The US economy may not be doing too badly after all. Bloomberg reports the latest numbers on durable goods orders.
Orders for U.S. durable goods excluding cars and planes unexpectedly rose in April, signaling that international customers are helping factories ride out the economic slowdown.
Excluding transportation orders that tend to be volatile, bookings for goods meant to last several years rose 2.5 percent, the most since July, the Commerce Department said today in Washington. Total orders fell a less-than-forecast 0.5 percent...
Bookings for non-defense capital goods excluding aircraft, a measure of future business investment, climbed 4.2 percent, the most this year. Shipments of those items, a number used in calculating gross domestic product, increased 0.5 percent...
The report will be welcome news to Federal Reserve officials, who have said they were concerned about the prospects for business investment. Policy makers lowered their 2008 economic growth projection by about a full percentage point to 0.3 percent to 1.2 percent, according to the minutes of their April 30 policy meeting released last week.
"The outlook for business spending remained decidedly downbeat," the minutes said.
So maybe the Federal Reserve needs to review its forecast. Or even the way it handles monetary policy generally. From the Institutional Risk Analyst's interview with Richard Alford (via Naked Capitalism):
... In the minds of many policy makers, the US is the focus and the rest of world economy is just a stable background... [But] the trade deficit has moved to a level that is clearly unsustainable. The US economic model is yet to catch up with reality.
... [G]ross domestic purchases...by US consumers, businesses, and government...are above potential output... One of the things we need to consider is that that US may need to see consumption drop significantly before we can achieve a sustainable position...
The Fed is living in a Taylor rule world... It is important to note that the Taylor rule framework implicitly attaches zero cost to growing external imbalances or financial instability... Higher levels of debt and asset bubbles have been the result of policy responses to external imbalances.
... The policies that we followed since 1996 explain how we got to the present juncture, including keeping Fed Funds at 1% for almost a year and then the Fed taking its sweet time raising rates, and doing so in quarter point increments! The Fed's actions provided an incentive for economic agents to lever up and run maturity mismatches...
... The regulatory system helped shape the crisis, but isn't a sufficient explanation for the crisis arising... No amount of regulation could prevent market participants from taking advantage of the incentives created by the Fed from 2001 through 2005 via extreme easy money policy...
Alford may have criticised the Taylor rule but even Taylor himself thinks monetary policies around the world -- not just by the Fed -- are too easy. From Reuters:
Inflation is rising globally because of an easy monetary policy, especially in the United States, leading economist and former U.S. Under Secretary of Treasury for International Affairs John Taylor said on Wednesday...
The creator of the so-called "Taylor rule" of monetary policy...said U.S. interest rates are now below appropriate levels indicated by the rule.
Indeed, rising inflation has now become evident even in countries in the euro zone despite the supposedly hawkish stance of the ECB. From Bloomberg:
Inflation in Germany, Europe's largest economy, accelerated more than economists forecast in May as the cost of oil surged.
Consumer prices rose 3 percent from a year earlier after increasing 2.6 percent in April, when measured using a harmonized European Union method, the Federal Statistics Office in Wiesbaden said today. Economists expected inflation to quicken to 2.9 percent, according to the median of 25 forecasts in a Bloomberg News survey. In the month, prices increased 0.6 percent...
Adding to the ECB's inflation concerns, German import prices rose more than economists expected in April, gaining 0.9 percent from March, the statistics office said today. Economists forecast a 0.7 percent increase.
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