Category Archives: Economic Indicators

Early May Consumer Sentiment and April Leading Indicators

KEY DATA: Sentiment: +5.2 points; Expectations: +8.6 points; Current Conditions: +0.1 point/ LEI: +0.2%

IN A NUTSHELL:  “Hopes for the future run high, but that was before the trade war went nuclear, so let’s wait and see where things stand.”

WHAT IT MEANS:  Consumers will drive this economy and it looks like they are quite exuberant – maybe.  In the first part of May, the University of Michigan’s Consumer Sentiment Index hit its highest level in fifteen years, led by a surge in the expectations index.  But the report indicated that most of the data were collected before the trade talks collapsed.  The numbers coming in afterward were a lot different, with expectations much weaker.  This is especially important since the current conditions component was largely flat.  So, before we celebrate a consumer that is as happy as can be, let’s see what happens when the final numbers come out on May 31st

Looking ahead, the Conference Board’s Leading Economic Index rose moderately in April.  After having pretty much flattened early in the year, the index is moving back up.  However, the rate of rise points to more moderate growth in the near future, which is in line with what most economists and the data are forecasting.

MARKETS AND FED POLICY IMPLICATIONS:  The markets reacted quite negatively to the raising of tariffs and will likely do the same if the tariffs on Chinese goods are broadened.  But after thinking it over, investors seemed to decide that it was just a “never mind” moment.  I am not sure what investors are thinking or even consumers and that is a concern.  Do people think that tariffs don’t matter?  Really?  If so, then you can describe the current consumer confidence numbers and the behavior of the markets as showing signs of irrational exuberance.  Even worse, if tariffs don’t matter, what would stop our trading partners from putting tariffs on our goods and why would we not do the same with Europe and/or Japan.  Those nations may not be as egregious in their trade restrictions as China, but they have some pretty significant ways of controlling trade as well.  Do we really want to go down that road?  The trade situation undoubtedly will add even more volatility to the already volatile data.  That makes the Fed’s “data dependency” not much different than a roller coaster.  The Fed members need to buckle up, because things could get really crazy in the next few months.  

March Job Openings (JOLTS report)

KEY DATA: Openings: +346,000; Separations: -142,000; Quits: -38,000

IN A NUTSHELL:  “Job openings are near record highs despite limited layoffs and quits.”

WHAT IT MEANS:  Is the labor market tight?  You bet.  Job openings surged in March and are once again nearing the record high reached in January.  All of those new vacancies were in the private sector as the public sector openings declined.  The need for additional workers rose sharply in transportation and warehousing, health care, restaurants and real estate.  With demand increasing, firms continue to hold onto their workers as tightly as possible.  Layoffs dropped like a rock, as it makes little sense to cut workers if you cannot find replacements.  I guess anyone, almost regardless of the issues, is better than no one.  But to me the most impressive data in this report were the quit numbers.  You would think that in this sellers market, workers would be moving around like crazy.  That just doesn’t seem to be the case as the number of people quitting declined. 

In a separate report, CoreLogic indicated that home prices rose moderately in March, but the increase over the year continued to decelerate.  There are few metro areas where housing price increases are either accelerating or even high.

MARKETS AND FED POLICY IMPLICATIONS:  You have to hand it to the business community:  Despite being on the wrong side of the tight labor market, firms are managing to keep from a major bidding war for workers and are still not losing workers to competitors.  Yes, compensation is rising decently, but it is no longer accelerating.  At the same time, companies are squeezing out more output per worker.  This rise in productivity has kept labor costs down and earnings up.  All of this is happening in a world where information flows freely and quickly.  Workers know about openings yet they appear to be either reluctant to apply for them or unwilling to accept those offers. For the Fed, that has to be worrisome.  Inflation has moved back below target even as labor markets are tightening further.  What happens if the economy softens or even worse, falls into recession and the wage gains disappear?  One would think that the Fed should lower rates under these circumstances, but that would not make sense.  First of all, the economy is not weak and it is not clear that lower rates would actually improve growth.  Mortgage rates are extraordinarily low and it is housing supply that is the problem.  Businesses investment hasn’t surged even after a tax cut that almost paid firms to invest.  So cutting rates is not likely to accelerate growth significantly. But it would put the Fed in a bind if the economy faltered.  There are already few arrows in the Fed’s interest rate quiver and lowering rates would empty it further.  Also, the impact of lowering rates is not linear.  Does anyone really believe that going from one percent to zero would do anything, especially if the need to hit bottom occurs when the economy is collapsing?  Fed Chair Powell repeated that interest rate policy is the Fed’s main tool and lowering rates now would limit that tool greatly.  What the Fed needs is more inflation, but it is largely powerless to accomplish that goal.  To use a phrase that former President George H.W. Bush liked to use, the Fed is in “deep doo doo”.

