Information received since the Federal Open Market Committee met in December suggests that economic activity has continued to strengthen and that the deterioration in the labor market is abating. Household spending is expanding at a moderate rate but remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software appears to be picking up, but investment in structures is still contracting and employers remain reluctant to add to payrolls. Firms have brought inventory stocks into better alignment with sales. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.
We are seeing economic growth due to large stimulus measures, but this has not really helped unemployment. Banks are still unwilling to lend to consumers who are unemployed and can no longer pull equity out of their home to stimulate the economy. Corporate earnings have picked up but not enough to stop the laying people off and creating cost “synergies.” Due to abating demand it took a while but inventories are finally bone dry. The liquidity we pumped into the system has caused Equities and other asset classes to surge. The economy will get healthy later then sooner without inflation.
With substantial resource slack continuing to restrain cost pressures and with longer-term inflation expectations stable, inflation is likely to be subdued for some time.
Deflation is currently a more realistic setback than inflation at this point.
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter. The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets.
The economy cannot recover without liquidity in the system. Fed Funds rates will not be raised until 2011. We would like to start winding down Quantitative easing by deadline (March) set on the outset. Though, we reserve the right to extend the program as long as Obama/Summers tells us to.
In light of improved functioning of financial markets, the Federal Reserve will be closing the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility on February 1, as previously announced. In addition, the temporary liquidity swap arrangements between the Federal Reserve and other central banks will expire on February 1. The Federal Reserve is in the process of winding down its Term Auction Facility: $50 billion in 28-day credit will be offered on February 8 and $25 billion in 28-day credit will be offered at the final auction on March 8. The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30 for loans backed by new-issue commercial mortgage-backed securities and March 31 for loans backed by all other types of collateral. The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth.
Many of our QE programs were not very successful and therefore must come to an end. The TALF was a very successful program and it is unlikely we terminate it by the deadline; who will take on toxic paper as collateral besides us? We will do all we can to keep the U.S. financial system on artificial life support.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted.
We have a tight nit group were everyone agrees with Mr. Beranke except one person. Mr. Thomas M. Hoenig doesn’t believe in group think. He may have good ideas but he needs to study something called chain of command.
Patrick M. Ambrus
Managing Partner
Analyze Capital LLC
ambrus.anlzgroup.com
No comments:
Post a Comment