On the one hand, and on the other. Auber 2019 Fall Conference - - PowerPoint PPT Presentation

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On the one hand, and on the other. Auber 2019 Fall Conference - - PowerPoint PPT Presentation

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On the one hand, and on the other. Auber 2019 Fall Conference Savannah, GA October 13, 2019 The views expressed in this presentation do not represent those of the Federal Reserve Bank of Atlanta, the Federal Reserve System, or anyone other

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SLIDE 1

On the one hand, and on the

  • ther.

Auber 2019 Fall Conference

Savannah, GA October 13, 2019

The views expressed in this presentation do not represent those of the Federal Reserve Bank of Atlanta, the Federal Reserve System,

  • r anyone other than the presenter. If you

think you heard otherwise, you are mistaken.

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SLIDE 2

2 Source: Federal Reserve Board

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

2019 2020 2021 2022 2023 2024

September 2019 SEP

FOMC participants’ assessments of appropriate monetary policy: Midpoint of target range or target level for the federal funds rate 2019 2020 2021 2022 Longer run

Percent

The Summary

  • f Economic

Projections (SEP): Policy rate projections (aka, the “dot plot”)

A policy split decision.

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3

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4

Real GDP Component Tracking Forecast For 2019:Q3

GDP Component

2018 Q4/Q4 H1:2019 GDPNow: Component Annualized Growth Rate (October 9) Annualized Real GDP Growth 2.5 2.6 1.7

Sources: Bureau of Economic Analysis Federal Reserve Bank of Atlanta; Haver Analytics

From what we can see now, economic growth is stepping down.

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SLIDE 5

5

Real GDP Component Tracking Forecast For 2019:Q3

GDP Component

2018 Q4/Q4 H1:2019 GDPNow: Component Annualized Growth Rate (October 9) Consumption 2.6 2.9 2.7 Business Fixed Investment 5.9 1.9

  • 0.9

Annualized Real GDP Growth 2.5 2.6 1.7

Sources: Bureau of Economic Analysis Federal Reserve Bank of Atlanta; Haver Analytics

Consumer spending holding steady, business investment not so much.

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SLIDE 6

Results from the Survey of Business Uncertainty: Looking backward.

6

Source: Survey of Business Uncertainty conducted by the Federal Reserve Bank of Atlanta, Stanford University, and University of Chi B th S h l f B i

Did tariff hikes and trade policy tensions cause your firm to cut

  • r postpone capital expenditures in the first half of 2019?

Percent of firms responding yes 10-12% Mean percentage cut (among those responding yes) 33-39%

Note: Data represents 375 responses collected over the periods Jul 8-19, Aug 12-23, and Sep 9-20, 2019

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Not surprisingly, manufacturing-related sectors have been disproportionately affected.

7

Source: Survey of Business Uncertainty conducted by the Federal Reserve Bank of Atlanta, Stanford University, and University of Chi B th S h l f B i R ll t d th i d J l 8 19 A 12 23 d S 9 20 2019

Did tariff hikes and trade policy tensions cause your firm to cut

  • r postpone capital expenditures in the first half of 2019?

Percent of firms responding yes 10-12% Mean percentage cut (among those responding yes) 33-39% Estimated aggregate effect on capital expenditures Private Sector Manufacturing Construction

  • 2.7%
  • 6.2%
  • 18.3%

Note: Data represents 375 responses collected over the periods Jul 8-19, Aug 12-23, and Sep 9-20, 2019

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New orders of capital goods (ex aircraft) – a forward looking measure of equipment expenditures -- have faded.

8

  • 10
  • 5

5 10 15 2014 2015 2016 2017 2018 2019

Shipments New Orders

Manufacturers' Shipments and New Orders Nondefense Capital Goods ex. aircraft

year-over-year percent change

Sources: Census Bureau; Haver Analytics data through August 2019

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Results from the Survey of Business Uncertainty: Looking forward.