April Employment Report and NonManufacturing Activity

KEY DATA: Payrolls: +263,000; Private: +236,000; Unemployment Rate: 3.6% (down 0.2 percentage point); Hourly Wages: +0.2%/ ISM (NonMan.): -0.6 point; Orders: -0.9 point

IN A NUTSHELL:  “With job growth strong and the unemployment rate barely measureable, it is hard to see why the Fed would even consider lowering rates.”

WHAT IT MEANS: If the Fed were to cut rates, it would have to see weakness in the labor market.  Well, forget that.  Job gains in April came in well above expectations.  Yes, the headline number was hyped by a surge in local government hiring, which is not likely to last.  But the gains in the private sector were also robust.  Health care, social services, restaurants, construction and employment services added new workers like crazy.  On the negative side, retail keeps thinning its payrolls and utility employment faded.  Otherwise, there were few areas where firms cut workers.  There was one really odd number in the report.  Building and swelling services added almost 21,000 employees, a nearly 1% rise in just one month.  That seems way out of line.  But even excluding that likely aberration, the hiring pace was still strong.  

As for the household side of the report, the unemployment rate dropped to its lowest level since December 1969, near the peak of the Viet Nam War when draft rates sliced the labor force dramatically.  But while the number unemployed fell, so did the labor force, which inflated the decline in the unemployment rate.  The labor force numbers bounce around like crazy, so don’t make too much of that drop or the decline in the labor force participation rate.  Despite the strong demand for workers and the low unemployment rate, wages rose moderately over the month and the increase over the year continued to decelerate modestly.

The strong labor market is keeping the economy going, but the less than stellar income gains are keeping it from accelerating.  We could see that in the Institute for Supply Management’s April report on nonmanufacturing activity.  The overall index eased and the details were mixed.  Activity did expand faster, but order growth moderated and so did hiring.  In addition, orders books filled more slowly.  Basically, this report, when coupled with the manufacturing sector numbers, points to an economy that is growing decently but is not shifting into the next gear.

MARKETS AND FED POLICY IMPLICATIONS:  So much for a faltering economy that requires a kick-start from the Fed.  The labor market is in great shape yet wage inflation is not becoming a major threat.  We can thank the solid gains in productivity for that.  The high level of payroll increases has surprised myself and most other economist but there may be some special factors at work.  The monthly number is a net number.  It takes all additions to payrolls and nets out all reductions, which includes layoffs, company closures and, here is a key, retirements.  Baby-boomers are staying in the workforce longer and the labor force participation rate for those over 65 is rising not falling.  Thus, the willingness to continue working is easing the pressure on firms to find new workers, which indeed are in short demand.  That is the equivalent of reducing the “reductions” portion of the calculation, raising payroll gains.  That may sound somewhat wonky, but it makes sense, at least to me.  It would be awfully hard for the Fed to explain a rate cut given the strong job market. So forget that.  Indeed, this report argues more for a continuation of the normalization process than a reversal of it.  But to raise rates, the Fed would have to see an inflation rate well above target for an extended period.  So a hike is likely off the table for quite a while as well.  As for investors, strong labor markets should buoy expectations that earnings can hold up, even if the Fed is not likely to start mainlining liquidity into the markets’ veins once again. 

First Quarter Productivity, April Layoff Notices and Weekly Jobless Claims

KEY DATA: Productivity: +3.6%; Over-Year: 2.4%; Labor Costs: -0.9%; Over-Year: 0.1%/ Layoffs: 40,023/ Claims: Unchanged

IN A NUTSHELL:  “The rebound in productivity is restraining labor costs and keeping inflation in check.”

WHAT IT MEANS: With wages rising, it has been unclear why inflation remains tame.  One logical explanation is the rapid increase in productivity.  The growth in the first quarter was the strongest in over four years and over the year, it was the best in nearly nine years.  Output was up sharply while hours worked rose only modestly.  The improved production of workers more than offset the moderate gain in wages.  Indeed, wage increases have been decelerating for the past year and a half, even as productivity was accelerating.  So much for the theory that rising productivity leads to improved wage gains. 

