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The Atlanta Fed's macroblog provides commentary on economic topics including monetary policy, macroeconomic developments, financial issues and Southeast regional trends.

Authors for macroblog are Dave Altig and other Atlanta Fed economists.


June 07, 2006


Hawk Amphetamines

From Greg Ip, in the Wall Street Journal (page A6 of the print edition):

Inflation alarms at the Federal Reserve rang louder yesterday as a top official said slowing economic growth may not be enough to contain inflation if the public's inflationary psychology intensifies.

"If inflation turns out to exceed ... our target range, I do not believe we can count on a slowing economy to bring inflation down, by itself, quickly," William Poole, president of the Federal Reserve Bank of St. Louis, said in an interview. If inflation expectations rose in "a persistent way...we could expect to see that show up in measured inflation in fairly short order.

And another familiar story:

   

June_20

August_7

   

I guess you know by now that you can find the data from these pictures -- and how they are constructed -- later today, at the Cleveland Fed web site.

June 7, 2006 in Fed Funds Futures, Federal Reserve and Monetary Policy, Inflation | Permalink

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» Here and there around the web from Econbrowser
A few items catching my eye around the web this week, including probability of recession, progress on refining capacity, and Greg Mankiw and his dog. [Read More]

Tracked on Jun 8, 2006 2:27:17 PM

» Here and there around the web from Econbrowser
A few items catching my eye around the web this week, including probability of recession, progress on refining capacity, and Greg Mankiw and his dog. [Read More]

Tracked on Jun 8, 2006 2:30:57 PM

Comments

Given that this administration is all talk and very few responsible actions, look for a pause-the stock market, unemployment, and mortgage payments are followed more closely than the fall of the dollar. November is approaching, and the stock market was Bush's only bright spot. Look out below for the dollar! I bet we'll see Ben's arm in a sling from all the twisting.

Posted by: neal | June 07, 2006 at 02:37 PM

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June 06, 2006


The Hawk Becomes The Pheonix

The New York Times sums up the interpretation of yesterday's remarks by Chairman Bernanke at the International Monetary Conference in Washington D.C.: 

Ben S. Bernanke, chairman of the Federal Reserve, warned Monday that recent inflation trends were "unwelcome developments," indicating that he was far less worried about signs of weaker economic growth than about the danger of higher prices.

I added the emphasis there, as I did read the speech, and confess I couldn't quite find where he said he was "far less" worried about economic growth.  To be fair, an impartial observer might infer that this does represent the Federal Open Market Committee's general orientation, based on the change from this language in the press statement following the March meeting...   

The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance.

... to this language in the statement following the May meeting:

The Committee judges that some further policy firming may yet be needed to address inflation risks...

Of course, everyone knew this last week when the May employment numbers sent expectations of another rate hike in June into a skid. Apparently, on Friday those numbers made operative this clause in the May statement...

The Committee... emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information.

... and just as apparently market participants believe the invoking of that clause was revoked by the Chairman in his comments on Monday.  Again from the New York Times:

In his toughest comments yet about the risks of inflation, Mr. Bernanke said consumer prices were rising faster than he would like. He gave short shrift to evidence of a slowdown in hiring, and he conspicuously avoided repeating his earlier suggestion that the Fed might consider a "pause" in its two-year program of steady interest rate increases.

The story, from prices on options for fed funds futures:

   

June_19

   

August_6

I know I said I would stop posting these things unless something interesting happens, but, by golly, interesting things just keep happening.

The data from the above picture, as is always the case now, are available from the Cleveland Fed.   

June 6, 2006 in Fed Funds Futures, Federal Reserve and Monetary Policy | Permalink

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Comments

The key element of Bernanke's speech was his use of the word "unwelcome" to describe recent core inflation numbers. The effect was to draw a line in the sand at 2 percent, analogous to Greenspan's use of the u-word to describe core inflation below 1 percent. One could even argue that the FOMC now has an implicit numerical inflation target of 1 to 2 percent for the core PCE price index.

