Information received since the Federal Open Market Committee met in November suggests that economic activity has continued to pick up and that the deterioration in the labor market is abating. The housing sector has shown some signs of improvement over recent months. Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment, though at a slower pace, and remain reluctant to add to payrolls; they continue to make progress in bringing inventory stocks into better alignment with sales. Financial market conditions have become more supportive of economic growth. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.
Let's look at some of the charts to get a better idea of what the Fed sees. As always, click on each image for a larger image.
Existing home sales have been picking up for most of the year as have
New homes sales (h/t Calculated Risk).
Real retail sales have bottomed. Note: I originally used the non-inflation adjusted chart for this. Sorry for the mistake.
Real PCEs are increasing, although weakly.
Real private fixed investment has been flat for the last ~6 months.
Initial unemployment claims are dropping. That tells us that the rate of job losses continues to deteriorate. In addition,
The rate of establishment job losses continues to moderate as well.
Bottom line -- and I've been saying for about 7-9 months now -- the economy is stabilizing and in some cases improving. It's not the greatest expansion we've ever seen, but considering where we were it's about what we should expect.
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
BUT .. the Fed is not expecting a strong economy (and they shouldn't) so they're keeping things easy for now.
6 comments:
Patient's status upgraded from critical condition to stable.
Good on the Fed for keeping perspective, even if those in Congress are saying the patient's ready to break 50-yard dash records again.
Bonddad you are getting ripped on Mish's blog and on Huffpo for your "what we don't know won't hurt us" attitude calling for everyone to just leave the Fed alone.
You continue to point to the governmental face of the fed - its board of governors and the FMOC. But really, how much do we know about what the private side of the the Fed -- its Board of directors (elected by member banks, aka primary dealers) You seem to think this benolevent bunch needs no monitoring!? Because the banks have proven to be altruistic and above board?
Would love to see your response to bloggers calling you out -- and rightly so
Anonymous --
Mish wants to abolish the Fed. Mish agrees with with Ron Paul.
Need I say more?
bonddad: "Mish wants to abolish the Fed. Mish agrees with with Ron Paul. Need I say more?"
Well, yes. In answer to this:
Anonymous: "You seem to think this benolevent bunch needs no monitoring!?"
. . . you might want to reiterate that they disclose their financial statements on-line and are annually audited.
I don't trust the Fed, but the good thing is, I don't have to. Greedy bankers really are the best caretakers of monetary policy. Governments are known to want to hyperinflate their currencies, so by putting our money supply in the hands of people who have a lot of money, we ensure we'll never become another Zimbabwe. Greedy bankers really don't want their dollars to become worthless overnight.
They do get annoying when they get the vapors over inflation fears when the economy is two shallow breaths past a deflation threat (something that drove Krugman nuts), but that's both a small price to pay and proof that they sincerely want our cash to be worth something.
"Greedy bankers really are the best caretakers of monetary policy"
Really? They've done such a good job over the last few years. My personal favorite: "Subprime is contained"
"Governments are known to want to hyperinflate their currencies, so by putting our money supply in the hands of people who have a lot of money, we ensure we'll never become another Zimbabwe."
What? This makes no sense.
I'm not arguing to abolish the Fed -- I'm suggesting that an audit is necessary. If the Fed is confident in their published audit then why are they protesting so much? Would be a harmless exercise, no. Why the objections?
Secrecy does not equal independence.
We should be making sure their wealth is in dollars and not inflation hedging investments. Then we'd know for sure they care about the dollars value.
That's more a personal accounting of the board than auditing the Fed though.
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