One of Don’s observations from the Barron’s Conference, is an election handicapper’s projection that Barrack Obama has a 66% chance of winning a reelection. The biggest negatives to Romney are that he makes populist statements inferring that we should have a trade war with China and that Ben Bernanke should be removed as head of the Federal Reserve Board. Most economists and business people would disagree with those two statements.
We read a recent report from the New York Federal Reserve Bank that applied historic economic expansion experience to our current economic expansion. The conclusion was that the unemployment rate could decline faster than currently forecasted because the employment reports focus primarily on big businesses to the exclusion of small businesses. In an economic expansion, small businesses create more jobs than big businesses. A surprise on the upside may be that the economy expands at a faster annual rate than 2.5%.
Generally a growing economy leads to rising interest rates. This may not be the case this time around because of the excess supply of labor and the baby boomer demand for fixed income securities for retirement funding purposes. It remains clear that the Federal Reserve will not let interest rates rise until we see actual inflation, or the unemployment rate drops below 7%.