Macro Commentary

I'm picking up some good macro commentary from comments. Does a pretty good job in summarizing the current situation, I guess:

There has been considerable investment in productivity enhancing technology, while there has not been a large investment in expanding capacity. Consumer demand is to an extent satisfied from abroad, and there is not enough domestic demand to warrant capacity expansion. This is especially so since capacity expansion was emphasized from 1996 till the beginning of the recession in 2000.

The recent increases in the Federal Funds rate coupled with a decrease in long term interest rates is highly unusual at the beginning of a Federal Reserve tightening cycle. After a 10 month series of Federal Funds rate increases in 1994, it was apparent the economy was slowing and long term interest rates began to decline several months before the Fed finished the cycle.

Bond investors now appear convinced there is no inflation to worry about and the economy is still weaker than the Fed has indicated. Employment prospects simply do not appear promising. There seems little reason then for the Fed to continue to raise short term rates. I think the Fed will raise, but I would much prefer a halt and hope growth will begin to increase enough to generate better than 150,000 jobs a month.

Could it be possible that economic growth may continue pretty much the way it is now? We are growing reasonably well, just not fast enough to create enough domestic demand to significantly add to job creation. We might continue in this way for quite a while. About 150,000 jobs created a month, enough to meet job creation needs due to labor force growth. Fairly low long term interest rates, reflecting little inflation and moderate economic growth. A stable housing market, stable dollar, moderate growth in the stock market. The most important problem in the near term may be the persistence of high energy costs and a crimping of household budgets to meet these costs.