“Happy days are here again”

That´s what New York Fed Dudley seems to think:

“The U.S. economic outlook looks brighter, with growth likely to be somewhat above the trend of the past five years,” Dudley said in a speech on Monday

In fact, Dudley thinks the economy could soon be healthy enough for the central bank to lift interest rates off the ground.

He pointed to a number of issues that have gone from the equivalent of traumatic injuries to mere bumps and bruises.

Fed hike = good news: Of course, Dudley acknowledged the economic outlook could darken once again, especially given that ongoing geopolitical risks “remain substantial.”

Still, he’s signaling the Fed will likely be able to raise interest rates in 2015.

“While raising interest rates is often portrayed as a difficult task for central bankers, in fact, given the events since the onset of the financial crisis, it would be a development to be truly excited about,” Dudley said.

“When the [Fed] begins to raise its federal funds rate target, this would indicate that the U.S. economy is finally getting healthier,” he explained.

Interestingly, contrary to what Dudley thinks, since early last year (and despite QE3) NGDP has come in stubbornly below the “depression trend level” which also has a lower trend growth rate than the previous trend.

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Concomitantly, inflation expectations dropped and more recently dropped further and way below target!

Happy Days_2


Update: The market doesn´t see “eye to eye“:

The CHART OF THE DAY shows the derivative traders foresee federal funds, or the rate for overnight loans between depositary institutions, trading at the end of next year at less than half of where Fed officials project it to be. The Fed publishes officials’ quarterly estimates for the funds rate, which are displayed as dots on a chart.

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But economist John Ryding shows little respect for the market:

“The market is so far removed right now,” said Ryding, the chief economist of New York-based RDQ, in a Nov. 26 telephone interview. “The trend in jobs has been getting stronger, theunemployment rate is at 5.8 percent and broad measures of the labor market are improving. When the FOMC statement and the press conference finally reflect the dots then the market is going to get hit over the head with a 2×4.”

Update 2: Ryan Avent is not into “happy days are coming”:

Being down so long things look like up is not optimism. America should be performing better, and I find it disappointing that it hasn’t and that the Fed doesn’t seem particularly interested in working to improve matters. And so I’m pessimistic. I will turn optimistic when the Fed convinces me such a turn is warranted.

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3 thoughts on ““Happy days are here again”

  1. Ditto on Avent. It’s time to end the sacrifices on the inflation targeting altar and exchange the monetary wet blanket for a sponge to soak up the slack.

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