2015 Economic growth

Janet Yellen's 7-Year Itch


Are Fed officials getting the seven-year itch? The central bankers have kept short-term interest rates (the federal funds rate) near zero since December 2008. Back then, the economy was reeling from the financial crisis and was one year into what would become the most severe recession since the Great Depression. Slashing interest rates and purchasing bonds were strategies meant to spur lending and stimulate the economy. Fast-forward seven years and the U.S. economy finally is firming -- growth is accelerating to about 3 percent annually and job creation has picked up. The improvement has allowed the Fed to conclude its bond-buying plan and would seem to indicate that ultra-low rates are no longer necessary. But in minutes from the last Fed policy meeting, officials are struggling to agree on the timing and pace of interest-rate increases, not to mention the best way to communicate their intentions to the public.

At issue is the core problem with normalizing monetary policy: waiting too long to increase rates could lead to inflation and/or could create financial asset bubbles, while moving too quickly could snuff out the recovery. With all of the uncertainty swirling, it is great timing that Fed Chairwoman Janet Yellen will testify before Congress this week on the outlook for the economy and monetary policy.

Fed officials and the rest of the investment community were relieved to learn that the Eurozone approved a four-month extension on Greece’s €240 billion ($273 billion) bailout plan, which was set to expire on February 28th. The Greek government must submit details by Monday on the reform and budgetary measures it plans to take in order to seal the deal. There are some indications that European officials will be a bit more lenient on the terms going forward, but nothing is set in stone yet.

The extension sets up a looming summer deadline, because it will expire before a €7 billion ECB bond repayment is due. Additionally, there is the overarching concern that anything that occurs in the near-term is noise, because few believe that Greece’s debts, worth over 175 percent of GDP, will ever be repaid in full. That’s why there have been more calls for Greece to leave the euro zone -- the so-called “Grexit”.

A Grexit seems far less ominous today than it would have five years ago. But there would be losers, including euro zone countries, which own about 60 percent of Greece’s debt, the IMF, which holds about 10 percent and the ECB has 8 percent and private investors, who hold about 17 percent. And no doubt there would also be a negative market reaction. But with some time, there could be a more thoughtful way to manage the exit process and limit the systemic repercussions.

Finally, get ready for America Saves Week, an annual opportunity for organizations to promote good savings behavior and a chance for individuals to assess their own saving status. Only about half of Americans actually have a savings plan with specific goals, so clearly there’s a long way to go to get people on board with the celebration.

MARKETS: The temporary Greek deal was enough to push the Dow, the S&P 500 and the Russell 2000 to new records, while the NASDAQ inched within 1.9 percent of its all time high of 5,048 reached in March 2000.

  • DJIA: 18,140, up 0.7% on week, up 1.8% YTD
  • S&P 500: 2110, up 0.6% on week, up 2.5% YTD
  • NASDAQ: 4,956 up 1.3% on week, up 4.6% YTD
  • Russell 2000: 1231, up 2.2% on week, up 2.3% YTD
  • 10-Year Treasury yield: 2.14% (from 2.02% a week ago)
  • April Crude Oil: $50.34, down 4.6% on week
  • April Gold: $1,204.90, down 1.8% on week
  • AAA Nat'l avg for gallon of regular Gas: $2.25 (from $2.17 week ago, $3.39 a year ago)


Mon 2/23:

8:30 Chicago Fed Nat'l Activity Index

10:00 Existing Home Sales

10:30 Dallas Fed Manufacturing Survey

Tues 2/24:

Home Depot, Hewlett-Packard, Macy's

9:00 Case Shiller Home Price Index

10:00 Consumer Confidence

10:00 Janet Yellen testifies before Senate Banking Committee

Weds 2/25:

10:00 New Home Sales

10:00 Janet Yellen testifies before House Financial Services Committee

Thurs 2/26:

8:30 CPI

8:30 Durable Goods Orders

Fri 2/27:

8:30 Q4 GDP (2nd estimate)

