Daily update
Daily update
- The Federal Reserve has been late in cutting rates, but that has been true for some time. The policy error is making things worse for lower income households. Middle income households are the critical group for economic activity, and are less negatively affected by the delay in rate cuts. Last Friday’s employment report (seemingly weather impacted) does not change that; indeed, unemployment for college graduates declined.
- Does the drop in equity markets have an economic impact? The S&P index is at levels last seen in June, which might create some negative wealth effect. While loss aversion exaggerates the importance of equity declines relative to equity increases, this is not the sort of change that is likely to alter investors’ behavior as consumers.
- We have a series of business sentiment polls today, which is troubling as there is a tendency for the media to misreport sentiment as being reality. In fact, sentiment errs on the pessimistic relative to reality, and there is a risk that markets overreact.
- Euro June producer price inflation is due—it has been in deflation for over a year. Producer prices are a better indication of corporate pricing power than are consumer prices, and this emphasizes the high real cost of credit for companies.
