Quote Of The Day: Bill Dudley's Schrodinger Forecast

Tyler Durden's picture

Somehow, Fed head Bill Dudley has managed to encompass the entire "we must keep the foot to the floor" premise of the Fed in one mind-bending sentence:


So - based on an "unforeseen" shock - which he "sees", and while there are "nascent signs the economy may be doing better", the Fed should remain as exceptionally easy just in case... (asteroid? alien invasion? West Coast quake?)

However, for all those "hopers", clinging to Dudley's confident projections, while:


He remains hopeful:


Just like he did in May 2011:

Fed’s Dudley: Economy’s ‘Soft Patch’ Is Temporary


The weakness of real GDP growth in the first quarter probably will prove temporary,” Federal Reserve Bank of New York President William Dudley said. “There are many reasons to believe conditions are in place for stronger growth in the coming months in the nation and the region,” he said.

Finally, the following line caught our eye: "Key measures of household leverage have declined and are now near the lowest levels they have been in well over a decade".

Uh, is Bill "edible iPads" Dudley looking at the following chart showing total consumer credit, including car and student loans, when he makes that assessment?

And investors really believe these guys have a clue?


Full Speech:


Regional Economic Conditions

Starting with the area’s economy, one of the greatest challenges in the City over the past year has been the massive disruption and destruction caused by Superstorm Sandy.  While areas of the New York City metropolitan region were hard hit by the storm, the devastation was particularly severe along the waterfronts of Queens—and in particular in Far Rockaway.  We saw and heard about the devastation of the storm first-hand from many of those affected, through a series of support clinics that we held in the storm’s immediate aftermath, as well as from many of our own employees who lived in some of the hardest hit areas.

The good news is that a little more than one-year later there has been a significant rebound in employment and economic activity across the five boroughs.  New York City has continued to see pretty solid job creation through this past summer, and, in stark contrast with past economic expansions, this is happening without any direct contribution from the securities industry—or, more colloquially, Wall Street.  So far this year, the city’s job gains have been broad-based, led by strong growth in industries such as education and health, advertising, computer services, leisure and hospitality, wholesale and retail trade, and, especially, construction. 

Of course, while it is reassuring that most of the city has bounced back strongly from this historic natural disaster, it is important to remember that the hardest hit communities, and the residents and businesses there, who lost so much, are still struggling to recover.  Many of those communities are right here in Queens: the whole Rockaway peninsula—from Breezy Point to Arverne—was completely flooded, as were neighborhoods like Howard Beach, Springfield Gardens, Lindenwood, and even parts of Flushing, Long Island City, Astoria and Maspeth.  Still, Queens as a whole showed strong resilience—employment bounced back from Sandy fairly quickly, and as of early 2013 it had already surpassed its pre-Sandy level. 

While many residents here commute to work in other boroughs, primarily Manhattan, Queens has a formidable industrial base of its own.  Jobs are prevalent in industries ranging from medical care to construction, not to mention printing and a number of other manufacturing industries that benefit from being in a large population center.  But Queens’ most concentrated industry is transportation—specifically air transportation which employs about 27,000 workers, about five percent of Queens’ jobs. 

Education is another key industry in Queens and the city as a whole. And it is not just a job creator. The investment in human capital that education entails makes it a socially desirable activity.  There is considerable value from a college education both to the person that has been educated and to society as a whole.  The Great Recession and sluggish recovery that has followed has made it difficult for people to find jobs, and I’m sure you may be wondering about whether going to college will turn out to be a good investment, especially if faced with the burden of student debt, something we track quite closely. 

Let me reassure you, the benefits of a college degree remain significant.  Research we have undertaken at the New York Fed shows that young people with a college degree are more likely to have a job and they tend to earn considerably higher wages than those without degrees—and this is true even for those who may be underemployed initially when they first enter the labor market after graduation.  Although the labor market has been challenging for college graduates in recent years, I am confident that most will find work and transition into higher-skilled jobs as they gain experience and as the labor market improves.  

Now, I’d like to turn my attention to recent developments in the national economy.

National Economic Conditions

Let me begin by taking stock of where we are at the moment. Then I will address my expectations for the performance of the economy in 2014 and 2015.

Since the end of what is now called the Great Recession in mid-2009, the U.S. economy has experienced 17 consecutive calendar quarters of positive growth of real GDP. However, the compound annual rate of growth over that period has only been around 2 ¼ percent, close to prevailing estimates of the economy’s potential growth rate. Thus, we have made limited progress in closing the substantial output gap that was created during the recession.

A similar conclusion is drawn from an assessment of labor market conditions. Although the unemployment rate has declined by about 2 ¾ percentage points since peaking at 10 percent in October of 2009, a significant portion of that decline reflects the substantial decline of the labor force participation rate over that period. It should also be noted that since the previous business cycle peak at the end of 2007, the decline of the labor force participation rate has been more than accounted for by a decline in participation of people in the prime working age of 25 to 54.

