Economic Analysis: Looking Beyond the Weather

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Feb. 28 (Bloomberg) -- KPMG's Constance Hunter and the Peterson Institute's Joseph Gagnon discuss consumers, the economy and Fed policy on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

Initially estimated in the fourth quarter.

Weather is believed to have played role.

What is the rest of the story?

That estimate fell as well as consumption.

Whether played some role.

-- weather played some role.

The service rate of gdp has been growing faster than in recent quarters.

Services grew at 2.2%. there've been growing at under one percent for the last couple of years.

They actually make up the largest consumption.

They are 70% of consumption.

50% growth is actually from services.

Sing the services growing at a 2.2% rate is actually quite a good underlying place for the economy to be.

The market seem to struggle hrug off that gdp news because janet yellen indicated on thursday that policymakers are not stuck to a firm reduction of monthly asset purchases.

Why do you think in tumor confidence increased in december?

What will it mean for future spendingg?

There is often a lag in the effect of the house prices and the housing additions and stock prices on consumers.

There has been a gradual improvement in the labor market which also has a lag effect.

These things just build over time.

I'm not surprised.

I think the fed is optimistic for a good reason because we don't have big tax increases and spending cuts like we did last year.

It creates a much better climate.

As the fed has pointed out, this bill engages in very loose monetary policy.

They're taking away the extraordinary measures.

They are not raising rates.

They're been very clear that rate raising is going to be affecting and not starting until 2015. how quickly can policymakers make that pivot?

There are two ways they could change the paper.

It they could slow the amount of tapering from $10 million to $5 billion zero.

Or they could actually reverse it and start adding.

They can do this whenever they want.

They can have an inner meaning of vent -- even.

They can do it whenever they have a meeting.

Whenever they want.

Although i really think they won't do an inner meeting group.

They might do one.

That said taper strategy -- it is interesting to note that although the fed is a market and have similar views, the fed is more optimistic about the economy.

If the economy does weekend and it turns out not to be just wheather, you could see a halt in the taper.

What effect might that have on mainstream thanen?

The fed is not on the game yet.

The economy needs to start to come back.

Back in december, you wrote an op-ed for usa today.

"for the fifth time in less than five years the fed has jumped the gun and starting to scale back its support of economic recovery.

Inflation still below target and unemployment is still falling." yeah.

I would not have done with the fed did in december.

I would've wanted to have solid data in hand.

Today's report only confirms that.

I think it was a bit premature.

They are moving slowly.

I remain optimistic about the underlying economy as constant said.

-- constance said.

To see.

You also wrote something as well.

You wrote about this inflation.

He likened it to kryptonite to central bankers.

What is the main disinflation warning sign?

Is kryptonite because it is not something they have that much power to do much about.

We are seeing lower price increases month over month and that's what we tend to call disinflation.

All of our trading partners have very low levels of inflation.

If you look at europe, we are under 1%. canada under 1%. japan has just got it's level to just over two percent.

Floyd noris wrote about the changing economic forecast coming out of the congressional budget office.

He wrote the cbo forecast that they had seen enough of a slow economy to begin to think that we should get used to sluggishness.

He expressed concern.

Cbo's forecast shake and what happens washington.

What is your take on cbo's assumptions and their models that they use to reach their conclusions?

They are very mainstream.

There is some evidence of potential growth of the u.s. economy that will be slower going forward.

I don't think by much.

But by some.

We have seen a 30 year decline in where interest rates are, especially in real terms.

I don't think it's going away.

I think the new normal will be lower interest rates and lower growth.

I will give you the last word.

I'm expecting the report be fairly weak.

In large part due to the weather affect.

Chief economist of alternate investments at kpmg.

And the senior fellow at the

This text has been automatically generated. It may not be 100% accurate.

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