One On One With Ethan Harris, Chief U.S. Economist of Lehman Brothers
Wednesday, April 05, 2006
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SUSIE GHARIB: Policymakers at the Federal Reserve will be watching closely this Friday`s employment report. So will investors. Joining us now with a preview of what to expect, Ethan Harris, chief U.S. economist of Lehman Brothers. Hi Ethan.
ETHAN HARRIS, CHIEF U.S. ECONOMIST, LEHMAN BROTHERS: Hi.
GHARIB: All right. The number that`s pretty much the consensus number is for 190,000 new jobs to be added to payrolls with the unemployment rate holding at 4.8 percent. What are you expecting?
HARRIS: Well, we also expect a pretty solid report. We are looking for a 200,000 job gain and we think there is a pretty good chance that the unemployment rate actually drops a tenth to 4.7 percent. So I think this is a report that is going to confirm a nice solid labor market in the United States.
GHARIB: With numbers strong like that, does that mean that the Federal Reserve will now give a green light to raising interest rates making them higher?
HARRIS: Yes. I think the Fed is hoping for at least a slight cooling off in the labor market. Right now, we have job growth that is putting pressure on the unemployment rate and we are now in a range for the unemployment rate that historically has generated some inflation pressure. The Fed doesn`t want to see that and so we do expect the Fed to continue hiking rates a little bit longer here.
GHARIB: The next Fed meeting is in May. We will get one more employment report after this Friday before that May meeting. The guessing game is how many more interest rate hikes by the Federal Reserve but where are you on all of that?
HARRIS: Yes. You look across the Wall Street consensus, anywhere from one to three more hikes seems to be the view. We are in the high end of that range. We think three more moves, the reason being we think there is a lot of resilience in this economy. We also think there will be a little bit of pickup in inflation. We think that things are getting a little too hot out there in the economy. So we have got the Fed going a little further than most forecasters.
GHARIB: You heard our report at the top of the program that higher gasoline prices are expected, higher oil prices. How much of a problem is that for consumers and their household spending and as a result, what will that mean for economic growth?
HARRIS: Yeah. Well, the economy has weathered a series of energy shocks. We have had much worse shocks in the last few years than the one we are looking at right now. And I think it is because namely because we do have a strong labor market and so households feel OK even if their energy bills are going up. My concern with energy is more later this year. If we do get a cooling off of the economy, if we have the housing market finally cool down and slow down the consumer a bit, at that stage, having a second blow from energy, the economy might have a tougher time handling the energy price increases. But right now, I think we can motor on through further energy price increases.
GHARIB: Let me follow up on that. There is this wall of worry about the economy, higher interest rates we talked about, higher gasoline prices, maybe a weaker housing market. When people ask you what kind of shape is the economy in, what do you say?
HARRIS: Well, I think the economy is in very good shape in the near term. There is a lot of momentum in the economy. The labor market is strong, capital spending is strong, I do think the economy has a lot of serious medium and long-term issues. I think we should be worried about a cooling down of housing because housing has been very supportive of the economy, and I think there are a whole host of longer term issues around the budget and trade balance that we need to worry about, but the near term outlook I think is quite positive.
GHARIB: OK. We are going to have to leave it there, Ethan thank you so much for sharing your thoughts with us. We appreciate it.
HARRIS: Thank you.
GHARIB: We have been speaking with Ethan Harris, chief U.S. economist of Lehman Brothers.
