The FOMC's 'Two-Handed' Economy

President Truman famously called for a one-handed economist, so he would not have to hear, "on the other hand..." and so, BofAML notes, it may be the same at the March FOMC meeting with regard to the labor market - the apparent key to both QE and forward guidance. On the one hand, the recent US employment data have been stronger. On the other, the sequester is likely to result in significant job loss. On the one hand, the FOMC’s unemployment-rate projections are likely to be revised down. On the other, the labor market remains a long way from "substantially improved." The back-and-forth is likely to be broken by Chairman Bernanke’s press conference, where BofAML expect him to decisively come down on the side of an extended QE program. This should reduce concerns around the exit process and likely ratify market expectations of the first hike (priced for mid 2015), but one glance at the chart below tells you all you need to know about the diverging realities of our two-handed economy.

 

 

Chart: BofAML

Comments

No comments yet! Be the first to add yours.