Fed Stays the Course
- Apr 26, 2012
The latest Federal Open Market Committee meeting ended with a resounding call on Wednesday for more of the same. That is, the committee unsurprisingly decided to keep the all-important federal funds rate at 0 percent to 0.25 percent, anticipating that economic conditions—including “low rates of resource utilization and a subdued outlook for inflation over the medium run”—will oblige the central bank to keep the rate exactly where it is until at least late 2014.
Beyond that, there was no hint of more stimulus, though as usual the Fed left the possibility open, theoretically, with the standard boilerplate: “The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.” In other words, we’ll do QE3 if we really need to, but till then, no comment about it.
Regarding the wider economy, the FOMC seemed a bit more optimistic. The economy, it said, is expanding “moderately,” which is generally regarded as better than “modestly” in Fed-speak. The central bank further predicts that the U.S. unemployment rate will decline gradually, but that “strains in global financial markets continue to pose significant downside risks to the economic outlook.” Or, to put that in layman’s terms, the euro zone might yet bung everything up for everybody else. Regarding inflation, the committee said that it expects that the recent increases in oil and gasoline prices to spur inflation only temporarily, and that in the longer run, inflation will settle down. No stagflation for this decade, the Fed clearly hopes
Durable goods orders lag for March
Durable goods orders dropped usually steeply in March, down 4.2 percent, according to the U.S. Department of Commerce on Wednesday. The drop was the steepest since Jan. 2009, when everything was dropping steeply out of panic.
The March 2012 decline, while unnerving when compared with Jan. 2009, was due in large part to the volatility of aircraft orders, which fell by about half for the month. On the other hand, other categories of durable goods orders were also down month-over-month, though not quite so dramatically. Take away transportation equipment (planes, trains and automobiles), and the decline was 1.1 percent. Even car orders, so robust lately, had a weak month, down 0.1 percent.
Orders for “core” capital goods, which include steel and other metals, various kinds of industrial machinery, and computer equipment, was down 0.8 percent. Historically, core durable goods have been a reliable predictor of business investment plans, so it could be that businesses are scaling back their spending somewhat in the second quarter, after ramping it up in the first.
Truckers see small uptick in freight haulage
The American Trucking Associations’ For-Hire Truck Tonnage Index, which is a measure of economic activity as reflected in goods shipped by truck on U.S. roads, rose 0.2 percent in March after increasing 0.5 percent in February. Compared with March 2011, the index was up 2.7 percent, which is better than nothing, but still the smallest year-over-year increase since Dec. 2009.
“March tonnage, and the first quarter overall, was reflective of an economy that is growing, but growing moderately,” ATA chief economist Bob Costello noted in a press statement, echoing the Fed a bit. “The pace of freight definitely slowed from the torrid pace in late 2011,” he added, however, using a word (“torrid”) that central bankers are never known to use.
Wall Street was perky on Wednesday, partly because of lukewarm optimism from the Fed, but also on account of strong earnings for some companies—especially Apple. The Dow Jones Industrial Average gained 89.16 points, or 0.69 percent, while the S&P 500 was up 1.36 percent. Intoxicated by the advances of Apple (up more than 10 percent on Wednesday), the Nasdaq spiked 2.3 percent.