Posted by: lowsmoke | June 07, 2006 at 09:06 AM

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June 05, 2006


Hawk Killer

Well, that was an interesting employment report.  Although you might find some comfort by taking the longer-term perspective provided by Calculated Risk, it is hard to put a very positive spin on a number that was less than half as large as expectations. At Angry Bear, Kash opined that the much lower than expected payroll gains for May shows "clearly the trend over the past few months is not a good one." At Econbrowser, Jim Hamilton adds the employment trend to the ever more colorful "picture of slowing growth." The Capital Spectator likewise sees the report as the "latest smoking gun suggesting that the economy is in fact slowing." The Skeptical Speculator similarly thinks "Indications of a slowdown in the US economy are getting stronger." At The Big Picture, Barry Ritholtz was less kindBrad DeLong can only sigh.

And the market that had become so convinced on Thursday that another 25 basis points was baked in the policy cake for June have, um, changed their minds.  Again.  The pictures:

   

June_18

   

August_5

   

The data and details will be available later today, at the Cleveland Fed website.

June 5, 2006 in Data Releases, Fed Funds Futures, Federal Reserve and Monetary Policy, Labor Markets | Permalink

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May 31, 2006


Funds Rate Predictions: Special Minutes Release Party Edition

Ok, I did say I would continue to post these pictures when something interesting happened. This would be one of those times.  The market has spoken, and the market (for options on federal funds futures) says the probability of another 25 basis point increase seems a lot more likely now that the world knows what the FOMC was thinking at its last meeting.  The short story:

   

June_17

 

This data -- and more -- will be available tomorrow, via the Cleveland Fed website.   

May 31, 2006 in Fed Funds Futures, Federal Reserve and Monetary Policy | Permalink

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Comments

sentiment can turn on a dime tomorrow. i think the unemployment figure will be an especially big one.

Posted by: jeff | June 01, 2006 at 03:19 PM

sentiment turned ON a dime.

BTW, the number was released early on some web site. eurodollars were immediately bid 7 ticks higher, at 7:29AM! someone sold a bunch of jun euros and bought the dec euros around 10,000 times five minutes before the number release.

cynics would say wall street has an "in" at the labor dept.

Posted by: jeff | June 02, 2006 at 03:12 PM

Hello ! This is very [url=http://www.google.com/bb497]good[/url] site !!

Posted by: Halo | June 13, 2006 at 02:55 AM

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May 30, 2006


Where Are My Federal Funds Rate Predictions?

The bad news is that probabilities for the path of the federal funds rate estimated from options on federal funds rate futures will no longer be a regular feature of macroblog.  The really good news is that you can now get them everyday from the Cleveland Fed.  Here's what you can find, and where you find it:

-- Pictures of the probabilities estimated for the most recent trading day, with links to the data in both Powerpoint and Excel spreadsheet format.

-- A handy FAQ page.

-- Background publications describing the market for options on federal funds rate, and the methodology used to obtain the estimated probabilities. (This section will also contain any future  research papers related to the topic.)

From this day on, there will also be an archive of all published files.  In the works: A simple user-friendly program that will allow you to estimate probabilities based on your own specifications. 

Although I will continue to highlight the estimates when they seem particularly interesting, I will no longer automatically feature them every week.  I know a lot of you checked in for that information specifically, and hope you keep coming back nonetheless.  I'll try to say something worthwhile every now and then.

Thanks to all of you who have supported my efforts to make these estimates available through this weblog.  And many, many thanks to John Carlson, Ben Craig, Will Melick, Monica Crabtree-Reusser, Erkin Sahinoz, and Pat Higgins who have ushered the Cleveland Fed site to reality.   

UPDATE:  Oops.  I inadvertently omitted the name of Saeed Zaman from the list of those integral to bringing the fed funds futures site to fruition. 

May 30, 2006 in Fed Funds Futures | Permalink

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now, if we could just get the fed governeors to say the right things at the right time, we could make some money at this thing!

Posted by: jeff | May 30, 2006 at 06:50 PM

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May 21, 2006


Data Dependence Points North

Last week's news brought a mix of I-told-you-sos, cringes. and even some sympathy for Mr. Bernanke and pals.  I reported on much of this in my posts on the April CPI release -- here and here -- but the reaction continued on through the week. The I-told-you-sos came from Bizzy Blog (honoring the presumed prescient Don Luskin) and from Barry Ritholtz (who has told us so before), seconded by Mr. Naybob.  Cringes can be found at The Capital Spectator, at The Skeptical Speculator, from the other side of the ocean via (a skeptical) David K. Smith, and at Asymmetircal Information, sharing the misery with Jim Hamilton.   Also at the Capital Spectator, the sympathy.  CS is all alone on that one.

