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Menzie Chinn

Menzie Chinn

He is Professor of Public Affairs and Economics at the University of Wisconsin, Madison

Articles by Menzie Chinn

Summarizing China’s Short Term Economic Outlook

2 days ago

Wells Fargo Economics analyses the extent of the current slowdown, and contemplates the impact on regional economies. Here’s the heat map:

Source: McKenna/Guo, “China Economic Gauge and Sensitivity”, Wells Fargo Economics, 20 Sep 2021, Figure 1.
From the report:
Our dashboard (Figure 1) suggests the short-term outlook for China’s economy is indeed deteriorating, consistent with the multiple downward revisions we have made to our GDP forecast over the past few months. Given the signals our gauge is showing, we believe easier monetary policy could be the next major policy move from the PBoC, and another RRR reduction could be imminent as authorities look to offset some of the deceleration.
This report is in line with the Goldman Sachs report (discussed here).
Wells Fargo highlights

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Motivations for Economic Policies in Western China

3 days ago

I’m not a China expert, but 20 years ago, I had the opportunity to hear the Chinese explanation for their planned policies in Western China (Xibu Dakaifa), translated in English journalistic accounts as “Develop the West” (I was the international finance economist on the Council of Economic Advisers at the time, and the Chinese counterpart, the State Development Planning Commission, was coming to Washington to meet with us; I was tasked with overseeing elements of the meeting).

As I recall (not having retained the briefing materials), we (the CEA) tried to convey our views that a capital intensive, infrastructure heavy, water-consuming approach to development would likely be counterproductive, or at least wasteful of resources, both economic and natural.
Victor Shih argued (in

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Wisconsin’s Labor Markets in August

5 days ago

Employment numbers for August were released yesterday. Nonfarm payroll employment fell, and is undershooting the July 2021 Economic Forecast:

Figure 1: Wisconsin nonfarm payroll employment from August release (black), forecast from July 2021 Economic Outlook, released in August (teal), civilian employment (red), forecast (pink), all in 000’s, seasonally adjusted. NBER defined recession dates shaded gray. Source: BLS, DWD, NBER, and Wisconsin Department of Revenue.
Civilian employment — which is measured with much greater error — continued to rise, coming close to forecast levels. The biggest month-on-month decline in a category (below main aggregates) was in Education and Health Services (at 7100), which might make one think seasonal adjustment is an issue; however, the  main

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Business Cycle Indicators as of Mid-September

7 days ago

Industrial production finally rises above levels in 2020M02 (the latest NBER peak). We now have the following picture of the macroeconomy (for some key indicators followed by the NBER’s BCDC).

Figure 1: Nonfarm payroll employment from August release (dark blue), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), consumption in Ch.2012$ (light blue), and monthly GDP in Ch.2012$ (pink), all log normalized to 2020M02=0. NBER defined recession dates shaded gray. Source: BLS, Federal Reserve, BEA, via FRED, IHS Markit (nee Macroeconomic Advisers) (9/1/2021 release), NBER, and author’s calculations.
Industrial production hit the Bloomberg consensus, while manufacturing production, at 0.2% m/m, missed the

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More on the China Slowdown

7 days ago

From BBVA (Jinyue Dong & Le Xia) today, discussing August data: “China | Worse-than-expected growth deceleration exposed the vulnerability of its anti-virus strategy”:

The August real economic indicators were released by the National Bureau of Statistics today, further confirming a continuing deceleration growth amid the recent regulation storms as well as the Delta variant virus flare-ups in mainland China. In particular, industrial production, retail sales and fixed asset investment all tumbled in terms of year on year growth.
And here are three graphs:

FAI is short for “Fixed Asset Investment”. Be careful with reading this graph, as the figures are the % change year-on-year on year-to-date investment (because these statistics are reported on YTD basis).

More, from Bloomberg a

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Wisconsin Monthly Economic Update

8 days ago

From the Wisconsin Department of Revenue – September issue. The regular publication of Economic Forecast reports (latest here) and the innovation of monthly updates contrasts strongly with the near economic news blackout in the second Scott Walker administration (discussed here). DoR has also added a lot more data visualizations, here.

Here’s a sectoral look at Wisconsin employment, relative to 2020M02.

Source: Monthly Economic Update, September 2021.

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CPI Undershoot Illustrated

8 days ago

Typical headline – “U.S. Consumer Price Growth Cools, Smallest Gain in Seven Months“, and “Treasuries Rally After CPI Seen Pushing Off Taper: Markets Wrap” or “Consumer prices climbed more slowly in August, welcome news for the Fed“. Here’re the graphical depictions of the undershoot, first in levels (updating graph from yesterday’s post).

