Economy Watch: Fed May Continue Stimulus (or Maybe Not)

By Dees Stribling, Contributing Editor

According to St. Louis Federal Reserve President James Bullard, speaking on Monday at 19th Annual Conference of Montreal, which was organized by the International Economic Forum of the Americas, low U.S. inflation has been a surprise. That means that the central bank can continue to “pursue its aggressive asset purchase program,” or QE3 to use the journalists’ shorthand for the program, Bullard said. But he was careful not to say that the central bank would do so, just that it could without too much worry about inflation.

“Labor market conditions have improved since last summer, suggesting the [Federal Open Market] Committee could slow the pace of purchases, but surprisingly low inflation readings may mean the Committee can maintain its aggressive program over a longer time frame,” Bullard said, not especially clearing up the matter of QE3 or Not QE3. Currently QE3 is running at about $85 billion in bond purchases each month and is considering paring that total down.

Bullard also asserted that the Fed has its eye on irrational exuberance among investors (though he didn’t use that famed bit of Fed verbiage. “An important concern for the FOMC is that low interest rates can be associated with excessive risk-taking in financial markets,” Bullard said. “So far, it appears that this type of activity has been limited since the end of the recession in 2009.”

Vegas sells more homes, still short on supply

The Greater Las Vegas Association of Realtors reported on Monday that the number of existing residential properties trading hands in the market in May was 3,884, up from 3,789 in April. But due to tight inventories, the May 2013 total was down from 4,134 sales in May 2012. Because of how hard the Vegas market contracted during the housing crash, its recovery is of particular interest.

Also in May, 31.8 percent of all existing Vegas home sales were short sales, down from 32.5 percent in April, the GLVAR said. Another 10.3 percent of all May sales were REO, up slightly from 10 percent of all sales in April. The remaining 57.9 percent of all sales were traditional transactions, an increase from 57.5 percent in April.

Homes listed for sale without any sort of pending contract or contingent offer by the end of May was 3,297. That’s up 4.3 percent from 3,161 such homes listed in April, but still down 13.2 percent from one year ago, pointing to lower inventory. Also in May, GLVAR reported that 57.9 percent of all existing local homes sold were purchased with cash; that means that investors (speculators?) still seem to be sniffing around for deals.

S&P 500 upgrades outlook for U.S. debt

Standard & Poor’s Ratings Services upgraded its outlook for the U.S. sovereign debt on Monday, raising its outlook from “Negative” to “Stable,” meaning that the rating agency is less likely to downgrade U.S. debt in the near future. S&P reaffirmed the government’s AA+ long-term—one notch below tip-top—and A-1+ short-term sovereign credit ratings. The agency downgraded the U.S. government’s long-term credit rating from the very top in 2011, when Congress seriously considered allowing the country to default on its debt.

The agency cited a lower federal deficit, the willingness of the Fed to stimulate the economy some more, and a slightly improved political climate as reasons for the move. S&P also estimates, citing Congressional Budget Office data, that federal debt held by the public will stabilize at 84 percent of GDP in the near future.

Wall Street was essentially stagnant on Monday after its pre-weekend upward spike, with the Dow Jones Industrial Average losing 9.53 points, or 0.06 percent, while the S&P 500 was down a scant 0.03 percent. The Nasdaq eked out a 0.13 percent gain.