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August 01, 2016 at 05:33 AM
(Bloomberg) – When Janet Yellen decides she’s ready to raise interest rates again, her impetus may be her go-to source on wage trends: the Federal Reserve Bank of Atlanta.
The Fed chair in June cited the district bank’s data tracking wages of individuals from year to year, which showed a robust 3.6 percent increase in the latest period. The Atlanta Fed is also the source of “everyone’s favorite tracking estimate” for gross domestic product, says Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York.
As the central bank tries to understand the U.S. economy, researchers across the 12 district banks are racing to find better ways to measure growth, employment and inflation. On Peachtree Street in midtown Atlanta, 23 economists have developed some of the Fed’s more influential gauges that are shaping the debate about when next to change interest rates.
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“The Atlanta Fed is doing some fascinating research,” said Drew Matus, deputy U.S. chief economist at UBS Securities LLC in New York who formerly worked at the New York Fed. “They have been ahead of the curve in looking at things from a different perspective, which adds a lot of value in the current environment.”
Directed by Atlanta Fed President Dennis Lockhart, a 69-year-old former Citigroup banker, and Research Director David Altig, reports introduced since 2009 have boosted the bank’s relevance in monetary policy-making.
The Atlanta Fed’s tracking of gross domestic product has proven more accurate since its introduction than consensus Wall Street forecasts, getting closer to the first report of U.S. growth than private estimates in four of the past six quarters. It estimated a 1.8 percent increase in the second quarter, closer to the actual 1.2 percent figure reported early Friday than the 2.5 percent median estimate of Wall Street economists.
Its inflation data has proven to be groundbreaking as well. The Atlanta Fed’s sticky-price index, which only measures prices that don’t move often, giving a signal on underlying inflation, has been followed by similar research by the Bank of England and the National Bank of Hungary.
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Atlanta’s approach changed in the wake of the 2007-09 recession, as economists sought to understand why the recovery was different than others, said Altig, research director who was hired by Lockhart from the Cleveland Fed.
The new tools are the product of the weekly 90-minute briefing by the top Atlanta economists each Tuesday for Lockhart and before major outlook speeches. Lockhart, who has never dissented on a Federal Open Market Committee policy decision, has sometimes been a bellwether of how the entire panel is leaning because he has been pragmatic and changed views with incoming data.
Fed held rates on Wednesday
“As the recovery progressed, we kept finding things.” Altig said. “The dynamics of the labor force, including the lack of wage growth, was the first thing to catch our attention. That inflation was for so long underneath the FOMC objectives.” The research focus “grew out of those sorts of questions.”
Many of the projects have been years in the works.
Altig originally asked economist Pat Higgins to put together the growth tracker, called GDPNow, starting in 2010. While Lockhart and his team regularly tracked consensus monthly forecasts by private economists, it was impossible to deconstruct exactly what was driving the often large changes, Higgins said.
