Economy Watch: FOMC Sets Stimulus Goals
By Dees Stribling, Contributing Editor
The Federal Open Market Committee met on Wednesday and, among other things, promised to keep the federal funds rate at 0 percent to 0.25 percent, as it has been since the onset of the Great Recession. The central bank’s policy of continuous asset purchases (QE3, that is) will also continue. This time around, however, the Fed set perimeters, in terms of U.S. unemployment and inflation, for the continuance of these stimulus policies.
In particular, the FOMC statement noted: “The Committee decided to keep the target range for the federal funds rate at 0 to .25 percent 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 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.”
The upshot is that low interest rates and Q3 are likely continue for a quite while, but not forever. Inflation is roughly at the target level, but employment is only slowly getting lower. An unemployment rate of 6.5 percent might not occur until well into 2014, or even later if the fiscal cliff causes serious economic problems early next year.
OPEC sets oil production goals
OPEC said on Wednesday that it would maintain its current production ceiling of 30 million barrels a day. The cartel did not, however, take up the fact that its members are currently producing at more than that level. The organization also didn’t choose its next secretary-general, owing to a quarrel between Saudi Arabia and Iraq over the selection.
According to OPEC, world will consume 370,000 barrels a day less in 2013 than it did in 2012. Unsurprisingly, the average selling price of a basket of OPEC crudes has been dropping recently. As of Wednesday, the price of the basket stood at $104.80 a barrel, compared with $112.68 the months ago. (The basket includes crudes from Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE and Venezuela.)
As an organization dedicated to maintaining oil prices, OPEC faces long-term challenges than recent declining consumption or prices, which are being inspired by depressed demand in Europe, where the economy is sluggish, or East Asia, where growth has slowed down. IN the coming decades, oil production is expected to increase dramatically in non-OPEC nations, especially because of the exploitation of shale oil fields in Canada and the United States.
Import energy price dip
In a related note, the Bureau of Labor Statistics reported on Wednesday that prices for imported fuel dropped 3 percent in November, after edging down 0.1 percent in October. The November drop was the largest one since June 2012, when prices were down 8.5 percent.
The price of imported petroleum was down 3.6 percent month-over-month in November, offsetting an 18.2 percent advance in imported natural gas prices over the same period. Falling prices for both imported petroleum and natural gas over the past year, down 7 percent and 7.4 percent, respectively, each contributed to a 12-month drop in overall fuel prices.
Wall Street was up early in the day, dropped after the FOMC announcement, and ended nearly even. The Dow Jones Industrial Average lost a picayune 2.99 points, or 0.02 percent, and the Nasdaq was down 0.28 percent. The S&P 500 gained 0.04 percent.
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