Personal Economics 101

Why economic forecasts are unreliable. Or maybe it's the CBO. The Fed and most economist have not done very well, historically. This chart shows projections for inflation compared to actual inflation. 

The Federal Reserve minutes of the May meeting gave investors a pretty clear roadmap for the summer. The minutes, out Wednesday afternoon, painted a picture of an FOMC strongly focused on inflation, with rate hikes of 50 basis points in the June and July meetings. But some members also indicated that price pressures may not be getting worse. Stocks rally: The market appeared to take the minutes as more dovish than hawkish. Half-point hikes were already priced in for the next couple of meetings and there was no mention of 75-basis-point moves that had become the base case for a few Wall Street banks at the end of April. The S&P 500 (SPY) rose about 1% to finish out the session and S&P futures (SPX) are up again this morning. Treasury yields (SHY) (TBT) (TLT) continued to creep lower Friday. Data dependence: "We think that after the July meeting the Fed is likely to become more 'data dependent' with regard to rate hikes, which essentially means that the policy path a...

The wheels are coming off the economy and the stock market has suffered one of its worst two month sell offs in American history, but that’s not the way our esteemed Fed Chairman Jerome Powell sees things. Here are his comments from last week: “The underlying strength of the U.S. economy is really good right now. The U.S. economy is strong, the labor market is extremely strong. It is still at very healthy levels. Retail sales numbers, the economy is strong. Consumer balance sheets are healthy. Businesses are healthy. The banks are well-capitalized. This is a strong economy.” Now isn’t that reassuring? Never mind that the growth rate of this “strong economy” so far this year is less than one percent. But he wasn’t done with his happy talk. When the Fed chief was asked about whether he is behind the curve on raising rates (which he clearly is), Powell had this to say: "By the standards of central bank practices in recent years, we've moved about as fast as we have in several dec...