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United States: The Powell put  
Fed chairman Powell has recently emphasized that the FOMC will be patient given the muted inflation reading and that it is ready  
to shift the policy stance swiftly if required He also considers that financial markets are pricing in downside risks well ahead of  
the data. This means that they are too pessimistic on growth Professional forecasters estimates of the probability of entering  
into recession in the coming quarters do not display the typical pre-recession dynamics either  
At the recent annual meeting of the American Economic  
US: THE ANXIOUS INDEX  
Association, New York Times journalist Neil Irwin, the moderator of  
a panel discussion between Ben Bernanke, Janet Yellen and  
Jerome Powell, quippingly started by wondering what you get when  
a lawyer (Jerome Powell) walks into a conference with 13000  
PROBABILITY OF DECLINE IN REAL GDP NEXT QUARTER (QUARTERLY, 1968 Q4 TO 2018  
Q4)  
1
00  
1
economists. Having watched the event on YouTube , the answer is  
8
0
“a clear message.  
When a central banker wants to influence the near term  
development of the economy and indeed of financial markets, he  
can signal a readiness to act should conditions require but he can  
also manifest a high level of conviction in describing the economic  
environment. Speaking at the panel, Powell did both things. On  
policy signalling, he insisted that the FOMC will be patient given  
muted inflation readings and that it is “always prepared to shift the  
policy stance and to shift significantly if necessary in order to  
promote our statutory goals of maximum employment and stable  
prices”. This stance goes back to the Greenspan era, and the  
liquidity injections following the October 1987 stock market crash.  
The view that, faced with a bleaker outlook, the Fed would swiftly  
ease its policy, thereby supporting investor risk appetite, is referred  
to by commentators as the Greenspan put, Bernanke put, Yellen put  
and Powell put. Importantly, the current Fed chairman was also very  
explicit on how his reading of the outlook differs from market  
signals: “I think the markets are pricing in downside risks and  
they’re obviously well ahead of the data.” We concur with this  
assessment not only based on the recent dataflow and its derived  
60  
40  
20  
0
1968 1972 1977 1981 1986 1990 1995 1999 2004 2008 2013 2017  
Survey date  
DIFFERENCE IN PROBABILITY OF DECLINE IN REAL GDP (4 QUARTERS AHEAD MINUS  
NEXT QUARTER)  
100  
0  
0  
0
0
0
0  
0  
0  
80  
-
2
3
measures , but also when looking at the “anxious index” . Based on  
a survey of professional forecasters, this index shows the probability  
of a decline in real GDP in the quarter after the survey is taken. Its  
recent trend does not display at all the traditional pre-recession  
dynamics. In addition, whereas in the run-up to recessions the  
difference in recession probability 4 quarters ahead versus next  
quarter declines, it is currently still rising.  
1968 1972 1977 1981 1986 1990 1995 1999 2004 2008 2013 2017  
Survey date  
Source: Federal Reserve Bank of Philadelphia, BNP Paribas  
Markets Overview  
Pulse & Calendar  
Economic scenario  
William De Vijlder  
1
https://www.youtube.com/watch?v=DH030t70Ho0  
The derived measures refer to the nowcasts of the Federal Reserve of Atlanta, New  
2
York and St Louis. Their respective estimates for real GDP growth (seasonally adjusted  
annual rate) are 2.8%, 2.5% and 2.6%.  
3
www.philadelphiafed.org/research-and-data/real-time-center/survey-of-professional-  
forecasters/anxious-index  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
Ce site présente leurs analyses.
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