This page has been archived and commenting is disabled.
Bank Of America Joins Economic Slowdown Chorus, Pushes First Rate Hike Estimate Out To 2012
Bank of America, via economist Ethan Harris, has joined the chorus of large banks reducing economic forecasts, and as a result has reduced its GDP projections for 2010 and 2011 to 3.0% and 2.6%, from 3.2% and 3.3% respectively. The inflection in 2011 is notable as now the bank sees a material slow down in the economy where before it saw growth. Also, BofA is now expecting that the Fed will leave the Fed Fund language unchanged unchanged for 18 months, until March 2012. This is not surprising: with QE2.0 around the corner, it means that the Fed will soon be implicitly lowering rates. Of course, should the Fed find some naughty pictures of Barney and Chris, it may soon pass laws that allow negative interest rates for the first time. Of course, nothing at this point would be surprising.
Ethan Harris note summary:
Cautiously pessimistic
Switching sidesIn the face of weak data and tighter financial conditions, we are switching sides in the growth debate: we now expect GDP growth to fall short of consensus expectations both this year and next. Our biggest cuts are to:
- Consumption – assumed to growth about 2% this year and next
- Housing – anemic 5% growth over the next six quarters, with a real recovery delayed until 2012
- Inventories – a slower rebound, adding 0.2 pp to GDP growth over the next six quarters.
Our biggest downward revision is to employment
Perhaps our biggest revision is to job growth. Back in May, when the payroll numbers were steadily accelerating, we bumped up payroll growth. We expected monthly private job gains to hit 275,000 by Q4 (up from the old forecast of 200,000). With both payrolls and jobless claims slipping rather than rising further, we are beginning to regret that decision! We now assume private payrolls accelerate to 190,000 by year-end.
Pushing out the first Fed rate hike to March 2012
A few months ago, the Fed call was interesting, with a fairly even split between economists who expected rate hikes before year end and those looking for hikes in 2011. We were firmly in the latter camp. We have already moved the first hike from March 2011 to August 2011 and now, we are moving it further out into the hinterland—March 2012. Of course, there is a very flat distribution around the Fed call and we think reasonable any time from the middle of next year to the end of 2012 makes sense. In conjunction with our Interest Rate Committee, we are also cutting our 10-year rate call: we expect bond yields to be essentially flat.
Ongoing disinflationary pressure
Our new forecast increases the risk of a recession in the next several years. As we have argued for some time, the US will remain vulnerable to external shocks until there is substantial healing in the labor, housing and banking industries. Our new forecast means an even slower healing process. The unemployment rate falls only 0.1% per quarter and remains well above our 6.3% estimate of the inflation neutral unemployment rate for years to come. This, in turn, means ongoing disinflationary pressure, a slow healing in bank balance sheets and an even longer period of very high home foreclosures.
- 3742 reads
- Printer-friendly version
- Send to friend
- advertisements -




Interesting that he downgrades the GDP, keeps Fed Funds flat...but raises his 10 yr yield forecast.
???
This economist dude has obviously gone off the pump monkey reservation. He will need to be replaced or reindoctrinated.
With the slow-going train wreck that is municipal finances, the 30% drop in housing starts, the huge shadow inventory of residential (and commercial) delinquencies, and austerity in Europe (and China) - what is the engine of growth going to be? None of the 'growthies' ever talk about that - it just seems to be assumed because that's the way it has always been (until it is not).
Oh, the CNBS special one hour special seems to be called "market bottom" - and they keep trumpeting Dow 10,000. Big Rally. Where's my hat?
Did the PPT let them know in advance?
Another reason that the Fed may soon start buying Munis, so the Banks can work profitably with the state and local government entities again and put a floor under those investments. Try to lower all rates to zero.
....damn that's a scary theory !! ....which probably means it will come true.
Nice thought there. Some portion of QE2.0 in the form of muni purchases. Prevents an outright federal bailout of the states and mass layoffs for a year. Lets them finance their $180 billion shortfall over the next year. Assuming a $2 trillion QE program: $200 billion munis, $500 billion treasuries, $1.2 trillion agency.
ya.. hard to not believe they wont do this..