Figure 1: CPI (blue), CPI nowcasts (light blue), Bloomberg consensus CPI (light green triangle), Core CPI (red), Core CPI nowcasts (pink), Bloomberg consensus core CPI (inverted brown triangle), all 1982-84=100, on log scale. NBER defined recession dates shaded gray. Source: BLS, Cleveland Fed (as of 9/10), Bloomberg (accessed 9/12), NBER, and author’s calculations.
Next, month-on-month annualized inflation (0.10 reads as 10%).

Figure 2:

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Slowdown in China

9 days ago

Goldman Sachs Current Activity Indicator (CAI) dips into negative territory in August. Since the CAI is scaled to GDP annualized growth, this implies negative GDP growth in that month.

Source: Global: GS Economic Indicators Update, 13 Sep 2021.
China’s August reading is -0.7% annualized growth.
The CAI is the first principal component of a set of macro indicators, scaled to GDP growth. The macro indicators include (for China) IP, PMIs, electricity use, auto sales, retail sales, cement production, freight volume, imports, etc.).
Yu Yongding has an article at PS  (“China growth prospects…”) indicating that China will not match earlier expectations for 2021 growth.

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Two Pictures – Money to Income and the Price Level

9 days ago

[For my Econ 435 students] Consider the following graphs. Figure 1 is M1 and M2 to real GDP (0.80 means 80%) for the United States. Figure 2 is M1 to real GDP on left scale, and CPI-all urban on the right scale (taking on a value of 100 in the period 1982-84).

Figure 1: M1 in billions of $ divided by real GDP in billions of Chained 2012$, Seasonally Adjusted at Annual Rates (SAAR) (blue), and M2 divided by real GDP (brown). Money is seasonally adjusted, end-of-quarter figures. Source: Federal Reserve via FRED, BEA, and author’s calculations.
Is this picture cause for worry, in terms of inflation? Can you explain why you think it is, or is not? Now consider this graph.

Figure 2: M1 in billions of $ divided by real GDP in billions of Chained 2012$, Seasonally Adjusted at Annual Rates

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August CPI – Nowcasts

10 days ago

The CPI release for August numbers is tomorrow. As of today, here are the Cleveland Fed nowcasts for CPI and Core CPI:

Figure 1: CPI (blue), CPI nowcasts (light blue), Bloomberg consensus CPI (red triangle), Core CPI (red), Core CPI nowcasts (pink), Bloomberg consensus core CPI (inverted brown triangle), all 1982-84=100, on log scale. NBER defined recession dates shaded gray. Source: BLS, Cleveland Fed (as of 9/10), Bloomberg (accessed 9/12), NBER, and author’s calculations.
Inflation expectations are rising — but below recent peaks — when using a simple breakeven calculation of Treasury and TIPS five year yields.

Figure 2: Five year inflation breakeven calculated as five year Treasury yield minus five year TIPS yield (blue), five year breakeven adjusted by inflation risk premium and

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Inflation – A Comprehensive Global Database, 1970-2021

10 days ago

From Ha, Kose, and Ohnsorge, One-Stop Source: A Global Database of Inflation:

This paper introduces a global database that contains inflation series: (i) for a wide range of inflation measures (headline, food, energy, and core consumer price inflation; producer price  inflation; and gross domestic product deflator changes); (ii) at multiple frequencies (monthly, quarterly and annual) for an extended period (1970–2021); and (iii) for a large number (up to 196) of countries. As it doubles the number of observations over the next-largest publicly available sources, the database constitutes a comprehensive, single source for inflation series. The paper illustrates the potential use of the database with three applications. First, it studies  the evolution of inflation since 1970 and document

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FT-IGM Macro Survey, on GDP, Inflation, Monetary Policy

10 days ago

From FT Friday, “Economists predict US interest rate rise in 2022” (Colby Smith/Christine Zhang), discussion of results of the second FT-Chicago Booth IGM survey of macroeconomists:

The Federal Reserve will have to wind down its pandemic-era stimulus programme quickly and raise US interest rates in 2022 in response to higher inflation, according to a poll of leading academic economists for the Financial Times.
The latest survey conducted in partnership with the FT by the Initiative on Global Markets at the University of Chicago Booth School of Business suggests a much more aggressive approach to tightening monetary policy than the Fed’s most recent projections and market expectations indicate.
This is shown in the FT graphic.

