The Business Cycle Dating Committee of the National Bureau of Economic Research has yet to call an official end to the recession that began in December of 2007, but most forecasters (and at least one outspoken member of the Committee, Bob Gordon) now believe the recession ended around the middle of 2009. We believe the recession ended in either June or July, so that the economy has been expanding for about a year.

Early in the recovery many forecasters, concerned that the nascent expansion was fueled only by temporary inventory dynamics and short-lived fiscal stimulus, fretted over the possibility of a double-dip recession. Now, with the emergence of the sovereign debt crisis in Europe, that concern has re-surfaced. Certainly we recognize that the debt crisis imparts some downside risk to our baseline forecast for GDP growth. However, based on current, high-frequency data — most of which is financial in nature and so is not subject to revision — we believe the chance of a double-dip recession is small.

One way we assess these odds is with a simple but empirically useful “recession probability model” in which the probability of experiencing a recession month within the coming year is a weighted sum of the probability that the economy already is in recession and the probability that a recession will begin within a year. The former probability is estimated as a function of the term slope of interest rates, stock prices, payroll employment, personal income, and industrial production. The latter is estimated as a function of the term slope, stock prices, credit spreads, bank lending conditions, oil prices, and the unemployment rate. Currently this model, updated through May’s data, estimates that the probability of another recession month occurring within the coming year is zero. (See Chart).

While ex post this model has a perfect record of predicting recessions, ex ante its predictions are only one factor we weigh when considering whether to introduce a double-dip recession into our baseline forecast. Still, the extremely low current reading is in notable contrast to readings during the early phase of the sub-prime crisis when the probability of recession flirted with 50% for a year before then finally rising strongly above that marker during the second half of 2007. At least by this measure, the economy appears to be in a less vulnerable position now than it was then.


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We'll be updating the MA blog a lot more frequently now.

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There was a lot to like in this morning's report on the employment situation in February.

Nonfarm payroll employment rose 236 thousand, well above expectations. The unemployment rate declined two-tenths to 7.7%.
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The Fed has been posting outsized profits in recent years and remitting them to the U.S. Treasury.

This is from a commentary that was published on February 22, 2013.
Yesterday Governor Stein provided a thought-provoking assessment of the credit market as a potential source of financial instability.

We see Governor Stein's remarks as consistent with the themes we developed in our most recent Rates Outlook commentary, published earlier this week.
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Policymakers generally used their public appearances to discuss their recent QE3 and funds rate guidance decisions. 

This is from a commentary that was published on January 28, 2013.
The FOMC is on hold with respect to the funds rate guidance but very much in play with respect to its future plans for QE3.

There are many points of view on how QE3 will evolve and when it will end.
Market participants often view economic growth as a guide to where interest rates should and will be.
We see the market (non-)reaction to the end of unlimited FDIC insurance as consistent with the notion that conditions in the financial market are gradually normalizing, which should help support the pace of economic recovery this year.
In the early hours of January 1, the House passed The American Taxpayer Relief Act of 2012 (ATRA), partly clarifying the view over the fiscal cliff.
The size of the Fed's balance sheet hardly changed between mid-September-when QE3 started-and the end of October. What happened to QE3?

Rest assured, the Fed has been implementing QE3 as advertised. There are two reasons why the balance sheet was little changed last month.
As we approach the fiscal cliff, attention is focused on what the FOMC will do and say on the way to and possibly over the cliff.

The macro effects of the cliff would be far too large for the FOMC to offset over any reasonable period. The Chairman has said so repeatedly.
General Points

We expect that  some economic activity will be delayed several days or even weeks, but this is an intra-quarter story with no impact on Q4 GDP growth.

The value of property destruction itself is not a negative in GDP.
The outcome of this election will almost certainly affect the conduct of monetary policy.
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In what must be one of the most dramatic shifts in policy positions in the history of the FOMC, President Kocherlakota changed teams today, moving from virtual “captain” of the “hawk team” to perhaps the new captain of the “dove team.”

President Kocherlakota said in a speech in May 2011 that, under
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There have been numerous sharp, even intemperate, attacks on the Fed by politicians, principally by Republican members of Congress and presidential hopefuls.
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[Note: This an an excerpt from an entry originally posted on April 14, 2011.
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The minutes of the June FOMC meeting noted that “several” members suggested that the Committee explore “new tools” to promote more accommodative financial conditions.
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