Ouija may be more trusty than NY, Atlanta Fed

IT’S Round 2 of the fight between the Atlanta Federal Reserve Bank and the New York Fed. And this time, the regional banks are in the opposite corners when it comes to what the economy is doing.

Two months ago, I wrote about how the Atlanta Fed thought the US economy in the first quarter was growing at just an 0.9 percent annual rate.

At that same time (and the projections did change a little over time), the New York Fed was a lot more optimistic, predicting that the first quarter would have much more vibrant annual growth, of 2.8 percent.

When the actual first-quarter gross domestic product was released in late April, it showed that Atlanta was a lot more accurate. The GDP grew at just a 0.7 percent annual rate in the first quarter.

Even with a revision made last Friday to the first-quarter GDP (it was hiked to 1.2 percent annual growth from 0.7 percent), Atlanta wins. New York lost that one.

But things are a lot different right now. The once-optimistic New York Fed, through what it calls its Nowcasting, believes the economy in the second quarter is growing at just a 2.2 percent annual rate.

The Atlanta Fed? Its GDP Now forecast sees second-quarter annualized growth at a more robust 3.7 percent.

So the roles have been reversed. And this discrepancy is happening at a crucial time because the Federal Reserve’s policymaking committee announced last week that it is getting close to its third interest rate increase in six months.

The Fed wants to raise rates and needs to for reasons I’ve mentioned lots of times before. For one thing, the Fed’s current extremely low rate policy has been a hidden tax on savers for years. And it has caused a bubble in the stock market, which — despite the risks — is the only way investors can earn a reasonable return on their assets.

But most important, Janet Yellen’s Fed needs to raise rates so it can lower them when the economy slows again and the country needs a boost.

So what’s influencing the Fed’s thoughts on raising rates at this point? If it thinks the Atlanta forecast for second-quarter growth is correct — 3.7 percent — a rate hike is almost guaranteed at the Fed’s policy meeting June 13-14.

The New York Fed’s forecast of annualized 2.2 percent second quarter growth probably won’t stop the Fed from raising rates in June. But 2.2 percent growth, coming after a very lousy first quarter, isn’t anything to cheer about and will produce some rate hike haters on the Fed board.

The New York Fed has greater influence over Yellen and the others who decide on whether or not to raise rates.

That’s because at the New York Fed, President William Dudley sits on that policymaking committee. The head of the Atlanta Fed, Marie Gooding, isn’t part of the decision making team this year.

The official announcement of the second-quarter GDP won’t come from the Commerce Department until July 28.

Even then, as I’ve explained before, that figure will be largely based on guesstimates of how the economy is doing.

According to the minutes of the last Fed meeting released last Wednesday, some of the policy board members are already nervous.

So the rate committee will have to rely on the guesses of its own internal economists; those of the conflicting regional Feds, mainly New York and Atlanta; economists on Wall Street and academia or Ouija boards in making its next move.

Then, in late July, it will know a little better — but only a little — whether it made a mistake.

The Fed said something that was even more important than addressing a rate hike in last Wednesday’s communiqué. It said “vulnerabilities appeared to have increase for assets valuation pressures.”

The Fed never speaks in plain English. But that means the Fed is getting nervous about bubbles (and it’s about time) in places like the stock market.

And that’s not surprising, because the Fed’s actions in keeping interest rates so low for so long have forced millions of people into the stock market who wouldn’t otherwise be in it.

It took a while. Remember, it was in 1996 that former Fed Chairman Alan Greenspan, who is most responsible for our country’s financial problems, warned of “irrational exuberance” in stocks. Four years later, the dot-com bubble eventually did pop and investors lost a lot of money.

Last Thursday, I wrote about a notech scam that involved crooks putting a sticky substance in mailboxes so that letters deposited by people wouldn’t fall to the bottom. The crooks would then steal the envelopes people thought were deposited. They’d get checks, personal information and a lot more. Postal officials never called me for comment until — as often happens — after they were (probably) embarrassed. So here’s an update. The Post Service says that seven people were arrested for stealing the mail of the person who I referred to in that column as Marilyn. “Customers who notice any sticky residue or damage to the blue mailbox should take their mail to the local post office and report it. This creates a record of possible criminal activity in the area,” the USPS told me to tell you.