Investors often look to the Leading Economic Index to see which way the economy and the markets are headed. What should we expect in the coming months? Advisor Perspectives analyzes the newest numbers. One thing to look for in coming years is higher interest rates. The president and CEO of the Federal Reserve Bank of Atlanta was in Macon, Georgia recently and discussed his projections for the Fed funds rate. Business Week notes that if interest rates in emerging economies rise too high, it could create deflationary pressures here in the U.S. Now that developing nations make up 40% of global GDP, their economies have far more impact on our own.
Conference Board Leading Economic Index Edged Up in January– The Leading Economic Index doesn’t indicate a recession in the next six months. “The U.S. Leading Economic Index continues to fluctuate on a monthly basis, but the six-month average growth rate has been relatively stable in recent months, which suggests that the economy will remain resilient in the first half of 2014 and underlying economic conditions should continue to improve,” said Ataman Ozyildirim, an economist at The Conference Board. http://advisorperspectives.com/dshort/updates/Conference-Board-Leading-Economic-Index.php
Atlanta Fed Chief Weighs In On Economy And Interest Rates– Dennis Lockhart, president and CEO of the Federal Reserve Bank of Atlanta, was in Macon, Georgia recently. He believes that the normal Fed funds rate will eventually reach 4% (it’s currently 0.25%). Lockhart said, “The most recent projections (by members of the Federal Open Market Committee) for the long-term equilibrium policy rate have been 4 percent. … those projections don’t assume that we’re going to get to that 4 percent equilibrium rate quickly. So, it will be some more years before we get to that point.” The Macon Telegraph covers the story:
The Lurking Threat of Deflation– Disinflation—a drop in the growth of inflation—could become a worldwide problem if the central banks of emerging economies raise borrowing costs too rashly. The U.S. and other advanced economies could feel a disinflationary pinch if their currencies continue recent gains, making the prices of imported goods cheaper and exports less appealing to markets with weaker currencies. Disinflation harms the economy because it keeps companies from raising prices and workers from getting decent raises. It also can lead to deflation, which is even more damaging. http://www.businessweek.com/articles/2014-02-20/deflation-threat-from-emerging-markets
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John R. Day, Bill Ennis, Stephanie Davidson and Matt Heller