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Three Point Summary of Today's Discussion on Bloomberg

The current U.S. Economic Slowdown started in early 2015

-People are just now starting to realize that U.S. economic growth is declining, but, as we warned, it’s actually been falling since the start of 2015.

-Yoy growth in our Coincident Index, a really broad measure that includes GDP, employment, income and sales, has fallen to an 18-mo low.

-The reality remains that growth has been slowing all year, and that’s a fact, not a forecast.

World Trade is on its Back 

-The last time export price deflation was this intense, not only was Chinese GDP growth even weaker than it is today, but also every G7 economy was in recession.

-And this isn’t about low oil prices: following a post-GFC pop, export price growth turned negative in 2012, and has remained there.

-It is ominous that the global trade pie is shrinking so rapidly today – with none of the G7 economies in recession – yet.

The Fed’s Model is Broken

ECRI’s framework, at its very foundation, understands that models don’t work for forecasting cyclical ups and downs in growth and inflation.
We’ve known this, not for years, but for decades, and are glad to hear that this is becoming clearer to other observers.
-The danger that comes with these models became particularly obvious in 2003, when Bernanke championed a rate cut to 1% as insurance against deflation, which our framework showed to be a non-issue at the time.

-It is telling that the Philips Curve is blind to the fact that world export growth is near zero while prices collapse.

-ECRI’s framework called this out long ago, yet when Yellen mentioned it during the last FOMC meeting there’s a flurry of talk about the Fed’s “third mandate,” when the global economy has long been a driver of underlying inflation pressures in the U.S.


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