The ungated survey can be found here. Some points that were

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Guest Contribution: “Is policy effective at promoting the international role of the renminbi?”

12 days ago

Today we are fortunate to be able to present a guest contribution written by Georgios Georgiadis (European Central Bank), Helena Le Mezo (European Central Bank) , Arnaud Mehl (European Central Bank), and Cédric Tille (Graduate Institute for International and Development Studies, Geneva). The views expressed in this column are those of the authors and do not necessarily reflect those of the ECB or the Eurosystem. They should not be reported as such.

The dollar occupies a dominant role in international good and financial markets that goes well in excess of the economic weight of the United States. A central question in international economics is how solid that role is. While the creation of the euro has not displaced the dollar, the economic rise of China could represent a larger challenge

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Trilemma Indices Updated

15 days ago

The International Trilemma — sometimes called the Impossible Trinity — is the proposition that a country cannot pursue simultaneously full capital mobility, full exchange rate stability, and full monetary autonomy.

Source: Ito (2021).
In a series of papers Joshua Aizenman, Hiro Ito and I calculated indices to measure each of these dimensions, and evaluated the implications of the choices countries made ( [ACI2010]  [ACI2011] [ACI2016] [ACI2017] [ACI2020]). These indices have just been updated (website here), to 2020 for “monetary independence” and “exchange rate stability” and to 2019 for financial openness (as described in this post).
In the following graphs, you can see the evolution of the choices that groups of countries — industrial (IDC), emerging market (EMG) and non-emerging

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The August Employment Situation

16 days ago

The undershoot in nonfarm payroll employment is noticeable, with a flattening in high contact services employment growth.

Figure 1: Nonfarm payroll employment from June release (blue), July release (red), and August release (black), and August Bloomberg consensus implied level (red square). Source: BLS, Bloomberg (9/2), author’s calculations.
The Bloomberg consensus was consistent with constant growth rate; the miss was over 500K.
Employment from the household survey rose faster (twice as fast in August), but not enough to change the picture dramatically.

Figure 2: Nonfarm payroll employment (black), civilian employment over 16 (brown), and civilian employment adjusted to the NFP concept (pink). NBER defined recession dates shaded gray. Source: BLS, NBER.
Over the past year, civilian

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Business Cycle Indicators as of Early September

17 days ago

With the August employment situation release, we have the following picture of the macroeconomy.

Figure 1: Nonfarm payroll employment from June release (dark blue), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), consumption in Ch.2012$ (light blue), and monthly GDP in Ch.2012$ (pink), all log normalized to 2020M02=0. NBER defined recession dates shaded gray. Source: BLS, Federal Reserve, BEA, via FRED, IHS Markit (nee Macroeconomic Advisers) (9/1/2021 release), NBER, and author’s calculations.
Clearly, the employment numbers for nonfarm payroll have slowed their ascent, continuing a trend in established in consumption and personal income ex-current transfers in July’s numbers. The increase of 235K

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“Do Central Banks Rebalance Their Currency Shares?”

22 days ago

Some do; some don’t. Revised paper by me, Hiro Ito,  and Robert McCauley. From the abstract:

Do central banks rebalance their currency shares? The answer matters because the dollar’s predominant role in large official reserve holdings means that widespread rebalancing requires central banks to buy (sell) a depreciating (appreciating) dollar, stabilizing its value against other major currencies. We hypothesize that larger reserve holdings have led central banks to approach their investment more systematically and to make rebalancing in the face of exchange rate changes the norm. We illustrate the choice with two polar case studies: the US clearly does not rebalance its small FX reserves; Switzerland does rebalance its very large reserves, so that changes in exchange rates do not move its

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China and the Initial Response to Covid-19

23 days ago

A must watch documentary, even if you know the basic history: Frontline‘s “China’s Covid Secrets“.

From CRS, a timeline:

Late December: Hospitals in Wuhan, China, identify cases of pneumonia of unknown origin.
December 30: The Wuhan Municipal Health Commission issues “urgent notices” to city hospitals about cases of atypical pneumonia linked to the city’s Huanan Seafood Wholesale Market. The notices leak online. | Wuhan medical workers, including ophthalmologist Li Wenliang, trade messages about the cases in online chat groups.
December 31: A machine translation of a Chinese media report about the outbreak is posted to ProMED, a U.S.-based open-access platform for early intelligence about infectious disease outbreaks. WHO headquarters in Geneva sees the ProMED post and instructs the

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Inflation Outlook – Looking Forward to August Data

24 days ago

If the Cleveland Fed nowcasts are accurate, month-on-month CPI inflation will be down, core CPI rising slightly from 4 to 4.2% (annualized).

