We walk through the final days of the first quarter wondering if the economy's pace will accelerate in the coming three months, as many expect. Last week's stock market rally indicates investors are betting that economic indicators will blossom this spring.
Feeling better, thank you
Investors had a slight, short-lived bout of indigestion following last week's meeting of the Federal Reserve. Comments made by Fed Chair Janet Yellen were construed by some as indicating that an interest rate increase could be coming sooner than expected. Stocks fell immediately after Yellen's news conference, then recovered and gained ground.
Despite initial alarm, the annexation of Crimea by Vladimir Putin has not been seen as setting off anything approaching true saber-rattling between Russia and the West. Not yet, anyway. If global events remain in the background, the performance of the economy should guide the markets this week.
What to watch
Among the economic reports on tap for this week:
- The S&P/Case-Shiller home price index is released, Tuesday at 9 a.m. (all times Eastern)
- The Conference Board releases the March consumer confidence index, Tuesday at 10 a.m.
- The Commerce Department releases February new home sales, Tuesday at 10 a.m.
- The Commerce Department releases a revised estimate of fourth quarter gross domestic product, Thursday at 8:30 a.m.
- The Commerce Department releases February personal income and spending figures, Friday at 8:30 a.m.
- The University of Michigan releases consumer sentiment figures, Friday at 9:55 a.m.
What's wrong with low inflation?
You may love predictable prices, but the Federal Reserve wants a little more inflation. Savers should want that, too.
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Mark Hamrick: From Bankrate.com, this is "Your Money This Week."
We connect the dots between what's happening in the world and your wallet.
I'm Mark Hamrick reporting from Washington.
Inflation: Some people of a certain age remember the huge price increases in the 1970s that seemed to begin with a gasoline shortage and ended up with soaring food prices.
Not broad inflation, but price increases have also been seen in recent years in important areas such as health care and college tuition.
Even so, inflation is widely perceived to be under control in the U.S. Can that last forever? And what are the prospects for better returns on savings in the years ahead?
We'll chat with Stuart Hoffman, chief economist with PNC Financial Services.
Bankrate's Crissinda Ponder takes a look at the world of virtual currencies, amid speculation that the days of cash are numbered.
And, as always, we take a look back at this week in business history.
All of that and more coming up on "Your Money This Week."
There's an old saying: Everyone complains about the weather, but no one does anything about it. Well, the same might be said about prices. There's always a fair amount of grumbling about rising prices, of things like fuel and food.
But inflation has been mostly absent from the economy, broadly speaking, in recent years, in part because of the damage done by the financial crisis. The latest Consumer Price Index covering February is a case in point. It was barely up at all.
Low inflation, and low interest rates are not so good for savers, of course, who've had miserly returns on their savings for years now.
Our interview is with Stuart Hoffman, chief economist with PNC Financial Services.
Stuart Hoffman: In the U.S., we've have had steady, low inflation, and that is good. It is below the Fed's target as we saw in the Consumer Price Index. It was up one-tenth of 1 percent, meaning a little over 1 percent at an annual rate, and indeed, from a year ago, we are at 1.1 percent. A big help from, frankly, lower gasoline prices than the first couple of months this year compared to last year probably may not last for too much longer.
But yes, so we have low inflation, it is a little below the Fed's target. The Fed thinks inflation will accelerate a bit, up closer to 2 percent in the next couple of years. So, it is a very benign situation. We do not have too much inflation by any means, but we do not have deflation -- that is where are prices are actually falling -- as we have seen in Japan or in other countries or in other times in the U.S. But I do not see that now or on the horizon.
Mark Hamrick: Now, when we talk about inflation being benign, what we are really saying is, is that there is not a damaging increase in prices. But we know that in the low interest rate environment, there are some -- I guess you could say unintended consequences that include the fact that savers are getting virtually no return on their investments, if you look across the landscape and try to look at what you might get on a certificate of deposit. There just is no there, there. So in an ideal, normal economy -- and we are not there yet -- would we see a higher rate of inflation, even though consumers kind of think, 'That is not really what I want'?