The inflation data are also consistent with this overall picture of an economy operating well below its full potential. Total inflation, as measured by the personal consumption expenditures (PCE) deflator, has been quite volatile in recent years due to sharp fluctuations in energy prices. Core inflation, which excludes the volatile food and energy components and thereby may be a better guide as to underlying inflation, slowed from around 2 percent in early 2012 to just above 1 percent in mid-2013. In recent months it has shown signs of stabilizing, but remains well below the FOMC’s expressed goal of 2 percent for total inflation. Fortunately, inflation expectations remain relatively stable at levels somewhat above the current inflation rate. This stability should help prevent an undesirable further drop in inflation relative to our 2 percent objective.

That said, there are some nascent signs that the economy may be doing better.  For example, based on the first estimate, which is subject to revision, real (gross domestic product) GDP increased at a 2.8 percent annual rate in the third quarter of 2013, above the trend of the past four years.  And the most recent payroll employment report showed a pickup in the monthly pace of job gains.  The 3-month moving average rose back above a 200,000 pace after slowing to about 150,000 as of July of this year.  I hope that this marks a turning point for the economy.

But before we rush to this conclusion a few more cautionary comments are appropriate.   With respect to GDP growth, it turns out that inventory investment contributed ¾ of a percentage point to that overall growth rate. Thus, because this impetus from inventories will likely reverse this quarter, the real GDP growth rate is likely to slow to around a 2 percent annual rate or a bit less in the fourth quarter. With respect to payroll employment, we have seen such bursts in payroll growth before over the past few years and have been disappointed when the pickups proved temporary and did not lead to a rise in the overall growth rate.

But, I have to admit that I am getting more hopeful.  Not only do we have some better data in hand, but also the fiscal drag, which has been holding the economy back, is likely to abate considerably over the next few years at the same time that the fundamental underpinnings of the economy are improving. 

The first thing to note is that federal fiscal policy in 2013 has been unusually contractionary.  At the beginning of the year the payroll tax cut expired while tax rates on higher income households were raised, a series of taxes associated with the Affordable Care Act took effect, and spending was reduced due to the sequester and the gradual winding down of foreign military operations.  According to the Congressional Budget Office, the cyclically-adjusted or full-employment budget balance increased by roughly 1 ¾ percentage points of GDP in fiscal year 2013. Over the past 50 years there have been only two other episodes of fiscal contraction of this order of magnitude, and both of those occurred when the unemployment rate was substantially lower than it has been of late.  Under current law, the amount of federal fiscal restraint will decline in 2014 and then decline further in 2015.  At the same time, the sustained contraction in spending and employment by state and local governments appears to be over.

The fact that the U.S. economy has continued to grow at around a 2 percent pace in 2013 despite this quite intense fiscal restraint provides evidence to the second key point, which is that the private sector of the economy has largely completed its healing process and is now poised to ramp up its level of activity. Key measures of household leverage have declined and are now near the lowest levels they have been in well over a decade. Household net worth, expressed as a percent of disposable income, has increased back to its average of the previous decade, reflecting rising equity and home prices and declining debt. Recently, banks have eased credit standards somewhat after a prolonged period of tightness. As a result, we are now experiencing a fairly typical cyclical recovery of consumer spending on durable goods. For example, sales of light-weight motor vehicles have increased steadily over the past four years, reaching an annual rate of 15.7 million in the third quarter of 2013, though sales in September and October have been somewhat below that average.

Similarly, after five years in which housing production was well below what is consistent with underlying demographic trends and the replacement demand for houses, it now appears that we have worked off the excess supply of housing built up during the boom years of the last decade. Housing market activity has begun to recover, and a widely followed national home price index is up 12 percent over the 12 months ending in September.1 Anecdotal reports suggest that this higher-than-expected increase in home prices is due to a relatively low number of homes for sale.  Due to this shortness of supply, there is reason to expect increases in starts going forward.

Yet another bright spot on the horizon is the fact that growth prospects among our major trading partners have improved following a few years of lackluster performance which induced a sharp slowing of growth of U.S. exports. In particular, the euro area appears to have emerged from a protracted recession and is experiencing modest but positive growth.

To summarize, while growth in 2013 has been disappointing, I believe a good case can be made that the pace of growth will pick up some in 2014 and then somewhat more in 2015. The private sector of the economy should continue to heal, while the amount of fiscal drag should subside. Despite near-term concerns, growth prospects among our major trading partners will improve further next year. This combination of events is likely to create an environment in which business investment spending will strengthen. As growth picks up, I expect to see more substantial improvement in labor market conditions and a gradual updrift in inflation back towards the FOMC’s target rate.