Figure 1: Month-on-month annualized inflation from CPI-all urban (blue), and nowcast as of 8/30 (light blue square),  from personal consumption expenditure (PCE) deflator (black), chained CPI  (brown), sticky price CPI (green), and 16% trimmed mean CPI (red). Chained CPI inflation seasonally adjusted by author. Source: BLS, Atlanta Fed, Cleveland Fed, via FRED, Cleveland Fed, and author’s calculations.

Figure 2: Month-on-month annualized inflation from CPI-all urban (blue), and nowcast as of 8/30 (light blue square), from personal consumption expenditure (PCE) deflator (black), chained CPI  (brown), and sticky price CPI (green). Chained CPI

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Delta Impact

24 days ago

From Bloomberg, Matthews and Shah, “High-Frequency Charts Show U.S. Economy Softening From Delta”:

The delta variant has muted the progress of the U.S. economic recovery from the Covid-19 pandemic, with consumers putting off some leisure spending and businesses delaying a return to normal operations, according to a number of high-frequency reports that show softness in August.
The Bloomberg article includes two graphs:

Some other high frequency indicators give a mixed message, for certain types of activity. Google Mobility Trends (August 24) shows some dropoff in retail and recreation, as well as transit stations, in recent weeks. Apple Mobility Trends indicates some dropoff in driving (but still above baseline) in recent weeks.
Other broad macroeconomic indicators show continued

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Chinn-Ito Financial Openness Index, Updated to 2019

25 days ago

We first constructed the index nearly 20 years ago! See the website for the data.

Here’s a map of financial openness in 2019 (normalized index, 1 to 0). The darker, the more open.

The description of the current dataset is Ito and Chinn (2021).
Hiro Ito and I constructed the index because there was few single, widely available and consistently updated measures of financial openness at the time, with the exception of Quinn’s (APSR, 1997) measure, which at the time was more limited in coverage. Individual dummy variables based on the IMF’s (old) de jure classification of controls (on exchange rates, export proceeds, capital account, current account) didn’t prove informative in one of my early empirical analyses of financial development (Chinn, 2004, ungated version here). The Chinn-Ito

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Measured Inflation in July

26 days ago

A CNN headline notes “A key inflation measure rose at fastest pace in 30 years in July”, with that key inflation measure being the year-on-year (y/y) personal consumption expenditure (PCE) inflation. In point of fact, that headline was actually incorrect as annualized m/m inflation was actually slightly higher in June.  But in any case, by focusing on the y/y rate, they missed the main message In today’s release — that month-on-month (m/m) annualized PCE inflation was down sharply, from 6.6% to 5.1%. Moreover, the core counterpart was also down, from 5.8% to 4.1% (0.3% m/m hitting the Bloomberg consensus on the nose.)

This personal income and expenditures release rounds out the inflation measures for July. Updating the graphs from this August 11th post, we have the following.


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Guest Contribution: “The G20 agenda in the pandemic’s year 2”

28 days ago

Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy  School of Government, and formerly a member of the White House Council of Economic Advisers. A shorter version appeared at Project Syndicate.

Rome will host the 2021 Summit of the G20 Heads of Government in October. Officials of member countries, including The finance ministers and central bank governors, are preparing for it.
The G20 meeting will come at a time of great uncertainty as concerns the health and economic effects of the pandemic in Year 2.  Although the mechanisms of international cooperation have been badly bruised by events of recent years, they are more important than ever, in light of the interconnectedness across nations that the pandemic so vividly demonstrates.
Of what,

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Guest Contribution: “Inflation Prospects: A Difficult Transition for Policymakers”

August 24, 2021

Today we are pleased to present a guest contribution written by Jongrim Ha (Senior Economist), M. Ayhan Kose (Chief Economist and Director) and Franziska Ohnsorge (Manager) from the World Bank’s Prospects Group. The findings, interpretations, and conclusions expressed in this blog are entirely those of the authors. They do not necessarily represent the views of the World Bank, its Executive Directors, or the countries they represent.

The COVID-19 pandemic plunged the global economy into its deepest recession since the Second World War. Amid a collapse in demand and tumbling oil prices, global consumer price inflation declined by 0.9 percentage point between January and May 2020 (Figure 1). This decline was about one-third more pronounced in advanced economies than in emerging market and

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Messages from the (Bond) Market

August 24, 2021

Today, the CEA published a blogpost on how the administration’s infrastructure and Build Back Better plans won’t be inflationary. I think it’s of interest to see how the market (which will undoubtedly turn out to be wrong) thinks inflation and output will evolve.