In any event, the market has apparently decided that its time to think twice about the rate-hike pause scenario.  Once again, the probabilities of a pause in June versus at least one more rate hike switched places, according to the Carlson-Craig-Melick estimates from options on federal funds futures:

   

June_16

   

August is still a work in progress, but it is clear that sentiments are leaning hawkish:

   

August_4

   

The data, if it will do you any good:

Download implied_pdfs_051906.ppt

Download imp_pdf_june_051906.xls

Download imp_pdf_aug_051906.xls

May 21, 2006 in Fed Funds Futures, Federal Debt and Deficits, Inflation | Permalink

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Comments

It would be fine with me if BB stopped increasing Fed Funds NOW - IF he'd do three things.
1. Push our treasury bond yields up to 5.50-6% area to eliminate their speculative influence on housing.
2. Convince ALL Mortgage lending boards (including those he doesn't control) to tighten lending policies to eliminate their speculative influence on our housing.
3. Quietly address our out-of-control & still-growing derivatives mess to reduce its potential financial market influence.
BB's in a tough spot, he's dealing with entrenched forces who would love for this cycle to play out in the same old way - for them to continue their excesses until we hear a loud POP, then BLAME the explosion on the Fed.
BB deserves the time & support from all players to change the game. If that unnerves the financial sector, so be it. The sector's influence grew unchecked for 18 years. Its performance has left us teetering on the edge of a steep cliff, it's time for change.

Posted by: bailey | May 22, 2006 at 11:29 AM

It's interesting what Stephen Roach wrote today:

"The inference here is that the policy rule of the inflation targeter may need to become increasingly flexible as an economy approaches price stability. When inflation is low and a price-targeting central bank pushes nominal interest rates down to unusually low levels, there are new risks to confront — namely, asset bubbles."

That's what has happenned in the last years. Unfortunately, I don't think players have the incentives today to change their behavior, and higher interest rates won't help to stop the bubble softly. With China and current productivity growth, it is not inflation, but rather high asset prices that should be our concern...unfortunately, BB, as Greenspan before, believe the Fed has no jurisdiction over asset prices...

Posted by: Jon Plavnick | May 22, 2006 at 01:14 PM

Bailey, I am curious as to what you consider the derivatives mess?

Exchange traded derivatives pose no threat to the marketplace.

OTC derivatives have grown since the 2001 agreement on legal certainty. I believe they are beginning to unwind the mess they created, but will miss the deadline date.

How do you diversify risk in an uncertain economic environment without OTC derivatives?

Posted by: jeff | May 22, 2006 at 07:31 PM

I am wondering if an increase followed by a decrease is more likely. It is difficult to fight inflation that actually occurred in the past and is just showing up in the data now. Economic inertia can be difficult to stop in either direction.

Posted by: Lord | May 23, 2006 at 12:45 PM

Jeff, I certainly agree OTC settlement issues have not looked good. I've voiced my greater concerns with derivitives in the past & have nothing new to add. Only a few days ago Dave Iverson at Economic Dreams (re)listed a number of links addressing risks. http://forestpolicy.typepad.com/economics/

Posted by: bailey | May 24, 2006 at 01:09 PM

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May 15, 2006


Looks Like A Pause -- For Now

You may have heard there was a meeting of the Federal Open Market Committee last week.  There was certainly plenty of interesting things to be read about that meeting in blogland.  Kash suggested that the FOMC's post-meeting statement indicates the end of near-certain rate hikes at upcoming meetings, an opinion shared by William Polley. Mike Moffat agreed, calling the language of the press release "faily non-commital."  Toni Straka saw a little something for both hawks and doves. The Capital Spectator snarked -- though not entirely unfairly -- that "If the Federal Reserve's announcement yesterday on interest rates was intended to keep the market guessing, the central bank scored a home run."  Tim Iacono thinks maybe the Committee is "annoyed at the possibility that more rate increases may be needed".   And Ben Carliner warned that the end of the tightening cycle may be premature (and beware ye carry traders).  Barry Ritholtz took it all in, and warns that this all may end badly.

