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Steen Jakobsen: US deep freeze not to blame for cooling economy.
Steen Jakobsen: US deep freeze not to blame for cooling economy.
The Federal Reserve Bank had a snow day when it published the March 2014 Beige Book, or so it would seem. Investment website Seeking Alpha spotted that the Fed mentioned the word ‘weather’ 119 times, while the word ‘snow’ was linked to poor economic performance on 24 occasions.
Saxo Bank’s Chief Economist and CIO Steen Jakobsen is currently writing his 2014 outlook and says that the weather may improve, but the economy won’t. He argues that the higher food and energy bills during the very cold winter months will chill consumer spending in the wider economy.
Although large snowstorms battered the Northeast and Midwest throughout February, data detailing the economic impact of these storms is unsupported by the Beige Book. This repetitious excuse involving weather appears to have been the Fed’s attempt to convince the public that growth remains positive despite data suggesting otherwise. For example last week US Non Farm Payrolls suggested a rise of 175K in employment, but overall unemployment rose slightly to 6.7%.
The Fed will likely use the Beige Book as support for its decision to continue tapering at the current rate. This unwavering focus could be dangerous for the US economy, as the Fed’s economic tightening would be occurring as the market enters into a cyclical downturn. Ironically, this is when economic stimulus would be needed the most and economic data from January suggested the presence of cyclical issues, not weather-induced problems.
The Fed finally concluded from the Beige Book that “the outlook among most districts remained optimistic," and the recent economic slowdown was the result of “unusually severe weather.” Currently, weather and the economy are highly correlated in the Fed’s eyes, as spring temperatures are expected to accelerate growth. The Fed is due to hold its next meeting on March the 18th
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