Challenger, Gray and Christmas reported that layoff notices in April were up sharply (9%) from the previous April.  So far this year, plans to cut workers have increased by thirty one percent.  The industrial goods sector notices have soared this year, while retail, which is still cutting people like crazy, is doing so at a much slower pace than in 2018.

Jobless claims remained at a really low, but no longer record low level, last week. The new claims numbers still point to a tight labor market. 

MARKETS AND FED POLICY IMPLICATIONS:  The Fed noted yesterday that inflation was running below target but chalked it up to transitory factors.  That may be true, but fears that inflation may surge are unrealistic unless the improvement in worker productivity fades.  Businesses are managing to pass through only part of the productivity increases to workers, which is allowing them to keep profits rising and prices down.  While firms have some wiggle room to continue raising wages, that will be the case only if productivity remains strong.  If it starts easing back toward the longer-term trend, pressures on earnings and/or prices will rise.  But until that happens, the Fed will have to contend with inflation that is at best, fairly close to its target and I suspect the members would not mind seeing it run hot for a while.  Indeed, I suspect that one factor they believe is “transitory” is the unusually high level of productivity growth.  If that is the case, I would have to agree that it is more likely productivity will moderate than remain at current levels.  Thus, investors will likely have to wait quite a while before they see a rate cut. I don’t expect any easing in policy unless the economy fades significantly, which might not come until next year – or later. 

April 30-May 1, 2019 FOMC Meeting

In a Nutshell:  The decline in core inflation is due to “transient” factors. – Fed Chair Jerome Powell

Decision: Fed funds rate target range remains at 2.25% to 2.50%.

With the president ramping up pressure on the Fed to lower rates, today’s FOMC statement and press conference took on even greater importance than usual.  Would the Fed signal that its next move would be down?  Or, would it stand its ground?  Well, the answer depends upon whether you looked at the statement issued after the meeting or listened to the Fed Chair’s comments at the press conference. 

The statement seemed to lean toward a possible rate cut.  Indeed, the members noted that “… overall inflation and inflation for items other than food and energy have declined and are running below 2 percent.”  That seemed to signal that the Fed was worried about inflation decelerating and the logical conclusion was that it was biased toward the next move being an easing.

But then there was the press conference.  Multiple times, Fed Chair Powell stated that the decline in inflation was likely due to transient or transitory factors.  That insistence on playing down the easing in inflationary pressures makes it clear that at least for now, the Fed is very comfortable with its wait and see data dependency approach.  Thus, there is little reason to believe the Fed will be cutting rates soon or even if the next move is down. 

The markets got whipsawed by the Fed’s poor communication of its view on inflation.  First they reacted as if rates were going down and then they backed it all out and even some more. 

The Fed is walking a difficult line given the president’s insistence on trying to politicize monetary policy.  Nothing less than the credibility of the Fed is at stake, and I am not overstating that.  Mr. Powell blew it when he caved to the markets in December.  The economy was never as bad as investors thought yet he behaved as if it was.  So, we know the markets can push him around.  If the president can also bully him, the concept of an independent Fed will be damaged. 

For now, Chair Powell has regained the high ground.  But he faces real risks. He make clear in an answer to a question that political issues are not part of the policy discussions, but every member knows what is going on. It could be difficult to cut rates without strong evidence that either the economy is faltering or inflation is collapsing. If the Fed waits too long to do so because it doesn’t want to appear to be appeasing the president, the economy would suffer. To the extent that is now a possibility, harm has already been done to the Fed.

(The next FOMC meeting is June 18-19, 2019.) 

April Manufacturing Activity, Private Sector Jobs and March Construction Spending.

KEY DATA: ISM (Manufacturing): -2.5 points; Orders: -5.7 points; Employment: -5.1 points/ ADP Jobs: +275,000/ Construction: -0.9%

IN A NUTSHELL:  “The slowing manufacturing sector needs to be watched carefully as income gains are not strong enough to support solid growth.”

WHAT IT MEANS:  Today we get a Fed decision on rates and a press conference, while on Friday, the April jobs report will be released.  So, should we be concerned with the days data dump?  Yes!  First, the Institute for Supply Management reported that manufacturing growth moderated in April.  The overall index was the lowest in over two years and there were sharp declines in the growth of new orders and in hiring.  The good number in the report was backlogs, which continued to expand.  The filling of order books should mean that production would remain solid.  Basically, this report says that while manufacturing continues to expand, the pace is slowing and that may a signal that so is the economy.