9

Source: Survey of Business Uncertainty conducted by the Federal Reserve Bank of Atlanta, Stanford University, and University of Chi B th S h l f B i

Have recent tariff hikes and ongoing trade policy tensions caused your firm to re-assess or alter its capital expenditure plans for the second half of 2019?

Percent of firms responding yes 20-22%

Note: Data represents 375 responses collected over the periods Jul 8-19, Aug 12-23, and Sep 9-20, 2019

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What happens to investment in election years?

10

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Answer: Nothing great.

11

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12

Where’s the inflation?

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0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

PCE Price Index

year-over-year percent change, monthly

Headline PCE 2% inflation goal announced here. Core PCE

Sources: Bureau of Economic Analysis; Haver Analytics

Inflation is, again, running soft to the FOMC’s target.

data through August 2019

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0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

PCE Price Index

year-over-year percent change, monthly

FRBD trim Headline PCE Core PCE

Sources: Bureau of Economic Analysis; Federal Reserve Bank of Dallas; Haver Analytics

“Trimmed” measures (that remove outliers), however, appear more consistent with the FOMC’s objective.

data through August 2019

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The momentum over the past six months suggests a return to target – but will it be sustained?

15

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

  • 6
  • 4
  • 2

2 4 6 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Headline PCE Price Index

annualized percent change, SA, 2012=100

6-month 12-month

FOMC inflation target

S B f E i A l i H A l ti data through August 2019

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An island no more?

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The new world?

17

The global economy used to have a simple rule: The U.S. led, everyone else followed… This could be the year that [the] script gets flipped.”

Greg Ip: “For a Change, It’s the World That is Pulling Down the U.S. Economy,” The Wall Street Journal, October 2, 2019.

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What to make of the yield curve?

18 1 1 1 1 1 1

  • 8
  • 6
  • 4
  • 2

2 4 6 1985 1990 1995 2000 2005 2010 2015 2-year spread 10-year spread Source: Federal Reserve Board; Haver Analytics data through September 2019

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Observation #1: The US term structure has persistently flattened

  • ver the course of the expansion.

19

50 100 150 200 250 300 350 1/4/2010 1/4/2011 1/4/2012 1/4/2013 1/4/2014 1/4/2015 1/4/2016 1/4/2017 1/4/2018 1/4/2019

Yield Spreads

basis points

US 10-year/2-year spread

Source: Bloomberg

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20

  • 1.5
  • 1
  • 0.5

0.5 1 1.5 2 2.5 3 50 100 150 200 250 300 350 1/4/2010 1/4/2011 1/4/2012 1/4/2013 1/4/2014 1/4/2015 1/4/2016 1/4/2017 1/4/2018 1/4/2019

ACM Term Premia (right scale) and Yield Spread (left scale) US 10-year/2-year spread ACM 10-year term premia

Observation #2: Up to 2018, the slope of the U.S. term structure was highly correlated with estimates of 10-year term premia.

Basis points Percent Sources: Bloomberg Federal Reserve Bank of New York

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Observation #3: Since 2018, the slope of the German term structure has been correlated with the 10-year term premia.

21

  • 1.5
  • 1
  • 0.5

0.5 1 1.5 2 2.5 3 50 100 150 200 250 300 350 1/4/2010 1/4/2011 1/4/2012 1/4/2013 1/4/2014 1/4/2015 1/4/2016 1/4/2017 1/4/2018 1/4/2019

ACM Term Premia and Yield Spreads German 10-year/2-year spread US 10-year/2-year spread ACM 10-year term premia

Sources: Bloomberg Federal Reserve Bank of New York

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U.S. policy paths derived from a term structure model conform to Eurodollar and OIS paths when a global factor is included.

22

2 4 6 8 10 12 14 16 18 20 1.6 1.8 2 2.2 2.4 2.6 2.8 3 3.2 2 4 6 8 10 12 14 16 18 20 1 1.5 2 2.5

Without global factor With global factor