Brighter Economic Forecast for 2008

My new forecast (dated May 5, 2008) looks a little brighter: no negative quarters for GDP.

My bottoms-up approach has recently been giving me more optimistic forecasts than I expected. Recently, more optimistic than I had expected has worked out well. I think the Fed is about done cutting interest rates, and long-term bond markets will figure this all out earlier.

Inflation won't diminish too much, not with the Fed putting the pedal to the metal. Look for continuation of four percent inflation, which induces the Fed to push rates up later this year.

Risks to the Economic Forecast: The tightening of credit standards could yet push Main Street business down, but in the near term, the greater potential is that the economy takes off, pushed by the Fed's stimulus. Looking longer into the future, at some point the Fed will hit the brakes. Soft landing? Don't count on it. But that next cycle is probably two years away.

Comments

[fxtrader07]

always stunning to see how deep denial is running. the author obviously didn't note that barring statistical tricks (the absurdly low number fpr the pce deflator) and a build-up in inventory a negative quarter of gdp growth would have happened already. (In all likelihood a year from now numbers will be revised downward anyway.)
Lending standards approach record levels of tightening, banks still do not lend out money, housing continues to erode and consumers are squeezed by high energy and food prices, by declining real incomes, job losses and the susiding of the equity-extraction from housing. never ever before has the consumer entered a recession being so overstretched. But alas, it won't matter, right, as the rest of the world is supposed to save the day. wrong! slowdown in europe is accelerating and will serve as the next catalyst for declining corporate profits which in turn will lead to more lay-offs more cuts in corporate spending and another leg down for the economy.
I do not know where you take your inputs from, but all the evidence that i have available from top-down to bottom-up suggests that the economy is headed for a long and painful train-wreck down. It may not crash, but it won't turn up either anytime soon.
optimism is fine - but unfunded optimism is nuts.

[fxtrader07]

to add just one anecdotical evidence:

Countrywide Takes Away Home-Equity Credit Lines in Las Vegas

www.bloomberg.com/apps...

fed at the brakes soon? what reality are you living in? they will have to stay away from them longer than most will expect just to somehow keep the economy going, i.e. struggling and muddling along.
btw, four percent inflation that you expect will put real gdp in negative territory. your stuff simply doesn't add up and doesn't make sense. it sounds rather like a wish-list than being the result of some serious analysis

[davemcc3300]

Good article, but FXTrader's comments seem more informative.

[galewhitaker]

Bill
Sounds like you are long this market and counting on some big commissions to make those car payments. Never before in history has the price of energy been this high compared with wages. With Joe Sixpack spending so much of his paycheck on gas and food how in the world do you expect him to pay for those wide screen TVs. I think the hedgees have engineered this bull trap rally and now they are loading up on puts and their fingers are on the sell button. Its difficult for the human brain to get its arms around epochal changes but skyrocketing oil prices are forcing a new paradigm on the world market.

Good Luck

[Bill W.]

Bill, You really need to get out more often.