Have you seen the film The Day After Tomorrow? The one where U.N. officials foolishly ignore climate scientist Jack Hall (Dennis Quaid) and a super-storm plunges New York into a new Ice Age? Well it was colder than that last week when Mike and I made a research visit over there. With wind-chill it was a billion below. I was only able to survive by laughing at Mike forgetting to wear a hat and gloves on day one. It was that bad.
We saw the full range of Street economists – at one end, one predicted that Yellen would pre-announce rate hikes at her testimony the next day (she didn’t), whilst others saw no chance at all of any action from the Fed for at least a year. The consensus though remains for a June or September hike. In this short video we can barely talk, through cold, but we run through some of the arguments in both directions. In short the Fed WANTS to hike, to prevent financial instability, to get away from the zero bound, and because of a strengthening job market feeding through into wages. But it SHOULDN’T hike because of the global deflation wave, likely negative CPI prints for the US for many months, and for the small but real chance that hiking now would send the economy back into recession, and consign Fed members to infamy as much as the “liquidators” like Andrew Mellon during the Great Depression.