The U.S. Economy in 2015 : Cheap Oil, Global Weakness and a (Potentially) Bumpy Fed Tightening

        By Ben Leubsdorf
        The U.S. economy ended 2014 with the wind at its back, on track for its best year of job creation since the end of the 1990s and enjoying the strongest economic growth in more than a decade, at least during the third quarter.
        Can it keep up the momentum in 2015, or will the recovery stumble and stall yet again? Will the Federal Reserve begin to raise interest rates that have been pinned near zero for more than six years, and if so, will the tightening process go smoothly? Here are views from some of the economists who spoke over the weekend on two panels organized by the National Association for Business Economics during the annual meeting of the American Economic Association in Boston.
        Ellen Hughes-Cromwick, economist at the University of Michigan's Ross School of Business and former chief economist at Ford Motor Co., on the positive effects of cheaper oil:
        "I'm kind of a cautious bull, and I can be a roaring bull because we just had the most incredible positive oil supply shock. I mean, oil is cut in half. You cannot believe, reading the financial press, that people are not just going crazy about what that's going to do. ... That is an incredible boost."
        R. Glenn Hubbard, economist and dean of the Columbia Business School, on growth in the U.S. versus overseas:
        "We have had an uneven global recovery, to be sure. Despite the sometimes-sour attitudes in this country, the U.S. continues to dominate industrial economy success. Consensus forecasts over the next year will be 2.5% to 3% GDP growth, that's probably at or a little bit above the current potential growth rate of the economy. Other forecasts are not nearly so sanguine, with Japan and the eurozone likely to grow just over 1% over the next year and considerable growth risk...in China. Even with the downside risks faced by the American economy over the next year, it's still likely to be the relative winner of the party."
        Lawrence Summers, economist at Harvard University and former Treasury secretary, on why the situation isn't as good as it might seem:
        "The United States is now about 10% below (the) potential that was estimated in 2007. Insofar as the output gap has closed, it is not because we have gotten closer to what we previously thought potential was. It is because we have revised downwards our assessment of the economy's potential. That 10% of potential represents about $20,000 per American family. ... We are recovered only on a definition that defines down what it means to recover."
        Mark Gertler, economist at New York University, on the Fed (probably) starting to raise interest rates this year:
        "The likely window would be June to December 2015. Based on past experience, the normalization process should take roughly two years, if all goes well. The ride up could be a little bumpy, but nothing in comparison to what the ride down was."
        Eric Rosengren, president of the Federal Reserve Bank of Boston, on discussions about the Fed starting to raise rates:
        "There are unusual conditions that I think complicate the normalization of rates this time. Short-term rates are unusually low; we're not normally at the zero lower bound. Long-term rates are also quite low, not only here but in all the developed countries around the world. Central-bank balance sheets are in a very different position than they normally are, so that is an unusual feature of this cycle. We're in a very different inflation experience, we're in a situation where low inflation continues to be actually a problem in a number of the major developed economies, so that they're actually going to be in an easing cycle. Other countries are near their inflation target, likely to see getting close to their inflation target, and they'll be in a tightening cycle. ... Some might say that there's a little bit more complexity to what we're doing in this cycle than what we were doing in the previous two [post-recession tightening cycles, which began in 1994 and 2004]. But certainly, the fact that we're at a point where normalization's being discussed is a positive one."
        Access Investor Kit for Ford Motor Co.
        Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US3453708600
        (END) Dow Jones Newswires

        January 04, 2015 11:04 ET (16:04 GMT)

#FX
#Forex
#BenLeubsdorf
#U.S.Economy
#CheapOil
#GlobalWeakness