Stuart Hoffman: So, the Fed would like to see a bit more inflation. I think over time, not this year but maybe next year or the year after, it may be cold comfort that those very, very low interest rates on money funds and CDs, which were actually below even the 1 percent inflation rate we have recently, will go up. I do not expect that to happen this year, but in a normal economy, if inflation is about 2 percent, usually short-term CDs and money market accounts are going to be above 2 percent. They may not be much above that, but at least a little above the inflation rate. That is not today, and you are right, interest rates are abnormally low. They could not get any lower relative even to inflation that we have today, the very little inflation we have had today.
Mark Hamrick: So Stuart, would it be your expectation that over time, when we talk about inflation, whether it is a year, two years, five years from now, we will get back to a pattern that is more associated with what we have seen historically?
Stuart Hoffman: Yes, that is our forecast, that we will have a normalization in the economy and interest rates after -- The last five years have been extraordinary in the financial crisis and their relatively slow, below average recovery. And the Federal Reserve has continued to try to stimulate the economy by holding the interest rates over which they control at virtually zero.
But I think over the next -- you're right, not next year, but next two or three or four years, it is all forecast, but it is an expectation we will see what I'll call normalization of interest rates moving back up to maybe 2 to 3 percent. The kind of rates we are talking about -- saving rates, money market accounts, and the inflation rate -- will probably be a little faster and closer to 2 percent, but you are right, that is a multi-year process, it is likely not going to occur this year. And there is no sign of it in the recent inflation data, and that is why short-term interest rates that pay you virtually nothing, unfortunately are not going to start that movement-up process probably until much later next year.
Mark Hamrick: My sense is when we were coming out of the financial crisis, there probably was some thinking among most of us, or let us just say, the typical American, that, like so many things in our country, we'll move on quickly from that, and things will get back to normal in no time. But this long period of healing has really underscored just how serious that financial crisis was, and how we are still digging out, right?
Stuart Hoffman: Yes, I mean it sort of was a near-death experience for the economy, kind of what we say, a depression, a 1930s, that could last a decade long, of no economic growth or decline. Like we saw a good part between 1931 and, you know, it was not really to that end of that decade that we had any kind of consistent improvement. So this isn't that -- it wasn't that deep, we have had growth, but yes, it does show the lingering effects of the very severe recession that we had in '08 and '09, and the long and slow healing process we have had in the time since then. And it is probably not at the point where we will be fully healed for a maybe a number of, maybe a number of three, four, five more years, assuming nothing intervenes to have a major setback. But yes, it will take us nearly a decade to have healed from the recession at the tail end of the last decade, although that decade, this decade that we are in now, still will be far better than what our probably grandparents or great grandparents had to live through in the 1930s.
Mark Hamrick: Yes, as we began talking Stu, we referenced the Consumer Price Index, which, as we know, is the main gauge of prices or inflation at the retail level, that is released by the Labor Department. And, this latest set of statistics was for the month of February. Contained within that report was a little factoid I found interesting, and that was food prices rose four-tenths of 1 percent. Why that was significant is because that was the biggest increase since September 2011. And we know that we have had remarkably severe winter weather across the eastern half of the country, and certainly, in an important food producing state, the state of California, there is an ongoing drought. I am wondering whether you think that there is some long-term risk to food price inflation that consumers may be hit with.
Stuart Hoffman: I do not think a long-term risk, there might be a little more of a short-term risk. Meaning by short-term, I mean the rest of this year as opposed to the next four or five years, because droughts come and go and bad weather comes and goes. Two years ago, of course, we had the drought in the Midwest, and we had a big increase in corn and soybeans and other prices. But then, last year was normal, and who knows what this year will shape up to be, and there was some bountiful harvest, and we have seen a big drop in some of those basic agricultural commodities.
But right now, there is definitely some inflation in the food area, in meats, and there could be, as you said, some vegetables and other areas that come from part of the U.S. that has been hit by bad weather. We import a lot of that from Mexico and South America. So it is more than just what is happening to weather and growing conditions here in the US.
So I am not saying I see any long-term, any multi-year problem of much faster food inflation, but near-term, we may see people paying more for eggs and milk and beef, and some basic commodities, at least more than they have been paying the last couple of years. In fact, when you go to the grocery store, even though inflation is low, and we see all these official numbers. I know when I talk to 'people on the street' and talk to people, they tell me about how it just seems that everything they buy, particularly food products, just keeps going up a lot faster than shows in these official numbers. Well, the official numbers may be going up a little faster, reflecting some of these higher food prices.
