...“In short, at this point, the Fed is just working out the details. Barring some dramatic change in the economy, tapering of asset purchases will begin in the next few months and end by the middle of next year,” said Tim Duy, chief U.S. economist at SGH Macro Advisors...
..."To the extent that inflation is transitory, this dip in real wages is also transitory," said Tim Duy, chief US economist at SGH Macro Advisors, a research firm for the financial industry and policymakers...
...What they’re saying: "Why will consumers pay more? Because they can afford it," SGH Macro Advisors economist Tim Duy writes in a note to clients.
Duy says that inflation measures like CPI should be considered in the context of other key variables.
"The main event is the dynamic between expectations, inflation, and wages," he writes. "One part of that dynamic is firms believing the consumers no longer have a choice but to absorb price increases."
What to watch: Duy says to keep an eye on this dynamic as it, among other things, may complicate the Federal Reserve's efforts to stimulate employment while maintaining price stability...
“There’s a pretty sharp shift in the Fed’s approach to managing the recovery here,” said Tim Duy, an economist at SGH Macro Advisors and the University of Oregon. “The weight of the evidence that the economy is rebounding faster than expected, with more inflationary pressures than expected, finally broke through the Fed’s dovish stance.”
The Fed said in December it would slow the pace of the so-called quantitative easing program when the U.S. economic recovery showed “substantial further progress,” a vague goal that Powell said was “still a ways off” yesterday.
“We should expect rhetoric to tilt more hawkish as Fed presidents stake out positions on ‘substantial progress,’” SGH Macro Advisors’ Tim Duy wrote Wednesday. “The participants raising their dots are going to want to talk about it.”
Yet enough has changed in recent months - and may start to change at an even faster clip - that analysts expect the Fed to at least acknowledge the start of policy discussions that will eventually lead to a plan to first reduce the monthly $120 billion in bond purchases to zero and then start raising interest rates.
"This is about getting the ball rolling," in a process that may take months to complete, and in a way that avoids any rapid shift in sentiment among investors or consumers that could damage the recovery in the meantime, wrote Tim Duy, chief U.S. economist for SGH Macro Advisors and a University of Oregon professor focused on Fed policy.
Tim Duy, chief U.S. economist at SGH Macro Advisers, says economists are more likely to see 2023 as the date of a first hike, given the strength of the actual economic data that have come in since the last dot plot was released in March. Traders, by contrast, emphasize the signaling aspect of the dot plot, and that Chair Jerome Powell won’t want to step on his own message about keeping policy loose until the U.S. jobs market shows significant recovery.
“This split in expectations has the interesting implication that there is a general lack of consensus about how the forecasting exercise of the [Summary of Economic Projections] integrates into the new outcomes-based framework,” Duy says.
In a note to clients this morning, Tim Duy of SGH Macro Advisors notes that this new weird shape of the curve holds true even if you look at alternative measures of non-employment besides the standard U-3 measure: "it appears that labor market frictions not related to unemployment insurance appear to have been increasing. That’s not exactly great news if you are expecting the end of enhanced UI benefits will dramatically ease labor market frictions."
On Wednesday, May 26 at 3:00 PM EDT, Randal Quarles, the Fed’s vice chair for supervision, will discuss his outlook for the economy and its progress towards the Fed’s goals at the Hutchins Center on Fiscal and Monetary Policy.
Following his remarks, Quarles will join a panel which will include SGH’s Tim Duy to discuss the economy, as well as financial regulation and financial stability. It will be a live event and the audience may submit questions for Quarles and panelists at www.sli.do using the code #QuarlesBrookings, or join the conversation on Twitter using the hashtag #QuarlesBrookings.
...Tim Duy, chief U.S. economist at SGH Macro Advisors, analyzed the wave of comments from Federal Reserve officials, including Vice Chair Richard Clarida. “Notice how slowly the Fed is moving in the tapering direction, mixing in talking about tapering with policy still being in a good place and not seeing substantial progress ‘just yet.’ This is by design. It’s enough that if you are watching for it and you know what to look for, you see the subtle shift but not enough to be any kind of game-changer,” he said. Duy expects the formal pivot toward tapering to be announced at the Jackson Hole, Wyo. conference in August, with the actual reductions starting in the first quarter of 2022, or possibly the final quarter of 2021...
“The Fed has repeatedly said it will provide a long runway of guidance before tapering begins,” said Tim Duy, chief economist at SGH Macro Advisors, referring to the scaling back of asset purchases. “This is the front end of that runway.”
...Today's higher-than-expected reading will certainly stoke inflation fears, said Tim Duy, chief U.S. economist at SGH Macro Advisers.
"Whether or not that translates to more sustained inflation over time is still an open question," said Mr. Duy, adding that those concerns are unlikely to sway central bankers. "The Fed has itself locked into their new policy framework and for right now they're treating this as a transitory event."
"'We have dumped an enormous amount of resources into the economy that was designed for a Great Recession-style shock, and that’s not the shock we had,' said Tim Duy, chief U.S. economist at SGH Macro Advisors, referring to the weak demand that followed the 2007-09 recession...Mr. Duy said “it is still an open question” whether the recent inflation flare-up will translate into sustained higher inflation..."
But Tim Duy, chief economist at SGH Macro Advisors and an economics professor at the University of Oregon, said the Fed knows what can happen when prices get too high. “The concern there is that suddenly those asset prices could drop,” he said.
"I saw where this could go. In a world where everyone is looking for clues about the tapering timeline, the definition of a ‘string’ is important. Is Powell sending a signal? Is he hinting at the timeline for tapering? Is it three reports? Or four? Or five? Is it few, several, or many? I can almost guarantee that financial journalists will start pressing Powell to define ‘string..."
Tim Duy, an economist at SGH Macro Advisors and Bloomberg Opinion columnist, speaks with Bloomberg's Caroline Hyde, Romaine Bostick and Joe Weisenthal on "What'd You Miss?" about inflation and how the Federal Reserve will approach next week's FOMC meeting.
SGH Macro Advisors with the International Crisis Group’s Ali Vaez discuss the outlook for Iran-US relations under the Biden administration, including around sanctions on Iran’s oil and financial industry, regional policy, and the prospects for a reinstated nuclear accord.
Wendy Schiller 10/13/20:
"...Arizona keeps shifting, but it's been shifting ever so slightly towards Biden in the last couple of weeks, which goes with the general polling in Senate races which has the Senate democrat about eight points up to 10 points up over his republican incumbent rival.
So these are the specific things I'm looking at right now...