We normally look to the ADP estimate of job gains for some guidance on the government’s employment report.  However, this month, that is not the case.  The reason is that the chemist, I mean economist behind the estimate indicated there were several factors that may have led to an overstating of the gain.  Being an economic data chemist myself, I get it.  Sometimes, the models don’t work quite right and you either use judgment and adjust the data or go with the results.  He went with the results and that is fine since he did qualify the numbers.  That said, the report was huge, led by an enormous rise in construction payrolls.  Leisure and hospitality also hired like crazy as did firms in the education and health and professional and business sectors.  All sizes of business added workers solidly, but mid-sized firms went all out.  In any event, let’s just wait and see what comes out Friday.  My number is in the 165,000 range.

Construction hit a rough spot in March as activity fell.  There were almost no major sectors that posted gains as private and government, residential and nonresidential spending were all off from February levels.  Weather is always a wild card when it comes to construction, so again, let’s wait and see before getting too concerned.  Still, this is another sector that must be watched.    MARKETS AND FED POLICY IMPLICATIONS:The Fed is likely to continue to take a “wait and see, data will drive our decisions” stance when the statement is released.  Chair Powell will try to be as neutral as possible in his press conference and in reality, he has good reason to be so.  The strong first quarter growth number was largely puff as the two key sectors, household and business spending, were soft.  Inflation has faded and is running below target.So, there is no reason to threaten to hike rates anytime soon.  At the same time, it is hard to argue that the economy needs a boost, so cutting rates makes absolutely no sense.  Therefore, don’t expect the Fed to move the markets in any direction.  That may not make the president happy, but it is not the job of the Fed to do the president’s bidding.  As for investors, they should like what the Fed says, but they will also watch the earnings numbers carefully.  It looks like profits have been good, while the economy is remains solid, so that there is no reason to think we are in for a major period of market volatility.  Of course, if the trade talks with China fall apart, all bets are off.  Don’t rule that out as improving Chinese economic data mean they have less reason to cave to U.S. demands. 

1st Quarter Employment Costs, April Consumer Confidence and Pending Home Sales and February Home Prices

KEY DATA: ECI (Over-Year): +2.8%; Wages: +2.9%/ Confidence: +5 points/ Pending Sales: +3.8%/ Home Prices (Over-Year): +4%

IN A NUTSHELL:  “Confidence is strong, labor costs are relatively restrained and the housing market is stabilizing, so what is the Fed worried about?”

WHAT IT MEANS:  Is the economic lull now null?  I think that is a fair thing to say.  First quarter growth was okay, even given the softness in consumer and business spending.  With job gains also decent and labor market tight, there is every reason to expect that worker compensation costs would accelerate.  We are even seeing firms announce future increases in wages to maybe even as much as $20 per hour in the future.  But happy days for workers is not here yet.  The Employment Cost Index, which includes both wages and benefits, rose at a moderate pace in the first quarter and the gain over the year actually decelerated.  That was true for both wages and benefits and for most industries and occupations. There were some exceptions in those industries that are suffering from extreme labor problems, such as transportation, warehousing and hospitality, but there were not many others.  Basically, there may be labor shortages, but firms are not trying to attract workers by raising compensation significantly.

The lack of sharp increases in wages is not depressing households.  The Conference Board’s Consumer Confidence Index rose solidly in April and the details were even better.  Jobs were more plentiful, the current economy was better and the outlook for growth and income improved.  The index is below its peak, but it is still at a high level, indicating the slowdown in spending we saw early in the year should dissipate.

As for the housing market, things there may be improving – at least a little.  Pending home sales jumped in April.  Demand in the West surged, was up solidly in the South and Midwest but eased in the Northeast.  Still, the index is off from the levels posted in the first half of 2018, so we may not see a huge rebound in sales. 

One aspect of the housing market that doesn’t appear to be changing is the slowdown in price gains.  The Case Shiller index posted a moderate increase from February 2018, but the year-over-year rise continued to decelerate.  We are even starting to see some weakness in San Francisco – yikes.  In the past year, the increase in the Bay Area was the second slowest of the twenty large areas in the index.  Only San Diego posted a smaller gain.  The sharp rise in prices in so many areas has priced people out of the market and coupled with the lack of inventory, helped create the softening in sales.  Thus, an easing back in housing price gains can only be good for the market. 