Mark Hamrick: Well Stu Hoffman, it is always great to catch up with you, thanks so much for your time, it was terrific.
Stuart Hoffman: Well thank you, nice talking to you.
Mark Hamrick: Stuart Hoffman, chief economist with PNC Financial Services.
He spoke with us from his office in Pittsburgh.
How much longer can cash be king?
Few of us pay with paper money or coins any more, with electronic transactions, such as debit and credit cards taking over.
Could there be a similar revolution ahead for currency, with the likes of Bitcoin?
Bankrate's Crissinda Ponder says there are all kinds of would-be successors vying for attention.
Just as Americans are starting to wrap their minds around Bitcoin, a slew of alternative virtual coins are waiting for their chance in the spotlight. I'm Crissinda Ponder with your Bankrate.com Personal Finance Minute.
Questions about altcoins have resurfaced as Bitcoin continues to be a victim of bad publicity.
The names of some of these altcoins include Dogecoin, Litecoin and Peercoin, and experts estimate that there are more than 100 altcoins in the cryptocurrency market.
Some altcoins are created to support a cause, some are created as jokes and others are created to provide innovation to the crypto-currency landscape.
Will any of these up-and-coming altcoins overtake Bitcoin? Some experts are doubtful because of Bitcoin's large network of investors, merchants and miners, and because of its name recognition. Other experts are hopeful that an altcoin will emerge as a better option than Bitcoin.
For more on virtual currencies and other personal finance matters, visit Bankrate.com. I'm Crissinda Ponder.
Finally, our look at this week in business history....
It was show business before movies, radio and television. We're talking about the circus.
On March 28, 1881, The Greatest Show On Earth was born through the merger of the circuses of P.T. Barnum and James A. Bailey.
Barnum himself died a decade later. Early in the 1900s, Barnum and Bailey would merge with the Ringling Bros. Circus. It's still touring the country with several different shows today.
You've been listening to "Your Money This Week."
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For more on this and other personal finance issues, visit Bankrate.com. And you can follow us on Twitter @bankrate.
Thanks to producer Lucas Wysocki for his work in the studio and to reporter Crissinda Ponder.
I'm Mark Hamrick. From all of us here at Bankrate, here's hoping you have a great week.
Russian bear market? Nyet
If there's a more serious flare-up coming out of Ukraine, the risk is that the financial markets could have a more negative reaction than what's been seen so far. But a recent report from IHS Global Insight downplays chances of an escalation.
"It appears that the most likely scenario is one in which Russia maintains control over Crimea but, despite whatever turmoil may ensue, does not seek to introduce a military presence into other regions of Ukraine," say the IHS analysts. "In this case, the Western response will be restricted to diplomatic and limited economic measures."
In other words, the situation is expected to remain contained.
Consumers should thaw
Better-than-expected retail sales reported for February raised hopes the economy is shaking off icicles.
Among those holding an optimistic view is Joel Naroff, president of Naroff Economic Advisors, who thinks the snapback in the coming months will be "huge." That's after the cold dampened everything from car sales to home building across much of the nation.
From an economic standpoint, "winter matters or really brutally cold weather and snow matters," Naroff says. If consumers do spend more and other areas improve, he thinks growth could be as strong as 4.5 percent in the second quarter.
Consensus: A steady outlook
A survey of many of the nation's top economists, released today, finds a more upbeat outlook on the economy. The National Association for Business Economics, or NABE, looks for growth, as measured by the gross domestic product, to rise from 1.9 percent in the first quarter of this year to 3.2 percent in the third quarter of 2015.
As for the job market, the NABE panel expects unemployment to average 6.4 percent this year, down a percentage point from 2013. For 2015, the economists look for the jobless rate to dip to 6.1 percent. Even so, they forecast monthly job creation this year to run slightly below last year's pace, but they anticipate greater numbers of jobs will be added in 2015.
This week in business history
On March 28, 1881, "The Greatest Show On Earth" was born through the merger of the circuses of P.T. Barnum and James A Bailey. Barnum would die a decade later. Early in the 1900s, the Barnum and Bailey show would merge with the Ringling Bros. Circus, which is still touring with several different shows today.
Follow me on Twitter: @Hamrickisms.