Econoday RSS Generator mam.econoday.com/getrss.asp?cust=mam Econoday Economic News en webmaster@econoday.com ©2011 Econoday Sun, 19 May 2013 01:29:00 GMT http://www.econoday.com/graphics/nav/home_big3.jpg http://www.econoday.com/ Econoday Highlights
Will the economic discussion sound upbeat or downbeat at today's FOMC? ]]> info@econoday.com Wed, 22 Jun 2011 GMT Econoday Highlights
Disappointingly slow recovery together with no hint yet of QE3 are the central points of a poorly received FOMC. The Dow fell into the close, down 2/3 of a percentage point to 12,109. At $94, oil firmed slightly as did gold to $1,550. Concern over Greece pushed down the euro while giving the dollar index a nearly 1/2 percent boost.
]]> info@econoday.com Wed, 22 Jun 2011 GMT Econoday ]]> info@econoday.com Wed, 22 Jun 2011 GMT Econoday PreviousActualPurchase Index - W/W Change4.5 %-2.8 %Refinance Index - W/W Change16.5 %-7.2 %Composite Index - W/W Change13.0 %-5.9 %
Highlights
The number of mortgage applications fell in the June 17 week cutting into but not reversing very strong gains in the prior week. The index tracking purchase applications fell 2.8 percent with refinancing applications down 7.2 percent, which in combination pulled the composite index down 5.9 percent. Behind the pull back, at least in part, are the week's slightly higher rates, at 4.57 percent for 30-year loans for a six basis point rise in the week. ]]> info@econoday.com Wed, 22 Jun 2011 11:00:00 GMT Econoday PreviousActualM/M change-0.3 %0.8 %Y/Y change-5.8 %-5.7 %
Highlights
Home prices in April unexpectedly rose, breaking a string of monthly declines. The FHFA purchase only house price index rose 0.8 percent in April, following a 0.4 percent decrease in March. April's gain followed six consecutive monthly losses.

On a year-on-year basis, the FHFA HPI is down 5.7 percent versus down 6.2 percent in March.

For the nine Census Divisions, seasonally adjusted monthly price changes for month-ago April ranged from minus 1.3 percent in the Mountain Division to plus 2.2 percent in the New England Division. Six of the nine Census Divisions weakened in April. By region, year-ago weakness was led by the Mountain Division, down by 10.9 percent, followed by South Atlantic, down 8.6percent, and Pacific, down 7.7 percent.

The next update on home prices is with the Case-Shiller home price index out on Tuesday, June 28.
]]> info@econoday.com Wed, 22 Jun 2011 14:00:00 GMT Econoday PreviousActualCrude oil inventories (weekly change)-3.4 M barrels-1.7 M barrelsGasoline (weekly change)0.6 M barrels-0.5 M barrelsDistillates (weekly change)-0.1 M barrels1.2 M barrels
Highlights
An increase in inputs to refineries helped draw down oil stocks which fell 1.7 million barrels in the June 17 week to 363.8 million. Steady gasoline output together with a solid rise in demand made for a 0.5 million draw in gasoline stocks. The distillate story shows steady output but a decline in demand making for a 1.2 million barrel build. Refineries operated at 89.2 percent of capacity which is the highest reading since August.

The biggest news in this report is probably the rise in demand for gasoline which at a year-on-year plus 0.9 percent reflects lower pump prices and shows its best rate since March. Oil prices are firming slightly in reaction to the oil and gasoline draws. ]]> info@econoday.com Wed, 22 Jun 2011 14:30:00 GMT Econoday PreviousConsensusActualFederal Funds Rate - Target Level0 to 0.25 %0 to 0.25 %0 to 0.25 %
Highlights
As expected, the Fed left policy rates unchanged, is allowing QE2 to end this month, but has decided to delay the natural unwinding of its expanded balance sheet. The Fed left its fed funds target rate at a range of zero to 0.25 percent and retained the "extended period" language on keeping rates low for some time. There were no dissenting votes.

The Fed essentially retained its recent language on policy rates. The key new information on policy is actual confirmation that the Fed will continue to reinvest principal payments on balance sheet holdings to delay shrinkage of the balance sheet.

"The Committee continues to anticipate that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The Committee will complete its purchases of $600 billion of longer-term Treasury securities by the end of this month and will maintain its existing policy of reinvesting principal payments from its securities holdings."

The FOMC gave the current economy a modest downgrade, mentioning recent events in Japan for the first time as one of the causes.

"Information received since the Federal Open Market Committee met in April indicates that the economic recovery is continuing at a moderate pace, though somewhat more slowly than the Committee had expected. Also, recent labor market indicators have been weaker than anticipated. The slower pace of the recovery reflects in part factors that are likely to be temporary, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan."

