Fed Vice Chairman Donald Kohn's views on the economy and by inference his stance on monetary policy can be found in his expectations for 2007, which were
largely summarized in this passage from the speech he just delivered in
Atlanta on the economic outlook:
"To be sure, as I already noted, a low level of housing starts and
production adjustments in some manufacturing industries will remain a drag
on growth in output in the near term, but these effects will wane during the
first half of 2007 as excess inventories are worked off. When this process
is completed, the rate of economic growth should pick up to something in the
neighborhood of the growth rate of the economy's potential.
With Kohn projecting a return in growth to a rate roughly equal to the
economy's growth potential, which is widely thought to be in the vicinity of
about 3%, he clearly believes that the economy needs no help from the Fed
in the short run. This is exactly how the market is priced, with the market
largely ruling out a cut at the Jan. 31, March 21 and May 9 FOMC
meetings, and with the odds of a cut at the June 28 meeting at around 50%.
If Kohn's economic forecast is right, the Fed might stay on hold for longer
than the market expects. This is a big if, as Kohn notes in listing a
number of uncertainties with respect to the economic forecast.
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Tony Crescenzi Blog Rig Count Falls 1/8/2007 10:12 AM EST The recent drop in energy costs appears to be lowering the urgency to drill for new sources.
Tony Crescenzi Blog Macro Overview of Week Ahead 1/8/2007 9:23 AM EST Keep an eye on commodities and their relationship with foreign markets.
Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.
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