Low Rates for a Long Time, Fed Says
- Jan 26, 2012
In its stated drive to be more transparent (but not less stilted), the Federal Open Market Committee of the Federal Reserve not only released its customary statement on Wednesday after two days of meetings, but afterwards Chairman Ben Bernanke held his fourth press conference and fielded reporters’ questions. Also, the FOMC began publishing individual members’ projections about short-term interest rates for the first time. These efforts at transparency essentially reaffirmed the central bank’s present course, with one small addendum: the Fed’s key lending rate will remain lower than Congressional job approval ratings not only until 2013 (as stated before) but at least until late 2014.
“Information received since the Federal Open Market Committee met in December suggests that the economy has been expanding moderately, notwithstanding some slowing in global growth,” the FOMC statement began, obliquely referring to the 800 lb.—rather, the 362.8 kg.—gorilla in the global economy, namely the problems in the euro zone that are dragging it recession. The committee also noted that there’s been some improvement in U.S. employment, but not to break out the party hats just yet, as the overall unemployment rate remains “elevated.” The Fed didn’t rule out another round of QE-style bond buying, but it didn’t commit to one either. The Fed might be more transparent these days, but it still reserves the right to be vague.
As for the press conference, Bernanke said a number of things, such as that maximum employment should be as important to the central bank as stable prices; U.S. growth will continue be “modest” in the coming months; the Fed doesn’t expect any shocks in the coming months, though “strains to the global financial system” might change that; because after all there are “headwinds from Europe”; and that expanding the Fed’s balance sheet “remains an option.” He also noted that “we did discuss refinancing,” referring to the initiative proposed by the president in the State of the Union. “We did discuss principal forgiveness. It seems very likely that principal forgiveness could be helpful.”
Pending home sales drop
The National Association of Realtors said on Wednesday that its Pending Homes Sales Index was down 3.5 points, from 100.1 in November to 96.6 in December. The figure, which reflects contracts inked but not closings, was nevertheless 5.6 points higher than December 2010’s reading of 91.5.
The always-optimistic Lawrence Yun, NAR chief economist, said in the statement that “even with a modest decline, the preceding two months of contract activity are the highest in the past four years outside of the homebuyer tax credit period. Housing affordability conditions are too good to pass up.”
By the association’s definition, an index of 100 is equal to the average level of contract activity during 2001, which was the first year to be the index was tallied, as well as the first of five consecutive record years for existing-home sales (the good old days, in other words). According to NAR, 100 thus coincides with a level that is historically healthy.
FHFA Housing Price Index down
Foreclosures are still the anchor holding back home valuations, noted the Federal Housing Finance Agency on Wednesday, with prices falling 1.8 percent in November 2011 compared with the same quarter last year, though the were up 1 percent month-over-month. Compared with the bubble peak in April 2007, the agency’s House Price Index—which gauges the prices of properties with mortgages back by the GSEs—is down 19 percent, or about to where it was in February 2004.
Wall Street seemed to like what the central bank had to say on Wednesday, bounding up from a slow start to end the day positive. The Dow Jones Industrial Average was up 81.21 points, or 0.64 percent, while the S&P 500 gained 0.87 percent and the Nasdaq advanced to the tune of 1.14 percent.