Speech (cont.)
Annotation
17. Our definition of “forecaster” – somebody who's not only wrong, but gets paid for it.
rather, the latest data on inflation have been lower than expected. If anything, the puzzle today is why inflation appears to be slowing at a time when most forecasters 17 place the economy at or near full employment.
18. Maybe in the Fed's
Editor’s note: We have abridged some longwinded talk on inflation and Phillips curves and picked back up on risks to the economy.
checkbook, but maybe not in yours.
19. Both being up in the stratosphere.
Broadly speaking, financial conditions today appear to be more balanced: 18 In most markets, house prices seem fairly well aligned with rents. 19 Large banks are much better capitalized than before the crisis and appear to be managing their risk exposures and liquidity much more carefully. 20 While today’s equity market valuations appear somewhat elevated, they do not seem to be near the dizzying heights reached in 1999 and 2000. 21 Moreover, for a variety of reasons, importantly including critical financial reforms 22 as well as changes in risk appetite, leverage and maturity transformation are at much lower levels than they were before the crisis. One area that merits ongoing vigilance is corporate indebtedness, which remains at a high level and where investor appetite still seems strong. 23 Another area of concern is auto lending—particularly in the subprime segment—where underwriting appears to have become quite lax last year and, consequently, delinquency rates indicate more borrowers struggling to keep up with their payments. 24 Eight years into the recovery, it is important to recognize that financial conditions can change rapidly and bear special vigilance. Nonetheless, risks to the U.S. financial system do not appear to be flashing red in the way they did in the run-up to previous downturns. 25 It is also possible that the natural rate of unemployment has moved lower or that the unemployment rate still may
20. By not loaning any money to anybody. 21. P/E ratios are at altitudes not seen since the dot-com bubble and the Shiller Cape Ratio is at 30, a peak last attained in 2000. Dizzy yet? 22. Gov. Brainard was an Obama appointee and is presumably a fan of the Dodd-Frank bill – legislation written by a man who hates all banks (Frank) and a man who didn't read what Frank wrote (Dodd).
23. At least Gov. Brainard gets this right.
24. Hello, Camel. Meet “Last Straw.”
25. “Do not appear to be
flashing red”? Don't go for a car ride with a Fed governor at the wheel. Debt levels exceeding their 2008 highs is about as dangerous a stoplight as you can run.
American Consequences | 39
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