Cleanclog: don'tcha know--it is in Big Ben's playbook.
http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm
I - I - i - i,...
Whew, I've gotta keep that paper bag closer, almost fainted there.
- Ned
(I didn't link the footnotes, they work in the original).
Hey BofA, no shit!
leading edge eh!
Yeah, good thing we bailed 'em out. Who knows what we would do without 'em!
When Harris speaks of " very high home foreclosures ", maybe he first looked at some of Dr. Bubble's latest charts. The old Deutschbank prediction of 50 % of mortgageholders being underwater is just a few points away.
www.doctorhousingbubble.com
of course TD, don't you get it...cnbc and media been selling sell every day for a few weeks now even though market peaked in April
now they started buying back yesterday and try scaring people Still after rallying even as they load up inventory for next run
stocks are a wholesale and retail distribution business in the end. i KNOW you know this
Fading analysts can be a profitable pastime...
so were good for unchanged rates till yellowstone's caldera blows, eh?
Realistically, can they implement QE2 without a track record of recession? That is, two consecutive down quarters.
What happened today?
State Street (with some dismal fundamentals) anounces early that they will beat the street.
Early? What?
Did we really see a rally based on financials we cannot see, after they admitted one time charges. Pathetic. State Street will get pounded when they file. They took one for the team.
Mark Beck
Bond crash imminent. LMAO!!
buzzsaw may be on to something. Too much consensus for ZIRP4EVA to make me happy. And usually trouble looms in the bond market when the 10 and 30 year are so far below their 150 day sma's.
let it play out... its a break out. The trouble is in equities; the fed will let the equities slide a bid before the bond market- housing 8.0
“The U.S. turned 234 years old yesterday (July 4th), and yet over half of the nation’s money supply was created since Helicopter Ben took over the flight controls four years ago.” --David Rosenberg, Gluskin Sheff, Breakfast with Dave
The essence of the BofA’s call to move its anticipation of the first interest rate hike further out into the hinterland—March 2012, is anti sound money. What BofA is really saying is we need more risk, we need to reward risk, maybe we need to continue rewarding it forever—maybe even into 2050…because this thing is working! Well, it’s working for BofA. Everybody had such tears in their eyes over BofA's troubles, but look at it now. As far as BofA is concerned, why change something when it’s working!
It’s like a Ponzi scheme where there’s nothing at the end except a few investment banks at the top continuing to coin the money, capitalizing on the financial “crisis” using the idea of the “slow recovery” to justify their moves. Notice how Bernanke mentions it every time he extends the ZIRP. "Slow recovery" is part of the lie used to hold the interest rates down for the benefit of the banks. There is no recovery. The reason for the "improving" lie is so they can support the political system; the people are taken in with it.
These bankers are huge criminals; look at how they used the Dow today. It’s nothing more than Bernanke’s thermostat. He set it today to hit 10,000. That’s why many investors are staying away.
The Fed’s inflationary and zero interest rate policies punish savers-- they encourage younger people to over borrow because interest rates are so low, and they punish the thrifty who saved but now find their dollars eroded by inflation.
As Gary North of the Mises Institute said, “When savers stop saving, misery will result. The Establishment economists have never accepted this universal fact of economic life.
“Central bankers have not yet grasped the implications of the substitution of fiat money for thrift. They expect savers to roll over and play dead. They ask rhetorically, ‘Who needs savers when you have the legal authority to create digits and print pieces of paper with politicians’ faces on them?’"
North concluded in his article The Central Banks’ War on Savers: “Anyone who worries about imminent price deflation has not thought through the Old Boy Network and its solution to every economic slowdown: more fiat money. In contrast, anyone who worries about the long-term decline of productivity due to the euthanasia of savers has indeed thought through the Old Boy Network’s solution.”
Ok, i've decided i can't put it off any longer - here it is ...
Scary DOW monthly chart.
http://stockmarket618.wordpress.com
Really this is a great post from an expert and thank you very much for sharing this valuable information with us..................... windows vps | cheap vps | cheap hosting | forex vps