One on One with Stuart Hoffman, Chief Economist at PNC Financial Services Group
Wednesday, November 29, 2006
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SUSIE GHARIB: Joining us now with more analysis on those economic numbers, Stuart Hoffman, chief economist at PNC Financial Services Group. Hi, Stuart.
STUART HOFFMAN, CHIEF ECONOMIST, PNC FINANCIAL SERVICES GROUP: Hi, Susie.
GHARIB: As you look at all of these economic numbers, what do they tell you about the economy? What kind of shape is it in?
HOFFMAN: These numbers smack of the so-called soft landing. Clearly growth has slowed down. It's not growing at 3 or 3.5 percent as it was the last couple of years. Housing is certainly a drag and probably hasn't hit the ground floor yet, but the overall economy is doing well. The Fed's beige book from around the country anecdotal grass roots information says consumers were spending, houses were weak, autos were weak, but the rest of the economy, particularly the service sector seems to be doing quite well.
GHARIB: All right. Well, as you said, housing was weak and so far this year new home sales are down 25 percent. We saw today oil prices nudging up. They're now at $62 a barrel. So what do those factors mean for growth in the fourth quarter?
HOFFMAN: I think economic growth this quarter for real GDP will be about the average of the last two, somewhere around 2.25 to 2.5 percent. That seems to be the kind of slowdown that would define a soft landing. Inflation in those numbers last quarter were a little bit better than they were in the summer. Of course with the huge drop in energy prices even with oil back up to $62, gasoline prices, other commodity prices are down. It means inflation is going to be very good this quarter. So it's a pretty good picture and certainly music to stroke investors' ears.
GHARIB: As we saw today. Do you think that these numbers fit into the view that Ben Bernanke delivered in his talk yesterday?
HOFFMAN: Yes. I expect the chairman might have had a little heads up on the GDP number being revised up. He described an economy with a risk on inflation is still to the up side. That's what a Fed chairman and other Fed members are supposed to say and do. But it looks to me as though their forecast of slower core inflation in 2007, with which I agree, looks like a pretty good one as well as growth, economic growth, and job growth a bit below trend but not snowballing. We don't have an economy that is snowballing down some slippery slope to a hard landing or a recession.
GHARIB: Last question. We pretty much have a consensus from Street economists that the Federal Reserve will stand pat on interest rates when they meet in two weeks. What about in 2007? Where do you stand? Rate cut or rate hike?
HOFFMAN: I stand in the rate cut camp. I don't think it will occur until mid year so we have the Fed fund rated at 5 1/4 growing roots. They're going to be there for a while, but I think the fed will kind of do some root canal and cut the Fed fund rate starting around June -- May or June of 2007 and bring it down 25, maybe 50 or 75 basis points, closer to that over the second half of next year.
GHARIB: All right. We'll hold you to that and we'll check in again. Thank you so much. We appreciate you coming on the program Stuart.
HOFFMAN: Thank you.
GHARIB: We've been speaking with Stuart Hoffman, chief economist at PNC Financial Services Group.
