FED’s Fisher: Economy Likely to “Grind to Halt” in H2 (Updated)
Dallas FED president Richard Fisher says:
* The housing market has yet to find a bottom
* Consumers “hammered” by falling real income; savers squeezed by negative real interest rates; business margins under pressure from high fuel and transportation costs
* Q2 GDP was probably better than the 1.9% initially reported, but the economy will slow “to a snail’s pace, if not completely grind to a halt” in H2. Slowdown could extend into 2009.
* CPI is underestimating effective inflation (owner’s equivalent rent is holding the headline number down)
* Commodities markets — like equity and bond markets — are “manic-depressive mechanisms” that overshoot on both the upside and the downside
* US risks widespread inflation and higher inflation expectations if recent burst of “cost-push pressures” isn’t worked through quickly