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Jan 23 2015

If Not Now, When?

In light of the latest headline numbers, showing 5% GDP growth in Q3 2014, almost 3 million payroll jobs added in 2014, and the December jobless rate dropping to 5.6%, the stage is set for a mid-year-rate hike that many expect, except that wage growth and inflation are still not cooperating. In December, the year-over-year growth of average hourly earnings (AHE) of production and nonsupervisory employees dropped to a two-year low, and inflation declined even further, nearing zero.

In this context, ECRI explains the reasons for the declines in both measures, but also why they may ultimately not be that important to the timing of rates hikes. Above all, the Fed wants to remain relevant in case the economy is hit by recessionary shocks that require interest rates to return to the zero-lower-bound (ZLB). By definition, once on the ZLB, they need to rise before they can fall again. Fed Chairman Yellen acknowledged this last summer, when, in line with our Yo-Yo Years thesis, she said, “we will have to worry about these episodes more often.”

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A Bit of a Surprise?

ECRI January 13, 2015

One of 2014's biggest surprises – falling oil prices – is completely consistent with our timely call on global growth. When made last July, that forecast was opposed to the consensus view. More