For medium term inflation expectations, I look to the five year inflation breakeven, and the expected inflation over the next five years as inferred using the breakeven and additional survey and market information.

Figure 1: Five year inflation breakeven calculated as five year Treasury yield minus five year TIPS yield (blue), five year breakeven adjusted by inflation risk premium and liquidity premium per DKW (red), all in %. NBER defined recession dates shaded gray (from beginning of peak month to end of trough month).

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Finding Your (Academic) Roots

August 22, 2021

There’s a nifty website where you can trace out the intellectual lineage of your favorite academic (or not so favorite, as the case may be). Here’s mine:

The institutions are those the individual is associated with (either as a graduate, or as a faculty member — it’s not always clear from how things are listed, so  you have to click to see more).
This tree was a revelation to me, the British branch in particular. Nor was I aware of the economic history branch which included Alexander Gerschenkron (who was also an adviser for the first person I RA’d for at graduate school, Albert Fishlow).
If you’re interested in only economics, then go to this link. Since the information is put in voluntarily, there’s no guarantee of accuracy of completeness. Nonetheless, it’s an interesting

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GDP at Risk? (update)

August 21, 2021

An increasing amount of GDP is accounted for by counties with rising fatalities, a slight change from a couple weeks ago.

Top: Share of GDP coming from counties with rising new cases (dark blue), deaths (light blue). Bottom: GDP in billions of 2012$, SAAR (blue). Sources: DB, Covid Impact Tracker , 19 August 2021, and IHS-MarkIt, release of 2 August 2021.
I’ve placed stacked the two graphs so that one can get some idea of how the waves correlate with the pace of recovery. It’s hard to see a clear pattern, except in the first wave where the decline affected counties correlates with a very rapid recovery in economic activity as measured by monthly GDP as estimated by IHS-MarkIt.
On 8/18, Goldman Sachs downgraded Q3 growth estimates from 9% to 5.5%, partly on delta variant concerns.

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How Long Can Florida’s Economy Grow with the Governor’s Current Public Health Measures Stance?

August 20, 2021

Actually, I should write “Anti-Public Health Measures Stance”… The CDC released the ensemble forecasts of 8/16 yesterday.

Source: CDC, accessed 8/19/2021.
The CDC’s central forecast is for Florida new weekly deaths for the week of September 11th to be 1461, with an interquartile range of (1249, 1739). The NY Times reports as of 8/19 that the 7 day moving average as 138.1, or the 7 day moving sum as 967. While attention is rightly paid to the overwhelmed nature of the hospital system, especially ICU availability, deaths are rising sufficiently fast so that the Florida government has requested morgue trucks from FEMA.
Florida’s July employment numbers are not out yet, but in any case, those figures would apply to the second week of the month, a period largely before the delta surge. The

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The Wisconsin Employment Situation in July

August 19, 2021

Employment numbers for July were released for today.

Nonfarm payroll employment and the August 2021 Outlook forecast:

Figure 1: Wisconsin nonfarm payroll employment from July release (blue), forecast from July 2021 Economic Outlook, released in August (teal squares), all in 000’s, seasonally adjusted. NBER defined recession dates shaded gray. Source: BLS, DWD, and Wisconsin Department of Revenue.
Nonfarm payroll employment in June was a bit below the DoR’s forecasted level for Q2, but growing rapidly at an 5.6% annualized. 4.6% is a bit slower than the national pace of 8.0%.  Relative to the 2020M02 nationwide peak, as of July WIsconsin NFP is down 3.8% as compared to 3.7% nationwide.
The dualistic nature of the recovery persists, with high contact services employment remaining more

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Forecaster Views on the Overheating Hypothesis

August 19, 2021

Earlier in the year, one fear was that excessive fiscal stimulus would push up inflation, push up long term yields. Professional forecasters don’t seem to view that outcome as imminent.

Figure 1: Ten year constant maturity Treasury yields (black), CBO (red), Administration (blue), Survey of Professional Forecasters August (teal), and WSJ July (gray x). WSJ rates pertain to end-of-quarter. Dates in graph pertain to forecast finalization of forecasts. Source: CBO An Update to the Budget and Economic Outlook (July), FY2022 Budget (June), Philadelphia Fed SPF (August), WSJ survey (July). 
Since these are different forecasts, it’s difficult to see how expectations have changed. I show the last two SPF and WSJ forecasts in Figure 2.

Figure 1: Ten year constant maturity Treasury yields

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