MARKETS AND FED POLICY IMPLICATIONS:  Friday we get the April jobs report and it should be good, though maybe not great.  Regardless, with growth decent, the labor market tight and housing at least stabilizing, the Fed members, who are starting their two day meeting today, should have little to complain about.  Yet there is a concern.  Inflation is actually decelerating and is back below the target.  As long as that is the case, the Fed can hide behind the lack of inflation to support their do nothing policy.  I suspect that will be the argument when the statement is released early tomorrow afternoon and Chair Powell holds his press conference afterward.  As for the markets, earnings are driving decisions and they have tended to be good, with the usual random misses.  The economic data are not arguing investors should be greatly worried.

First Quarter GDP and April Consumer Confidence

KEY DATA: GDP: +3.2%; Consumption: 1.2%; Investment: +2.7%; State and Local Government: +3.9%; Consumer Prices: +0.6%/ Confidence: 97.2 (Down 1.2 points)

IN A NUTSHELL:  “The headline GDP number looks great but the details are a lot less positive.”

WHAT IT MEANS:  The economy did a lot better than expected during the first quarter as growth exceeded 3%.  But let me repeat what I frequently state: The devil – and the real information – is in the details.  There, the numbers look a lot less positive.  Take consumption, please! (Drum roll here.)  We knew that vehicle sales were soft, which brought down durable goods spending.  But demand for nondurables and services was mediocre and with gasoline prices rising, there is little reason to expect households to shop ‘till they drop this spring.  As for businesses, they bought lots of software but little hardware and spent even less on structures.  That doesn’t point to any major investment surge.  And, as expected, housing restrained growth.  So, where did things go right?  Where I warned there could be some strange results.  Take trade, please!  (Okay, enough Henny Youngman.)  Exports rose while imports fell, meaning the trade deficit narrowed much more sharply than expected.  That added one full percentage point to growth and explains most of why growth exceeded forecasts. I had suggested that the tariff issues could have led to strange patterns in trade and that is likely what happened in the first quarter.  There is very little reason to think that a strong economy would lead to lowered imports, so don’t expect the trade deficit to keep narrowing.  The second place I thought we could have something strange was in inventories. Warehouses filled sharply, adding two-thirds of a percentage point to growth. It is not clear those additions were intended, so don’t be surprised if inventories are drawn down, slowing growth this quarter.  Finally, state and local governments spent like drunken sailors.  This sector added four-tenths of a percent to growth.  Really, does anyone believe state and local governments will spent so crazily going forward?  Meanwhile, inflation went absolutely nowhere.  In summary, the headline was great but the details were not so good. 

As for consumer confidence, it faded a touch in April.  The University of Michigan’s Consumer Sentiment Index dropped modestly as both the current conditions and expectations components declined.  The index remains at a high level as respondents are nearly ebullient about their financial prospects. MARKETS AND FED POLICY IMPLICATIONS: I have been saying for months that the economic fundamentals were solid and the Fed, make that Chair Powell, panicked in December.  So, I should be happy with this number as it supports my argument.  But the reality is that growth is not strong, at the least when you consider the performance of the two key segments, households and businesses.  Consumption was weak and business investment was mediocre.  Worse, I don’t see any reason why that would change anytime soon.  So, what I and probably most other economists are doing is making down second quarter growth.  The trade deficit should widen and inventories become a drag.  While investors may be happy with this report, and Mr. Powell will have a lot of explaining to do, it really doesn’t change much when it comes to growth: It is decent but not great.  Now if we back this up with another near-3% growth rate, I will have to re-evaluate my thinking, but so would the Fed.  Indeed, if spring growth were strong, the Fed would be foolhardy not to consider hiking again, even if inflation remains tame.  In other words, no good economic news goes unpunished!

March Housing Sales and April Philadelphia Fed NonManufacturing Survey

KEY DATA: New Home Sales: +4.5%/ Existing Home Sales: -4.9%/ Phila. Fed (NonMan.): -0.7 point; New Orders: +0.9 point

IN A NUTSHELL:  “The housing market is wandering aimlessly and that is hardly a sign of a strong economy.”

WHAT IT MEANS:  We get our initial look at first quarter growth on Friday, but regardless of what it comes out as there is little reason to think the economy is booming along.  This week’s so-so numbers leading up to the GDP release were the housing sales data.  Today we got the new home sales numbers and they were really good, at least when you consider where they had been.  Demand jumped in March to a level not seen since November 2017.  It looks like sales bottomed in October of last year and there has been a fairly steady improvement since then. As for the details, a strong rise in the Midwest offset a sharp drop in the East.  There were solid gains in the South and West.  Sales prices firmed as inventories remained low.