However, the notion that the economy will grow more swiftly remains a forecast rather than a reality at this point. As is always the case, there is substantial uncertainty surrounding this forecast. Moreover, there is always the possibility of some unforeseen shock. Thus, we will continue to monitor U.S. and global economic conditions very carefully and will adjust our views on the likely path for growth, inflation and the unemployment rate accordingly.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
ParkAveFlasher's picture

Eggs lay chickens.  We knew that already.

King_of_simpletons's picture

"Unforseen" as in

"I Didn’t See Any Of That Coming Until It Happened"


courtesy: Janet Yellen.

insanelysane's picture

The unforeseen shock will be 20,000 and 2,000 respectively because at those levels even the believers stop believing.

Xibalba's picture

How these morons get employed escapes my mind

ParkAveFlasher's picture

In a centralized system or pyramid, each layer downward or outward needs by necessity to be duller than all those preceding it.  Why would you hire someone that is obviously smarter than you, and can threaten or challenge you?

FinalCollapse's picture

'Mr. Dudley! - Rob Ford is calling...'.

smlbizman's picture

you know, we know the unknowns that we have known about and we know about the known knowns and  the unknown unknown knowns...its those fucking unknown unknowns the we dont know about that bothers us...i think

aVileRat's picture

Unforseen shock may mean

- Saudi Arabia asking Russia to join OPEC, hilarity ensues when EU suddenly is paying 40% more for their cheap Urals Sour

- Bengazhi or another sketch comedy talking point finally surfaces

- Syria manages to take back the rebel enclaves, kills them all for Treason, discloses the arms sales and ground support that Obama swore he was not doing (Contra 2.0?)

- Israel decides to just bomb the crap out of Syria and Iran at the same time

- Any 1 tech company massively underperforms and/or Zuckerberg or Mayer are found to have been coopting with the State dept. in tracking dissedents or turning over tracking cookies to non-NATO allies for pickup/silencing ops.

- The gig is up on one of the NINJA loan banks

- A random emerging market country like Argentina or Ukraine finally must admit they have no more hard dollars and can not meet the IMF terms of restructuring without comming clean on their zombie banks & oligarch haircuts. 1987 redux, now with more hipsters in the streets.

- One of the PIIGS decides to just dump the EU, or the decision is made for them in a outbreak of random Facist comedy. Polgroms and looting ensue. Wildcard of France or Lux snapping due to their underclass & recent spike in violent crimes is definitly likely.

- Keystone is finally rejected outright, oil goes limit-up as traders scramble to break all those 2018 WCS contracts, market plunges 30%+

Remember, the same wording right down to noun placement was used 8 months before Gulf War 1.


0b1knob's picture

Obama will approve Keystone.   Bank on it.  Reasons why:

1.) Its all a scheme to extort money.   Who can pay more, the oil companies or the green energy idiots?

2.) Obama ALWAYS throws his backers under the bus.  Enjoy the shock absorber view, no-longer-useful green idiots.

3.) Its the wrong decision at the wrong time, the way Obama always does it.

4.) Political horse trading for support for Obama's dying immigration or trans Pacific partnership.

DeadFred's picture

Judging from the seers of unforeseen events on Youtube the odds-on favorites are:

1 Asteroid with East Coast tsunami (within the next year)

2 Solar flare induced EMP takedown of the grid caused by or coincidental with comet Ison (Thankgiving to March)

3 Russian/Chinese/Other EMP nuclear attack against the US (whenever they decide to)

4 West Coast earthquakes and volcanic eruptions (likely at the same time as 1 or 2)

It really doesn't matter if it's one of these or some any other event, the system has been jimmied into such a fragile state that the first major insult will bring it down. After that come the zombies of the FSA.

StychoKiller's picture


Isn't this the same jackwagon that didn't foresee the Real Estate bubble?

doctor10's picture

One can only hope poor Bill didn't pay somebody a whole lot for that PhD.

IndyPat's picture


A Black Swan by any other name still raises as much hell

101 years and counting's picture

its all planned out in advance.  there are no swans.  LEH wasnt a black swan.  everyone saw, but ignored it and then the FED decided to let LEH go bust because it made Wall St extremely wealthy.  $3+ trillion in freshly printed money in the last 5 years. 

nickels's picture

Pleistoscene megafauna at La Brea: "It's just a soft patch."

Ignatius's picture

Update:  A flock of black swans flew over my house this morning.

Headbanger's picture

Crows dude.  And they're called a murder as a group.

And a group of swans is called a "wedge"

FL_Conservative's picture

That explains perfectly why silver would be down 2% so far today.   WTF?

gjp's picture

Surely the fact that PMs are the only asset getting pummeled day in and day out while everything is going the Fed's way should be further proof of its true negative correlation to the ponzi and its value as insurance.  As for BTC in this context, draw your own conclusions.

