continuing to use unconventional methods to boost the economy, we’re not convinced publishing interest rate forecasts will make much difference. After all, two-year yields are currently just 0.25% and the markets already don’t expect interest rates to rise until mid-2014. Rates simply can’t fall that much further. The problem is still the availability of credit, not the price of it. A third round of asset purchases may be a little bit more effective, but the minutes contained few signs that QE3 is imminent. –Paul Dales, Capital Economics

Seeking Alpha

Wednesday’s economic calendar:
Auto sales
7:00 MBA Mortgage Applications
7:30 Challenger Job-Cut Report
7:45 ICSC Retail Store Sales
8:55 Redbook Chain Store Sales
10:00 Factory Orders Comment!

Tomorrow’s Tape- WSJ

Economics and FedSpeak:

  • At 10:00 a.m. ET we get factory orders for November. Economists think orders rose 1.9% after falling 0.4% in October.
  • Throughout the day we get auto and truck sales for December.


  • Nothing of note.