Macroeconomic Advisers.pptVIP

Themes in the Outlook Strong second-half GDP growth, over 6% Fiscal stimulus: tax cut exp. increases add 2 pp to H2 Accommodative monetary and financial conditions Unwinding negatives related to Iraq Sustainability - A return of confidence Very lean inventories Rising equities and employment Capital overhangs now converted to shortfalls Surging productivity Further, but temporary, disinflation thru mid-’04 First Fed tightening in January 2005…or summer 04 Low and falling inflation trumps strong growth Avoid tightening just before or after election, and December The “Current” Quarter The “Current” Quarter: New Momentum? Monetary Policy at Low Inflation The MA Forecast in Summary Monetary Policy at Low Inflation Monetary Policy at Low Inflation Monetary Policy at Low Inflation Rebound Watch: Recent Indicators Rebound Watch: Recent Indicators Rebound Watch: Recent Indicators Rebound Watch: Recent Indicators Rebound Watch: Recent Indicators Forces Sustaining a Rebound: $ Exports, Imports, and Net Exports 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 0 200 400 -200 -400 -600 Billions of chain-type (1996) dollars 0 10 20 -10 -20 -30 4-quarter percent change Net exports (left) Imports (right) Exports (right) H F The Surprising Strength of Housing Home Sales Holding Up? SAAR, thousands SAAR, thousands Existing Home Sales (right) New Home Sales (left) 03 02 01 00 99 6800 6400 6000 5600 5200 4800 1200 1125 1050 975 900 825 750 The Surprising Strength of Housing Consumers and Builders are Still Willing… SA, 3/16/90=100 NAHB Housing Market Index (right) SA, All Good = 100 03 02 01 00 440 400 360 320 280 240 75 70 65 60 55 50 45 MBA: Purchase Index* (left) *MBA: Purchase Index slipped to 399 in early December …But Housing Starts and Residential Investment Ultimately Yield to Higher Mortgage Rates 88 90 92 94 96 98 00 02 04 0 10 20 30 -10 -20 -30 4-quarter percent change 800 1000 1200 1400 1600 1800 2000 SAAR, thousands Housing starts (right) Residen