If you were the representative participant in the market for options on federal funds futures, you shrugged your shoulders.  The baseline Carlson-Craig-Melick estimates still show a 60-40 split in favor of a pause in June (versus another 25 basis point increase)...

   

June_14 

   

... and everything in more-or-less still in play for the August meeting:

   

August_2

   

You can play around with these estimates -- by adding a term premium adjustment, for example -- and get somewhat different numbers.  But the basic conclusion survives: Wednesday didn't really change anyone's mind, and the waiting game continues.

The estimates from above, and alternative ones with term premia adjustments are a mere click away:

Download implied_pdfs_051206.ppt

Excel and flash files avaialble on request.

UPDATE: I neglected to reference the ever-reliable Tim Duy, who believes the markets have it just about right: The FOMC is planning for a pause, and watching to see if the data talks them out of it.

UPDATE, ONCE AGAIN: Stan Jonas, he of FIMAT USA and intrepid interpreter of all things fed futures, says "one can easily see that the market is 'pricing' a FED on pause by September versus an ECB that has a “cumulative” certainty of moving again."

May 15, 2006 in Fed Funds Futures, Federal Reserve and Monetary Policy | Permalink

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» Bernanke vs Greenspan from New Economist
Chris Dillow has a nice piece today defending Ben Bernanke's stewardship of the Federal Reserve thus far, responding to his critics, and putting the boot into Greenspan: Lay off Bernanke. Chris is right to argue that markets had been expecting for some... [Read More]

Tracked on May 18, 2006 11:30:25 AM

Comments

I understood one of the goals of Fed policy was to balance spending & SAVING. Dropping FF to next to nothing encouraged a LOT of borrowed spending & arguably saved us from falling into a severe funk. BUT, we HAVE recovered. Isn't there ample evidence of frenzied speculation, unwise borrowing & negative savings to warrant consideration greater importance than the continuing quarterly growth of our GDP?
I'm not so concerned about where the Fed stops raising FF as I think the influence of FF has changed. I am concerned about the abdication of bond vililantes (who used to monitor the risk of our longer treasuries). What can the Fed do to see ten year yields better reflect our longer-term economic risks? Without any further FF move, higher ten year yields would go a LONG way to straightening out our housing dilemma.

Posted by: bailey | May 16, 2006 at 07:59 PM

bailey -- I'm pretty sure the FOMC could add to the risk premium built into long-term interest rates, but I would hesitate to endorse a monetary policy that would accomplish that. To your concerns, the best the central bank can do I think is to keep reminding folks that we don't really have it all figured out (although I would have thought that this was self-evident). As you rightly suggest, the pricing of risk is in the hands of the market.

Posted by: Dave Altig | May 16, 2006 at 09:34 PM

My guess (hope) is that BB is way too smart for his peers at the FOMC, Congressmen up for reelection AND the all-to-many Wall Street speculators who all immediately jumped together to put him in the "no mas" box. He's the new guy at the helm, in an age where everyone wants to be a star. It even looked like he was facing a palace revolt by his buddies at the FOMC. So, what better way to disarm the quickly growing horde of antagonists by acceding to their stated wishes? Sure he can pause, but if that doesn't work everyone acknowledges it will be more likely he'll have to increase FF by MORE, don't they? This gambit raises the stakes & puts his second-guessers on the front line of risk. They haven't a clue which way to turn & BB knows understands very well, this is best for all of us. Congress' rampant spending and mismanagement of our GSEs, & Wall Street's ABSURD tactical trading speculations have set us on a path to disaster. BB deserves time & support to reverse the course that had us heading for an economic tsunami.
Now, if only the Administration had someone in a position of authority who understood & wanted to cooperate ....

Posted by: bailey | May 17, 2006 at 10:59 AM

Hi, Nice!

Posted by: kgvzf | May 28, 2006 at 07:08 AM

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May 08, 2006


A Pause Through August?

So the market seems to think.  The latest on the bets from options on federal funds futures:

     

June_13

August_1

   

Of course, tomorrow is another day.  So is Wednesday.

