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September 06, 2005

Post-Katrina Funds Rate Expectations: Oh My

When I last reported on the Carlson-Craig-Melick estimates of the federal funds rate path, expectations for the November meeting had softened substantially, but another 25 basis points at next week's FOMC meeting still looked like a lock.

What a difference a day made:


Here's the version of the picture with the relevant "news" identified:


Friday's relatively good employment report for August made some difference, and maybe better news from New Orleans will reinforce that move.  But there is no escaping the conclusion that "no change" is now in play.

Unfortunately, the team that provides these estimates has advised me to hold off on reporting results for the November contract at this time.  Because the market is now pricing in a positive probability of a pause, the estimation procedures are a bit more complicated, and the elves are not yet happy with what they see.  They are working away on that, as well as the January contract, and I will report them as soon as I get the green light.

In the meantime, here's the data for the October contract pictured above:

Download implied_pdf_october_090205.xls

UPDATE: Mark Thoma collects some pundit commentary on how Katrina will affect the FOMC's decision, as does New Economist

Barry Ritholtz objects to my characterization of the August employment report, in the comment section below.  I responded, but if you want to decide for yourself Vox Baby provides the raw material.

September 6, 2005 in Data Releases , Fed Funds Futures , Labor Markets | Permalink


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Listed below are links to blogs that reference Post-Katrina Funds Rate Expectations: Oh My :

» Will the Fed pause this month? from New Economist
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I don't think the market's wrong as much as I think it made a calculated play to strong arm Fed policy. What's its principal argument, certainly not a Katrina supply shock - the market's way too smart for that. Its sole argument is that investors have to put money somewhere; the sooner the Fed stops raising rates, the sooner the equity market can drive the economy (countering the effect from the coming housing implosion). This would be farcical were it not for the stakes. As it is, it's a very sad attempt to influence monetary policy, one I sincerely hope AG is finding less than amusing.
Without question the next three months will define AG's tenure at the Fed.

Posted by: bailey | September 06, 2005 at 11:31 AM

I would hesitate to calll Friday's NFP "s relatively good"

The 169,000+ in August -- was well below the 242,000 increase recorded in July, and below the 190k consensus.

Further, the economy needs about 150,000 new jobs/month merely to keep up with population growth.

That makes Friday's data mild to mediocre at best.

The pace of hiring slowed in August, and wage increases to workers were also smaller, extending the pattern of growth and slowdown that Federal Reserve policymakers have linked to oil prices.

Posted by: Barry Ritholtz | September 06, 2005 at 02:15 PM

Barry -- Reading too much into any given months employment report is treacherous business. To me, it makes a lot more sense to take July and August together than it does to compare the two months against each other. That makes an average of about 200k over those two months, which seems to conform to the pattern we have seen over the year of -- I'll say it again -- a relatively good labor market.

Posted by: Dave Altig | September 06, 2005 at 09:14 PM

I am a Katrina victem and I need help finacially. I keep hearing about funds available but can't seem to find any more. I am pregnant with two kids and I keep having to move. Is there anything you know that may help me.

Posted by: Angelique Danielle | February 17, 2006 at 11:20 AM

I am a Katrina victim and I feel that I am being penalized for not returning to New Orleans. I have 4 kids and as head of household it's a tremendous struggle to start over from scratch in another state, however I have nothing to return to. I seem to be overqualified for most of the jobs that I apply for and my trasportation won't allow me to go after the better paying jobs. FEMA's process is so slow that I was already evicted from one apartment and they're dragging their feet again, as if each time you try to get recertification they have absolutely no idea who you are. I need help...........now.

Posted by: DARLENE MERCADEL | October 05, 2006 at 05:44 PM

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