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FOMC Minutes: Job Market Key to Slowing QE Program

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WASHINGTON (1/9/14)--The Federal Reserve's policymaking body, the Federal Open Market Committee, acknowledged an improving economic outlook when it decided to reduce its monthly asset-bond purchases, according to the FOMC minutes released Wednesday.

Analysts at Moody's said there was broad support for tapering the quantitative easing (QE) program (Economy.com Jan. 8). At its Dec. 18 meeting, the FOMC voted for a reduction to $75 billion per month from $85 billion.

Participants stressed that QE was not on a preset course and would be determined by job market and inflation. Moody's analysts said the Fed will call for a $10 billion-per-month reduction at each meeting.

"Most participants judged the marginal costs of asset purchases as unlikely to be sufficient, relative to their marginal benefits, to justify ending the purchases now or relatively soon," according to the minutes.

Some officials "expressed the view that the criterion of substantial improvement in the outlook for the labor market was likely to be met in the coming year if the economy evolved as expected," the minutes said, noting that other indicators had shown less consistent progress toward full market recovery.

In January, it will purchase $35 billion per month in agency mortgage-backed securities rather than $40 billion. The Fed also decided to buy $40 billion per month in long-term Treasuries rather than $45 billion. The Fed is likely going to continue to reduce both MBS and Treasuries at a similar pace, ending QE by the end of this year, according to Moody's.

Eric Rosengren dissented at the December meeting because he viewed the decision to slow the pace of asset purchases as premature. "In his view, with the unemployment rate still elevated and the inflation rate well below the Committee's longer-run objective of 2 percent, changes in the asset purchase program should be postponed," the minutes said.

The committee's schedule for 2014 is:
  • Jan. 28-29;
  • March 18-19;
  • April 29-30;
  • June 17-18;
  • July 29-30;
  • Sept. 16-17;
  • Oct. 28-29; and
  • Dec. 16-17.

Survey: Mobile Banking Products Can Attract Small Businesses

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ANDOVER, Mass. (1/9/14)--Improved mobile banking could lead to mobile money, a recently published study has found.
 
Nearly two-thirds of small business owners said they would move their money to banks with better mobile products, according to the research firm ath Power (American Banker  Jan. 7).
 
Banks, however, appear to be falling short in tapping this demand. The study found that in 839 branch visits by small business owners in the second half of last year, 37% of bank representatives failed to mention mobile banking services.
 
The research also included a poll of small business owners' satisfaction with 38 banks. Bank of the West, Associated Banc Corp (ASBC) and JPMorgan Chase received the highest ratings at 80, 79 and 79 out of 100 points. Survey participants gave the trio high marks for being attentive to their needs, building relationships and demonstrating why they were better than bank  competitors. The average score was 71, down three points from last year's survey.
 
Another survey in the study showed that bankers aren't following up prospective customers at the rate they were last year. About 70% of bank employees asked customers for their name and contact information, down from 78% last year. Just under two-thirds, 66%, asked for permission to follow up with customers--down from 71% in 2012. 
 
The survey also showed that 90% of small business owners said they would patronize a bank if asked by employees for permission to follow up, while just 62% of those not asked reported a willingness to become customers. 
 
The study did not include any observations about credit unions.

Weekly Mortgage Application Activity Remains Weak

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WASHINGTON (1/9/14)--Mortgage market activity was weak at the end of last year and at the start of the new year, according to a report released on Wednesday. The Mortgage Bankers Association's composite index fell by 4.2% for the week ending Dec. 27 and advanced by 2.6% for the week ending Jan. 3.
 
Both components of the index fluctuated during the two week period, which was adjusted for Christmas and New Year's celebrations. The purchase index was up by 2.4% for the week ending Dec. 27 and down by 0.5% for the week ending Jan. 3. The refinance index was down by 8.9% for the week ending Dec. 27, and up by 4.6% for the week ending Jan. 3.
 
Four-week moving averages of the purchase and refinance indexes have fallen by 9% and 20% over the past month and by 7.4% and 64% over the past year.
 
A 12-week moving average of the composite index is near 345--its lowest reading in 13 years (Economy.com Jan. 8)
 
Refinancing accounted for 64% of all applications and 57% of prospective loan volume for the week ending Jan. 3. The adjustable rate mortgage share of market activity remained steady at 8%.
 
Higher interest rates are acting as a drag on demand, with 15-year and 30-year fixed mortgage rates approaching their highest levels since April 2011, according to Moody's. The rate for 30-year, fixed-rate mortgages rose by eight basis points (bp) to 4.72% over the two weeks covered by the latest survey--11bp higher on a monthly basis and 111 bp higher on a year-over-year basis. The rate for 30-year, fixed-rate jumbo mortgages increased by 3 bp to 4.66%, while the five-year, adjustable rate mortgage was up by 7 bp to 3.33%--69 bp higher on a year-over-year basis.
 
Moody's noted that while the composite index's weak performance can largely be attributed to a drop-off in refinance applications, the purchase index is near its mid-2010 equivalent, when the expiration of the homebuyer tax credit caused the mortgage market to cool down significantly.
 
November data showing an annual decline in real disposable income growth and a nine-month savings rate low could also explain lackluster market activity, the research and ratings firm said.