Fed Uncertain What to Do

The Federal Reserve released the minutes of its Sept. 20-21 FOMC meeting on Wednesday, and to some extent they showed a central bank uncertain about how to handle the unexpected halt in the recovery in mid-2011.

The Federal Reserve released the minutes of its Sept. 20-21 FOMC meeting on Wednesday, and to some extent they showed a central bank uncertain about how to handle the unexpected halt in the recovery in mid-2011 or even why things are as bunged up as they are. The FOMC discussed another round of bond purchases—which would inevitably be called QE3, whether Chairman Ben Bernanke liked it or not—and two unnamed members thought it might be a good idea. In the end, however, the committee didn’t opt for QE3, but rather the central-bank alchemy called the Twist, which focuses on a shift to shorter-term bonds.

The minutes also touched on real estate, and it wasn’t an overly pretty picture. “Prices of most types of commercial properties remained depressed despite a slight decline in vacancy rates in the second quarter,” the minutes said. “Delinquency rates on loans that back existing CMBS hovered at an elevated level in August, but delinquency rates on commercial real estate loans held by banks decreased in the second quarter.”

The FOMC also took note of the fact that lower residential mortgage rates—one of the goals of the Twist—”spurred little refinancing activity, in part because of tight underwriting standards and low levels of home equity for many households.” The minutes also mentioned the worrisome trend that while serious mortgage delinquency continued to moderate, the rate at which prime mortgages moved into delinquency has stepped up in recent months.

Pulse of Commerce Index drops again

The Ceridian-UCLA Pulse of Commerce Index, released on Wednesday by the UCLA Anderson School of Management and Ceridian Corp., fell 1 percent in September, following a 1.4 percent decline in August and a 0.2 percent decline in July. Based on that reading, the Anderson School is predicting U.S. GDP growth of a scant 0 percent to a meager 1 percent for the third quarter of 2011.

Year-over-year, the index was down 0.2 percent in September. “Businesses appear to be unwilling to restock for a potentially vibrant holiday season at the same time as normal, and they are planning to ramp up inventories late this year, if and when the sales start to materialize,” Ed Leamer, chief economist for the Ceridian-UCLA Pulse of Commerce Index and director of the UCLA Anderson Forecast, noted in a statement.

The index is based on real-time diesel fuel consumption data for over-the-road trucking and serves as an indicator of the state and possible future direction of the U.S. economy, according to the Anderson School. By tracking the volume and location of fuel being purchased, the index monitors the over-the-road movement of raw materials, goods-in-process and finished goods to U.S. factories, retailers and consumers.

Buffett cheerfully prods other billionaires

Warren Buffett, one of America’s most famous billionaires (and third-wealthiest person in the world), publicly challenged fellow billionaire Rupert Murdoch (117th wealthiest in the world), to simultaneously release his tax returns with Buffett’s to Fortune magazine for their publication. The Oracle of Omaha was probably just having a spot of fun, mostly at the expense of the Wall Street Journal (one of Murdoch’s properties), which has been calling for Buffett to release his returns since he had the temerity to suggest tax rates on extreme wealth at least as high as on modest wealth.

Separately, Buffett said in a letter to Rep. Tim Huelskamp of Kansas, who has also asked Buffett to release his returns, that he paid $6.9 million in federal income taxes last year, or 17.4 percent of his $62.86 million income. “If you could get other ultra-rich Americans to publish their returns along with mine, that would be very useful to the tax dialogue and intelligent reform,” Buffett said in the letter. “I stand ready and willing—indeed eager—to participate in this exercise.”

Wall Street saw another upward bounce on Wednesday, still apparently persuaded that the euro-zone will manage to work out its troubles, or at least muddle through, when it became clear that Slovakia was going to approve the expansion of the EU bailout fund after all. The Dow Jones Industrial Average gained 102.55 points, or 0.9 percent, while the S&P 500 was up 0.98 percent and the Nasdaq advanced 0.84 percent.