Seven Faces of “The Peril”
James Bullard, president and CEO of the St. Louis Federal Reserve Bank: “In this paper I discuss the possibility that the U.S. economy may become enmeshed in a Japanese-style, deflationary outcome within the next several years…I emphasize two main conclusions: (1) The FOMC’s extended period language may be increasing the probability of a Japanese-style outcome for the U.S., and (2) on balance, the U.S. quantitative easing program offers the best tool to avoid such an outcome.”

A few notes on the GDP revisions
Scott Sumner, professor of economics, Bentley University: “So now we know that the severe recession of 2008-09 began in the third quarter. Since Lehman didn’t fail until the quarter was almost over, there is simply no way it could explain why the recession got much worse during those summer months. What can explain the worsening recession? How about a Fed that refused to cut rates for nearly 6 months after April 2008, despite a steadily falling Wicksellian equilibrium interest rate. A Fed focusing on headline inflation numbers driven up by imported oil prices, not the expenditures on American-made goods and services.”
Stop Worrying About Structural Unemployment
Andy Harless, chief economist, Atlantic Asset Management: “If we’re looking for evidence of an increase in structural unemployment, we need to compare the rate at which openings fill today to the rate at which they filled in the past. When was the last time that there were this many job openings? In November 2008, there were 3.2 million openings but only 4.1 million hires. So job openings are filling faster now than then.”
Fed Mulls Symbolic Shift
Jon Hilsenrath, The Wall Street Journal: “Federal Reserve officials will consider a modest but symbolically important change in the management of their massive securities portfolio when they meet next week to ponder an economy that seems to be losing momentum.”
U.S. Banks Stronger, Still Need More Capital
International Monetary Fund: “The United States financial system is stable, but risks remain and implementing reforms recently signed into law is the next challenge, according to the IMF’s first detailed assessment of the world’s largest financial system.”
Welcome to the Recovery
Timothy Geithner, Secretary of the Treasury (via NY Times):
“We have a long way to go to address the fiscal trauma and damage across the country, and we will need to monitor the ups and downs in the economy month by month. The share of workers who have been unemployed for six months or more is at its highest level since 1948, when the data was first recorded, and we must do more to ensure that they have the skills they need to re-enter the 21st-century economy. Small businesses are still battling a tough climate. State and local governments are still hurting…We suffered a terrible blow, but we are coming back.”
U.S. Deflation Scare: 2003 Repeat?
BCA Research: “There are significant differences between the recent drop in inflation expecations and the 2003 scare: The previous recession was far milder than 2008-09 and was marked by a severe contraction in (non-financial) corporate profits rather than a housing bust and financial crisis. Nevertheless, then as now, the pace of growth seemed to be fading following the initial post-trough bounce.”
Fed Likely to Pass On More Stimulus Amid Signs Economy Weak
Craig Torres and Scott Lanman, Bloomberg News: “Federal Reserve policy makers signaled they will probably pass on providing more stimulus at their Aug. 10 meeting and wait to see if signs of weaker economic growth persist.”