The data, plus:

Download Imp_pdf_slides_for_blog_050506.ppt

Download Imp_pdf_slides_for_blog_050506.swf

Download implied_pdf_june_050506.xls

Download implied_pdf_aug_050506.xls

And what its all about, if you are wondering:

Download CCM.pdf

May 8, 2006 in Fed Funds Futures | Permalink

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Comments

It looks like August has:

3% chance of 4.75% rate
52% chance of 5% rate
21% chance of 5.25% rate
24% chance of 5.5% rate

In other words, the chance of a pause is 55% to 45%.

That looks like close odds to me. I'd interpret it as the market doesn't know. Or perhaps the market is "data driven" :-)

Posted by: ErikR | May 09, 2006 at 07:58 AM

I agree with Erik. ...too close to call.

Posted by: Trade-Monkey | May 10, 2006 at 07:09 AM

Looks like the interest rate futures are going to be really busy after the meeting. No one knows how the Bernacke phrasology will read. One thing is for sure, it will affect the market in a big way.

Once the statement is interpreted, The odds of a raise or steady as she goes interest rate will change.

Personally, I do not think they are done. 5.5% is on the way.

Posted by: jeff | May 10, 2006 at 07:46 AM

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May 02, 2006


Talk Trumps Data

When I last checked in with my ongoing reports on where the bets on options for federal funds futures are being placed, the probability of continued rate hikes through June was making a run for the money on the strength of positively-received economic data.  Oh, but that was before Chairman Bernanke's comments before the Joint Economic Committee on Thursday, which were generally interpreted as suggesting "it's our party and we'll pause if we want to."  A day does make a difference:

      

June_10

   

This week starts, of course, with yet more evidence that the economy was cruising along in the first quarter...

...the Commerce Department reported personal spending rose 0.6 percent in March, helped by a 0.8 percent gain in income, which was the biggest increase since September. Construction spending rose 0.9 percent in March, the Commerce Department said today.

... and apparently continued to do so as the second quarter began:

Manufacturing growth in the U.S. accelerated last month as companies stepped up production to meet demand, a private survey found. 

Factories are picking up production and investing in new equipment to meet demand as U.S. consumers keep spending, while growth quickens in Europe and Japan. Economists expect business investment this year to help the economy weather a slowdown in the housing market that may dampen consumer spending.

"Factory activity remains very solid,'' Ellen Zentner, an economist at Bank of Tokyo-Mitsubishi UFJ in New York, said before the report. "We could definitely sustain these levels for the first half of the year because we have continued to see such strong demand.''

As positive as those reports, which came from Bloomberg, were, the price data for the first part of the year gave plenty of excuses for furrowed brows, as we already suspectedFrom Reuters:

The Commerce Department said the price index for consumer spending shot up 0.4 percent, while the core price index closely watched by policy-makers at the Federal Reserve rose 0.3 percent. The rise in the core inflation measure was a touch ahead of Wall Street forecasts and the largest one-month rise since October...

... the rise in the core index, which strips out volatile food and energy prices, moved up to 2 percent -- the upper edge of the Fed's perceived inflationary comfort zone.

The Dallas Fed reports my own favorite PCE-based core inflation measure, based on the trimmed-mean, and the March reading on that statistic was as horrid as the other numbers:

The trimmed-mean PCE inflation rate for March was an annualized 3.7 percent.

According to the BEA, the overall PCE inflation rate for March was 4.4 percent, annualized, while the inflation rate for PCE excluding food and energy was 3.9 percent.

Both the annualized 6-month and the 12-month rates of inflation on the Dallas core measure remained in the neighborhood of where they have been over the past half year, at 2.4 percent (annualized) and 2.3 percent respectively a tad north of Reuter's suggested comfort zone.

All that said, the markets were not necessarily impressed.  From yet another Reuters article:

Futures fully price a 25-basis-point rate increase at the Federal Reserve's May meeting <FFK6>, but chances that the central bank will hike rates again in June <FFN6> held at 30 percent, similar to its level shortly before the report.

Tomorrow is, of course, another day.

Here is the data in the picture above...