9:45 Chicago PMI

10:00 Consumer Sentiment

10:00 Pending Home Sales Index

2015 Economic Crystal Ball


No rest for the weary or hung over…time to dust off the crystal ball to see what lies ahead! Global Economy: After increasing at an estimated 2.4 percent rate in 2014, economists expect that U.S. GDP will pick up to 3 percent this year, which would be the strongest growth in a decade. Since 2000, the fastest real GDP growth was 3.8 percent in 2004, and the fastest growth for the recovery was 2.5 percent in 2010. The dot-com meltdown, plus the financial crisis has taken a toll on the U.S. economy since 2000, with an annualized pace of 1.9 percent, well below the post World War II average of 3.3 percent.

The drivers of growth include: consumers, who after paying down lots of debt, should see wage gains and will continue to enjoy the benefits of low energy prices; state and local governments, which have stopped slashing budgets and may spend a bit more freely; and the housing market, which after taking a breather in 2014, should contribute more to the economy in 2015.

Outside the U.S., the picture is more complicated. China’s double-digit growth rates are a thing of the past, as the world’s second largest economy attempts to impose controls that will likely keep GDP at six to 7 percent in the year ahead. Japan and Europe are still battling low prices, which is why central banks in both areas are likely to crank up efforts to defend against inflation. Emerging markets will continue to diverge, with countries that have not addressed economic imbalances, like Russian, Brazil and Venezuela struggling, while more balanced economies, like India, Thailand and Chile should be better positioned for growth.

2015 Year of the Raise: If 2014 was the year of the job (probably the best year for job creation since 1999), economists are hopeful that 2015 will be the year of the raise. Wage growth has remained stubbornly at 2 percent during the recovery, but this year, the improving economy and labor market should help wage growth finally start to outpace the rate of inflation.

Federal Reserve Rate Hikes: With bond buying over, the big question for 2015 is: “When will the Fed FINALLY increase short-term interest rates?” Reading between the lines of central bank speeches, statements and press conferences, most believe the first rate hike will occur in the third quarter of the year. Goldman Sachs analysts’ noted that once the Fed starts the process, it could move faster than the market now expects.

Oil: At her last press conference of the year, Janet Yellen called low oil a “transitory” phenomenon, which loosely translated means “Don’t get too used to those cheap gas prices!” The reason is that supply and demand will surely change. If the global economy picks up, so too will demand for oil, but these changes often occur slowly, which is why some economists are predicting that oil prices will likely remain in a range of $50 to $75 a barrel in 2015.


  • DJIA: 17,823.07, up 7.5% (6th annual gain, longest streak since 1990s)
  • S&P 500: 2058.90, up 11.4% (up an average of 20.7% a year for the last 3 years including dividends, its best three-year returns since the late 1990s)
  • NASDAQ: 4736.05, up 13.4%
  • Russell 2000: 1204.70, up 3.53%
  • Stoxx Europe 600: 342.54, up 4.35%
  • Argentina Merval: 8579.02, up 59.14%
  • Shangahi A Shares (Mainland China): 3389.40, up 53.06%
  • RTS Russia: 790.71, down 45.19%
  • 10-Year Treasury yield: 2.173% (from 3.03% a year ago)
  • February Crude Oil: $53.27, down 46% (lowest level since May, 2008)
  • February Gold: $1,184.10, down 1.5%
  • WSJ Dollar index: 83.04, up 12% (highest level since Sep 2003)
  • AAA Nat'l average price for gallon of regular Gas: $2.24 (from $3.32 a year ago)


Mon 1/5:

Automobile Sales

Tues 1/6:

9:45 PMI Services Index

10:00 Factory Orders

10:00 ISM Non-Mfg Index

Weds 1/7:

8:15 ADP Employment Report

8:30 International Trade

2:00 FOMC Minutes

Thurs 1/8:

8:30 Weekly Jobless Claims

3:00 Consumer Credit

Fri 1/9:

8:30 December Jobs Report

10:00 Wholesale Trade