Yesterday, the National Association of Realtors indicated that existing home demand faded in March. The softening in sales was in every region. But the fall off in sales came after a sharp rise in February, so it is not clear what is going on with the existing home market.  The average sales pace for the first three months of the year was well below the pace posted in 2018, so it really cannot be said that demand is improving.

Maybe the clearest indication that the economy is in good shape but growth is not re-accelerating could be seen in the Philadelphia Fed’s nonmanufacturing index.  It was largely flat in April, but level was still quite solid.  Optimism remains high.  Indeed, a greater proportion of the respondents indicated they thought that their firm’s business conditions would improve than said it would remain the same.  Few expected they would see their own business suffer a reduction in activity.  MARKETS AND FED POLICY IMPLICATIONS:  First quarter growth looks like it came in near the same 2.2% pace that we saw in the fourth quarter.  The unknowns and likely drivers of improved growth are inventories and trade.  Unintended inventories increases appear to have occurred and those will have to be worked off.  The uncertainty over tariffs – and the hopes that might be lifted – may have led to strange patterns in imports.  Regardless, whether the number is better than worse than forecast, the underlying pattern of growth remains near the 2% or so trend rate.  That is consistent with a housing market that is basically going nowhere.  As for investors, the focus seems to have returned to earnings, not politics or economics and so far, the profits reports have been decent.  Meanwhile, back at the Fed, I suspect the members would be smart to keep their heads down, especially if growth comes in above consensus.  With labor costs high, productivity low and energy prices rising, inflation is not going to decelerate.  Which raises the question: Why did Chair Powell rush to hoist the white flag in December?

March Wholesale Prices and Weekly Jobless Claims

KEY DATA: PPI: +0.6%; Energy: +5.6%; Personal Consumption Ex-Food and Energy: +0.4%/ Claims: -8,000

IN A NUTSHELL:  “Producer costs are rising a little faster, but not enough to cause inflation to accelerate significantly.”

WHAT IT MEANS:  With the administration screaming for a rate cut, inflation pressures have become even critical to the discussion and the Fed.  Producer prices surged in March, but most of that came from a jump in energy costs.   Food prices rebounded, but that was after much larger declines in the previous two months.  Indeed, over the year, finished consumer food costs are up less than one percent.  Transportation and warehousing costs were off sharply despite the rise in energy prices.  That could change.  Services prices were also up moderately, meaning that there was some pressure on wholesale costs.  The measure I like to watch is the index for personal consumption excluding food and energy.  It rose fairly solidly in March and was up 2.4% from March 2018.  While the pathway from wholesale to retail prices is hardly straight and often a dead end, if wholesale prices of core consumer goods keep rising moderately, some of that is likely to bleed in retail prices.  That would point to a slow acceleration in consumer inflation.

New claims for unemployment insurance broke below the magical 200,000 number last week to hit the lowest level since October 1969. That was near the peak in the Viet Nam War when not having a job often meant winding up in the military.  And to really put that number in perspective, the labor force was one-half the size that it is currently.   In other words, the labor market remains incredibly tight.  MARKETS AND FED POLICY IMPLICATIONS:The recent consumer and producer price data don’t point to any major acceleration or deceleration in inflation.  Therefore, the Fed will feel no economic pressure to do anything.  While that may be good news for Chair Powell’s rate policy, it further exposes the Fed to the slings and arrows of outrageous politicians.  Apparently, applying political pressure on the Fed has become an acceptable form of behavior.  That includes not just speaking out about what Fed policy should be but also potentially nominating people who are perceived to be being willing to impose political beliefs on the Fed.  Keep in mind; if those currently politicizing Fed policy get away with it now, it opens the door for all future politicians to politicize the Fed.  And if they are successful, the markets will not be able to determine the true purpose of Fed policy, reducing its credibility and effectiveness.  So I ask you, do you really want politicians running both monetary and fiscal policy?  We have seen how well Washington does with budgets and fiscal policy; do we really want that same approach to determine interest rates and liquidity?  I understand that investors and politicians all want the lowest rates and the fastest growth, regardless of the longer-term implications.  But that is not why we have a Fed.  Its purpose is not to create the maximum growth rate for the current group of politicians to run on but to look out over the future and minimize the ups and downs so longer-run growth can be maximized.  If that means raising rates and reducing balance sheets, so be it.