WASHINGTON (10/30/13)--When the Federal Open Market Committee completes its two-day meeting today on Federal Reserve monetary policymaking, its statement may not include any increases in target federal fund market rates or a tapering of the Fed's quantitative easing (QE3) policy, according to several surveys of economists.
The FOMC's statement at the end of the meeting is expected at 2 p.m. ET. Many had expected an announcement last month about the beginning of the Fed's tapering of its $85 billion a month purchases of government bonds and mortgage securities, but the committee opted for no change after economic recovery began to slow. The committee was split as to when to start tapering off QE3. Originally the Fed had indicated last summer the bond buying program would begin its reduction by the end of 2013.
However, the government shutdown and debt ceiling debate's impact on the economy have shifted expectations for withdrawing the stimulus program to next year, according to Associated Press (via The New York Times Oct. 29) and Business Insider (Oct. 27).
According to economists surveyed by Business Insider, the Fed is expected to keep the benchmark interest rate at 0% to 0.25% and to hold off on announcing any reduction in the bond asset purchase program. That publication said that although today's meeting is a "non-event," people will watch for any changes to the Fed's official statement and whether the committee continues to see downside risks to the economic outlook and a diminished labor market.
A Bloomberg survey noted that the budget impasse would spur the Fed's policymaking group to wait until March to scale back the bond purchases (Bloomberg.com Oct. 28).
Watch today's News Now and News Now LiveWire for updates on the meeting.
NEW YORK, N.Y. (10/30/13)--A key measure of consumer confidence fell to record lows in the wake of the government shutdown and debt-ceiling negotiations.
The Conference Board, a New York-based research firm, released data on Tuesday showing its consumer confidence index fell in October to 71.2, down from a revised 80.2 in September.
The index was measured at its lowest level in six months after taking its biggest month-to-month plunge since August 2011 (Bloomberg.com Oct. 29).
The decline was also more severe than analysts expected. A median forecast of economists polled by Bloomberg predicted that the measure would only fall to 75.
Consumers' sour mood isn't expected to improve anytime soon, the Confidence Board said, citing the temporary nature of the agreement passed by Congress on Oct. 16 (MarketWatch Oct. 29). Another round of negotiations is set to take place in January and February, when, respectively, the government will run out of money and a debt-ceiling breach is expected.
While a component of the index measuring consumers' views of the present economic situation fell to 70.7 from 73.5 this month, a measurement of their expectations dropped to 71.5 from 84.7--the lowest that expectations have been since March (Moody's Economy.com Oct. 29).
The Conference Board consumer confidence index takes into account both consumers' view of current conditions and their expectations of future well-being.
WASHINGTON (10/30/13, UPDATED 2:40 p.m. ET)--As expected, the monetary policymaking group for the Federal Reserve today voted 9-1 to stay the course on its $85 billion a month asset buying program, known as quantitative easing, and keep its target range for the federal funds rate at 0% to 0.25%.
In doing so, the Federal Open Market Committee, which had met yesterday and today, noted that "economic activity has continued to expand at a moderate pace." It cited "some further improvement" in labor market conditions but noted "the unemployment rate remains elevated."
In a statement after the meeting, the FOMC said that "household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months. Fiscal policy is restraining economic growth. Apart from fluctuations due to changes in energy prices, inflation has been running below the committee's longer-run objective, but longer-term inflation expectations have remained stable."
The FOMC said it "expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the committee judges consistent with its dual mandate" of fostering maximum employment and price stability.
It "sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall" and "recognizes that inflation persistently below its 2% objective could pose risks to economic performance," but the committee said it "anticipates that inflation will move back toward its objective over the medium term."
Keeping in mind the "extent of federal fiscal retrenchment over the past year," the FOMC noted it "sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy. However, the committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases."
It will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month--the program known as QE3, which "should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the committee's dual mandate," said the FOMC's statement.
The committee, which this past summer--before the federal government shutdown's impact on the economy--was considering tapering off QE3 beginning by year's end, instead said it would maintain the bond buying program "until the outlook for the labor market has improved substantially in a context of price stability."
Noting that "asset purchases are not on a preset course," the committee said that it will at its coming meetings "assess whether incoming information continues to support the committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective." Its decisions about the pace "will remain contingent on the committee's economic outlook as well as its assessment of the likely efficacy and costs of such purchases."
The committee also reaffirmed that its "highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens." It decided to keep the target range for the federal funds rate at 0% to O.25% and "currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the committee's 2% longer-run goal, and longer-term inflation expectations continue to be well anchored."
In determining how long to maintain that "highly accommodative stance," the FOMC will also consider additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When it decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2%, it said.
Voting for the FOMC monetary policy action were: Federal Reserve Chairman Ben S. Bernanke, Vice chairman William C. Dudley, James Bullard, Charles L. Evans, Jerome H. Powell, Eric S. Rosengren, Jeremy C. Stein, Daniel K. Tarullo, and Janet L. Yellen, the nominee to succeed Bernanke at the end of his term in January.
Esther L. George, who voted against the action, was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.
For the full FOMC statement, use the link.
WASHINGTON (10/30/13)--August home prices in the U.S. rose at their fastest annual pace since February 2006, according to the Standard & Poor's/Case-Shiller 20-city home price index.
All 20 cities in the index showed annual gains, ranging from 3.6% in New York to 29.2% in Las Vegas (Moody's Economy.com Oct. 29).
But while the measurement showed its greatest annual nationwide increase in more than seven years, rising prices have started to abate in recent months, adding to concerns that housing demand is slowing, amid a weak job market and rising mortgage rates. The month-to-month index increased by just 1.3% in August, down from a 1.8% increase in July, with 16 out of 20 cities in the measurement reporting slower growth in August (The Associated Press Oct. 29). In September, home price increases by city ranged from 2.9% in Las Vegas to 0.5% in Seattle.
Houses have appreciated in value across the country in recent years, as the percentage of total sales that can be classified as distress sales has declined since the start of the global financial crisis in 2008. Foreclosure inventories and all stages of the foreclosure process have been steadily waning since then. Fewer households are defaulting on mortgage payments, tightening the supply of homes in a market that has been saturated with desperate sellers over the past half-decade (AP and Moody's Economy.com Oct. 29).
A weak job market and mortgage rates creeping upwards are, however, potentially dampening the prospects of robust future demand for homes.
The Federal Housing Finance Agency reported on Tuesday that contract mortgage interest rates increased by 0.11% from August to September, according to an index of new mortgage contracts. The composite contract rate, according to the FHFA was 4.36%, up from 4.25% in August.