Download implied_pdf_june_042806.xls

... and multiple variations of the Carlson-Craig-Melick estimates for both May and June (through  Friday):

Download Imp_pdf_slides_for_blog_042806.ppt

Download Imp_pdf_slides_for_blog_042806.swf

May 2, 2006 in Fed Funds Futures | Permalink

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David,

Oh yes, what a difference a day makes....

The market was up nicely until all the hyperbole about a Fed pause got slapped aside by a CNBC report that Fed Chairman Bernanke said the media misunderstood his remarks last week.

Bernanke said it is worrisome that anyone would think of him as dovish.

Add in some economic reports indicating the obvious, that energy pass through stagflation is raging and the market bled into the close.

The straw that could break the camels back: not Iran, not $100 oil, not GM going BK...

the 10 year breaking 5.25% and heading for 6%. Its at 5.15% now.

This could be acheived by additional commodities inflation, an Asian pullback in US treasury purchases, and the BOJ actually raising their rate and sopping up some of their liquidity (instead of jawboning about it).

The chain reaction would not be pretty.

Posted by: The Nattering Naybob | May 02, 2006 at 08:00 AM

NN - Right you are. The probability estimates had only a small reversal as of CBOT settlement time yesterday, but I'm keeping my on it to see if anything really interesting develops -- again.

Posted by: Dave Altig | May 02, 2006 at 09:46 AM

Felt some sympathy for Bernake based on the irrational exuberance over his communications conundrum.

My personal observation is that I think we are in a "globalization" bull market, which is stronger than most think because the effects of globalizatioon will overpower the classic energy/interest rate etc. restrictions just as it has done so far. I find the oil market intriguing, as every pessimistic attitude is factored into a price that is ignoring supply and demand. On the other side, the bond market is in a short term viewpoint/every optimistic attitude. Assuming global geopolitical doesn't explode (and I am with O'Leary in the belief that Iran gets its cake and eats it too by posturing oil prices up), methinks both markets will head back for middle ground eventually, but as always, the three most important things will be timing, timing and timing. In case I lost you there, yes I agree with Naybob, but I have no idea which of the many "fat tails" is going to start the chain reactions (although the rising interest/variable mortgage real estate bust is the most intriguing).

Posted by: Badbear Lewis | May 02, 2006 at 12:11 PM

traders on the cme floor didn't know what to do when CNBC's money honey spilled the beans on their conversation.

guys were stunned. there was about a minute to react. then the market fell out of bed.

i think rates are going to 5.5%, maybe as high as 6%.
there is a terrorism premium to oil that will not go away, especially as Iran unveils more and more of their nuclear plans. China and India's demand don't quit, and so commodity prices remain bid.

that is data BB can't ingore.

Posted by: jeff | May 02, 2006 at 02:55 PM


If you have looked into solar energy as a method for heating your home, panels are usually the first things that come up. There are, however, other unique methods.

The Solar Heating Aspect You Have Never Heard of Before

The power of the sun is immense. The energy in one day of sunlight is more than the world needs. The problem, of course, is how does one harness this power. Solar panels represent the obvious solution, but they have their downside. First, they can be expensive depending upon your energy needs. Second, they do not exactly blend in with the rest of your home.

Passive solar heating represents a panel free method of harnessing the inherent energy found in the sun for heating purposes. If you come out from a store and open the door of your car in the summer, you understand the concept of passive solar heating. A wide variety of material absorbs sunlight and radiates the energy back into the air in the form of heat. Passive solar heating for a home works the same way as the process which overheats your car in the parking lot.

Posted by: heating | February 13, 2007 at 10:52 AM


If you have looked into solar energy as a method for heating your home, panels are usually the first things that come up. There are, however, other unique methods.

The Solar Heating Aspect You Have Never Heard of Before

The power of the sun is immense. The energy in one day of sunlight is more than the world needs. The problem, of course, is how does one harness this power. Solar panels represent the obvious solution, but they have their downside. First, they can be expensive depending upon your energy needs. Second, they do not exactly blend in with the rest of your home.

Passive solar heating represents a panel free method of harnessing the inherent energy found in the sun for heating purposes. If you come out from a store and open the door of your car in the summer, you understand the concept of passive solar heating. A wide variety of material absorbs sunlight and radiates the energy back into the air in the form of heat. Passive solar heating for a home works the same way as the process which overheats your car in the parking lot.

