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The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

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GDPNow Forecast Plunges to +0.6%; Tracking Lockhart's Momentum with Pictures

In the wake of a dismal personal income and outlays report today, the Atlanta Fed GDPNow Model forecast plunged to +0.6%.

Recall that on March 21, Atlanta Fed president Dennis Lockhart cited "sufficient momentum evidenced by the economic data to justify a further step at one of the coming meetings, possibly as early as the meeting scheduled for end of April."

I took exception to that claim when he made it, and a couple of times since then. Specifically, I cautioned Lockhard better wait for some more economic reports.

Since then, most economic reports have ranged from muddle-through to terrible.

Latest forecast: 0.6 percent - March 28, 2016

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 0.6 percent on March 28, down from 1.4 percent on March 24. After this morning's personal income and outlays release from the U.S. Bureau of Economic Analysis, the forecast for first-quarter real consumer spending growth fell from 2.5 percent to 1.8 percent. The forecast for the contribution of net exports to first-quarter real GDP growth declined from -0.26 percentage points to -0.52 percentage points following this morning's advance report on international trade in goods from the U.S. Census Bureau.


Tracking Lockhart's "Sufficient Momentum" Thesis

GDPNow - March 21

GDPNow - March 21


Kaleidoscope Eyes

That was the GDPNow estimate before Lockhart's speech to the Rotary Club of Savannah. His speech was called Kaleidoscopic Context for Monetary Policy.

I commented on his speech with my take called Kaleidoscope Eyes.


GDPNow - March 24

GDPNow - March 24

For my take on March 24, please see GDPNow Estimate Sinks to 1.4%; What About That "Sufficient Momentum" for Rate Hikes?


GDPNow - March 28

GDPNow - March 28


Momentum Since Lockhart's Speech


What Led Lockhart Astray?

In my Kaleidoscope Eyes take, I wondered if Locklhart was even following his own Atlanta Fed model. He should be because he even mentioned it in his speech.

I suspected then, as I do even more so now, that Lockhart got advance warning from the Richmond Fed about an exceptionally strong-looking Richmond Fed report that came out on March 22, the day after Lockhart's speech.

See my take: Richmond Fed Manufacturing Activity Jumps Most Since April 2010, Biggest Change in 23 Years; What's Going On?

If I am correct about "what's going on", Lockhart does not know much about the weaknesses of small sample diffusion indexes and made a foolish prediction based on them.

For whatever reason, Lockhart went out on a weak limb, and that limb, with Lockhart on it, has come crashing to earth.

There's plenty of momentum, but it's all downhill. This is a recession track.

 

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