IndyPat's picture

PMs are a relic....and don't call me Shirley

firstdivision's picture

I'm joining you in your optimistic view Dudley

gjp's picture

They all see pretty clearly that they are going to lose control of this monster, and that a global-scale web of lies does not come apart smoothly.  In the meantime they know of no other response than to keep gunning it.

aleph0's picture


carbonmutant's picture

Yellen gets religion... Sees the darkside of QE

seek's picture

Tail risk, ala Taleb. They know as well as we that this is a house of cards ready to implode with at the slightest bump.

stant's picture

translation. we already know what we will say we never saw coming

asteroids's picture

Moron. Everything decays. Constant money printing as a form of insurance gets less and less effective over time. When the black swan does arrive they will either hyper-print of implode.

Bay of Pigs's picture

In other words, the William Dudley decides to pull the plug. Market goes bidless.

Fade to Black...

akarc's picture

I am shocked at the possibility of the existence of unforseen shocks.  Most especially when after they occur so many will express shock that no one saw it coming. Shocking!

papaswamp's picture

It's coming suckers...don't say we didn't at least mention it. Yellen skips the helicopter plan and goes lfor the C-17 drop.

Headbanger's picture

Nope.  The Fed delivered  1800 on the S&P and so they are off the hook now to taper now!

Yellen is going to do it very quietly saying it has to be done to not own the entire bond market.

SheepDog-One's picture

No, 'investors' don't believe these guys 'have a clue'....they've all just been trained to sit up and beg for the next treat and not doubt a treat is coming.

Mrs. Cog's picture

"unforeseen" LMAO

I've already had time to kidnap my favorite ZH contributor, relocate to mountain in the middle of no where, and change my entire life to learn to homestead. Obviously the Dudley is reading the wrong blogs.

Hulk's picture

Always remember Mrs Cog, the plow goes BEHIND the Horse!!!

Mrs. Cog's picture

Whadya mean? What's wrong with having Cog just push around the tiller thingy?

disabledvet's picture

"Recovery" as the unforeseen consequence? At what point will they admit "we really have no clue. We're just doing this dance move and crowd seems to be diggin' it...so chill out dude. It's all good."

AgileArjuna's picture

How many BTC for Bernanke's boss?

iLiquid's picture

If you like your unpredictability, you can predictably keep your unpredictability.

depression's picture

Smart guy that Bill Dudly, now if anything goes wrong he can point back at this speech and say he warned us.


comrade rally monkey's picture

A down day is unforeseen.

moneybots's picture

"Fortunately, inflation expectations remain relatively stable at levels somewhat above the current inflation rate. This stability should help prevent an undesirable further drop in inflation relative to our 2 percent objective."


Goebbels pride.  Inflation should be ZERO%.  That is the definition of stable prices.

I don't know of anyone who likes higher gasoline prices, or meat prices or...  Most people prefer to buy on sale at lower prices.  Yet Goebbels pride wants us to believe prices should be moving up 2% a year.  Workers at McDonalds are upset at higher prices, as they can't afford them.

NOTaREALmerican's picture

You can't be a great corporate bureaucrat without having pathological optimism.

scaleindependent's picture

Dudley is like Bush; both want pre-emptive attacks on unforeseen, unproven threats.

Clowns on Acid's picture

One can small the Obamabots bitterly sinking into their self destructive juices. Truly deranged bunch of a_holes. 

ebworthen's picture

The FED needs one of these:  http://www.thinkgeek.com/product/e9cb/

"See your decision solidify before you. The cat will be alive (which we interpret as a "Yes") or dead (or "No").

The almighty Schrödinger's Cat Executive Decision Maker has spoken. Go and do its bidding. Meow."

Only $14.99!

ToNYC's picture

Game Over Shock should never be confused with Natural Shocks. Unnatural acts occur as frequently as engineered bad.

venturen's picture

Does Dudley keep an office at Goldman as well as the NY FED...wait does he bother to have NY FED office?

tawdzilla's picture

An "unforeseen shock"...you mean like when the Fed blows a bubble, the bubble pops, and none of the Fed members saw it coming.

Seer's picture

Donald Rumsfeld managed to get the US (and much of the West) into a long, drawn-out war in the ME due to "known unknowns."  It works!

pndr4495's picture

This fella Dudley strikes me as the sort of guy who is quick to criticize underlings for fouling up some task he , himself , could not execute properly.  He strikes me as the sort that cannot perform basic tasks and yet expects , even demands , that someone perform said tasks at his behest. In other words he might be incompetent ( in spite of how much of the alphabet is after his name ) and covers up his incompetence by barking orders and issuing analyses that mean something only to himself.  He seems a selfish douchebag.