Posted by: heating | February 13, 2007 at 10:54 AM

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April 27, 2006


Wanna See Some More Data Dependence?

Given the rash of news this week suggesting that the U.S. economy just keeps on truckin' -- The Skeptical Speculator has the round-up here and here -- I couldn't resist this special edition of the Carlson-Craig-Melick estimates of market expectations for the June meeting of the Federal Open Market Committee:

 

June_11

 

If you are new to this, you can read about the Carlson-Craig-Melick estimates in this paper:

Download CCM.pdf

If you're an old pro, here's the data:

Download june_pdfs_april_26.xls

April 27, 2006 in Fed Funds Futures | Permalink

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After Chairman Bernanke's comments today, the reaction (at least in the media) is that its 'one and done' - at least a pause in June.

Without Bernanke's comments, I would have expected at least two more rates hikes based on recent data - unless we see weakness in the economy in the interim. And your graph shows 25 bps at both the May and June meetings.

Barry Ritholtz thinks "Pause/Resume Scenario Increasingly Likely"
http://bigpicture.typepad.com/comments/2006/04/pause_remue_sce.html

Hmmm ... I'm confused (a common state of mind!).

Best Wishes and thanks for these updates.

Posted by: CalculatedRisk | April 27, 2006 at 06:39 PM

I have thought that with the data this strong, rates would go up to 5.5%. Some true bears think that they can't stop until 6%. The good news is that China raised its rates for the first time in a long time. Would like to see more hikes from them.

Posted by: jeff | April 27, 2006 at 08:30 PM

Dave,

If monetary policy affects the economy with a 12-18 month lag, how come the Fed is in a data dependent mode?

Posted by: cb | April 28, 2006 at 12:35 PM

cb, i am not a PhD, but I would like to take a shot at that. First, they need to rely on something. Moving rates around because you feel like it is no good!

They also look at other indicators, like the stock market. Stocks basically forward look, and a rallying market will give you an indication that the economy is expanding. Greenspan looked a lot at productivity and utilization. He also looked a lot at the employment cost index.

Data changes over time, and the specific data that they look at changes over time as well. Back when I began trading, it was all about Merchandise Trade, and every Thursday, money supply figures were big.

I think the fed looks at the data, and tries to extrapolate the numbers into the future based on random walk or some other model.

Dave I am sure can answer this question better. He can use the "chile cheese burrito index" to illustrate his point!

Posted by: jeff | April 29, 2006 at 06:58 PM

Prudent Bear's Doug Noland presents YTD data suggesting pausing at this time is NOT what we need: bank credit+12.4%, securities credit+ 9.1%, c&I loans+15.5%, R.E. loans+11%, m2+5.6%, commercial paper+17%. An especially interesting number to watch is durable goods that are running YOY +19.7, with x-transports +11.5%. To those who whine about housing sales demise, existing home sales are running at 6.92 million annualized. That's up from an avg of 3.99 million for the decade of the 1990s. Have we had a population surge I missed?
So, there are plenty of reasons to question why BB chose this time to suggest it may be time for the Fed to look through the numbers, to pause until we see how past increases play out.
I think BB deserves more credit & more time before he's metaphorically lambasted for this call. These days, NO ONE, not the Administration, not Congress, not our business leaders, not even our "religious leaders" wants to question our bubbling economy. My guess is BB's facing a revolution of his FOMC peers (supported by politicians up for reelection this fall.) Ever hear the expression, "give them enough rope, ..."? Well, it's my guess this is the best & only strategy BB has in his arsenal at the moment.
But, all's not lost. The ten year yield influences mtg. rates, not fed funds. And, it will be fun to watch Europe try once again to argue that our dollar should NOT fall through the floor.
The tremendous benefits we have with BB are that he is NOT a power-groupie & he's EARNED the right to lead the Fed in these most trying times. So, for the time being I'm all for "looking through the data" and giving BB my full support. My greatest hope is that BB has Fed Staff behind him for the job ahead.

Posted by: bailey | May 01, 2006 at 12:17 PM

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