Notably, the Fed has retained its outlier position that current sluggishness in the economy is temporary. Even more striking, the Fed not only sees the current bump up in inflation as temporary, it also sees inflation easing to below its implicit target. This belief in the direction of inflation is almost certainly due to recent declines in crude oil prices.

"The unemployment rate remains elevated; however, the Committee expects the pace of recovery to pick up over coming quarters and the unemployment rate to resume its gradual decline toward levels that the Committee judges to be consistent with its dual mandate. Inflation has moved up recently, but the Committee anticipates that inflation will subside to levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate."

Overall, the Fed is a little less negative than most economists and analysts, calling for improved recovery in coming quarters. Some of this clearly is the economy moving past supply disruptions from Japan. Nonetheless, the Fed is keeping monetary policy as loose as is possible without actually engaging in a third round of quantitative easing.

There was little market reaction to the statement. Bernanke's follow up press conference at 2:15 p.m. ET, however, might get more reaction.
]]> info@econoday.com Wed, 22 Jun 2011 16:30:00 GMT Econoday Highlights
In today's press conference, Chairman Bernanke reiterated that the FOMC expects the economy to strengthen but not at the pace previously anticipated. He notes that headwinds are stronger than thought. On the issue of whether to allow the balance sheet to unwind, Bernanke stated that the FOMC has not made a commitment on the timing of reinvesting.

Regarding the FOMC forecast, the Fed bumped down its GDP growth numbers for 2011 and 2012. The central tendency range for 2011 is now 2.7 percent to 2.9 percent and for 2012, 3.3 to 3.7 percent. The April projection for 2011 was 3.1 percent to 3.3 percent and for 2012, 3.5 percent to 4.2 percent. The forecast for 2013 was little changed at 3.5 percent to 4.2 percent.

The unemployment forecast has been raised to a central tendency range of 8.6 to 8.9 percent for 2011, 7.8 percent to 8.2 percent for 2012, and 7.0 to 7.5 percent for 2013.

The forecast for PCE headline inflation is for 2011 is a range of 2.3 to 2.5 percent; 2012 at 1.5 to 2.0 percent and the same for 2013. Core PCE inflation is seen coming in within a range of 1.5 to 1.8 percent for 2011; 1.4 to 2.0 percent for 2012 and the same for 2013.

Bernanke stated that there has been improvement in labor markets with payroll growth improving. He noted that a year ago the Fed was falling short on both mandates-unemployment was too high and inflation was falling below desirable levels. There has been improvement on both fronts.

On the issue of Greece, the Fed chairman said that the Fed was following progress there and has been in close communications with colleagues in Europe. He notes that Europeans realize the importance of resolving the Greek issue. He sees any potential Greek default as having a very small effect on U.S. banks, based on stress tests.

Regarding the U.S. federal budget deficit, Bernanke calls for a long-term plan but in light of current weakness in the economy, there should be no sudden, sharp cuts in federal spending.

Responding to whether the Fed will consider or has the authority to implement an inflation target, Bernanke indicated that he personally has favored such an approach and that an inflation target would give the Fed more flexibility in responding to short-term considerations on output and employment. An explicit target would help anchor inflation expectations. He sees low inflation in the long term as consistent with healthy job growth. He believes the Fed has the authority to establish an inflation target but also believes it would be appropriate to consult with Congress before establishing an official inflation target.

Bernanke sees that underlying inflation pressures are still low due to a still very large output gap. However, he acknowledges that higher energy prices have passed through to some core items, citing higher air fares as an example. He still sees core inflation as easing in the near term.

On what "extended period" means in the statement, the Fed chairman said does not know how long it applies but sees rates remaining low for at least 2 to 3 meetings but it could be longer.

Regarding when exit should begin from an expanded balance sheet, Bernanke states there is no option other than to watch incoming data.

On when the unemployment rate might return to normal, the Fed chairman sees payroll numbers improving relative soon, but since growth is only slightly above potential, the unemployment rate will come down painfully slowly. He states that he is concerned about the impact on workers being unemployed for so long. He sees it taking several years to return to a 5.5 percent unemployment rate. In contrast, he says that the economy is no longer in risk of deflation. After a question related to Japan's difficulties with deflation, he said a determined central bank can always do something about deflation since inflation is a monetary phenomenon.

On housing, he sees it at important to recovery but noted that credit standards have tightened substantially. Uncertainty about employment also is slowing the housing market. He sees monetary policy encouraging employment and income gains which will boost housing.

Overall, Bernanke's Q&A indicates that the Fed is putting monetary policy on hold, maintaining a very loose stance. He sees the economy improving in coming quarters with current sluggishness as temporary. Equities edged down marginally over the press conference.
]]> info@econoday.com Wed, 22 Jun 2011 18:15:00 GMT