Fannie Mae and Freddie Mac: Mortgage Serious Delinquency rate declined in March

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in March to 2.19% from 2.27% in February. The serious delinquency rate is down from 3.02% in  March 2013, and this is the lowest level since November 2008.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Earlier Freddie Mac reported that the Single-Family serious delinquency rate declined in March to 2.20% from 2.29% in February. Freddie's rate is down from 3.03% in March 2013, and is at the lowest level since February 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

Both Fannie Mae and Freddie Mac serious delinquency rates have fallen 0.83 percentage points over the last year, and at that pace the serious delinquency rates will probably be below 2% mid-year 2014 - and will be under 1% in late 2015.

Note: The "normal" serious delinquency rate is under 1%.

Maybe serious delinquencies will be back to normal in late 2015 or 2016.

10 MidWeek PM Reads

My afternoon train reading:

• The Rise of Corporate Impunity (ProPublica)
• How Google Can Steal Facebook’s Candy (Bloomberg View) see also Zuckerberg to Obama Channel Jobs in Search for Alone Time (Bloomberg)
• SEC examining high-frequency timing advantages (WSJ)
• What Piketty’s Conservative Critics Get Wrong (The Baffler) see also Piketty and immiseration of the capitalists (Separating Hyperplanes)
• Poll: Americans want the U.S. to reduce its role in world affairs (WSJ)
• A Federal Judge Searches for Voter Fraud in Wisconsin and Finds None (The Atlantic) see also GOP’s voter ID sham shot down: Why a federal court said no way (Salon)
• 7 Ways To Knock An Hour Off Your Work Day (FastCo)
• Ali Rowghani has the hardest job at Twitter: making it simple for new users. (WSJ)
• Despite Pentagon spending cap, wish list gives projects such as Boeing’s Growler jet another chance at funding. (Washington Post)
• Here’s why you just got unfriended on Facebook (Vox)

What are you reading?

 

 

Asia’s Export Engine Sputters

Source: WSJ

Pigs No Longer Fly; What Are the Implications?

Along with the highly publicized loss of leadership from big tech, the US stock market is now in danger of losing another, and possibly more important leader, the piggies or banking sector. While the weekly chart of BKX has not yet broken down, it is very close to doing so after sporting a negative RSI [...]

Response to Earnings by Sector

So far this earnings season, the average stock that has reported earnings has declined 0.35% on the first trading day following its report.  (For companies that report in the morning, we use that day's change.  For companies that report after the close, we use the next day's change.)  There have been some big differences in how stocks have reacted to their earnings reports based on which sector they are in, however.  Below is a look at the average one-day change in response to earnings reports broken out by sector.

As shown, three sectors have seen their stocks average gains on their report days, while five have seen their stocks average declines.  (Telecom and Utilities are not included since only a very small amount of companies in these sectors that have reported.)

Consumer Stapes, Energy and Industrials are the sectors that have seen positive reactions to earnings reports this season.  The average Energy stock that has reported has gained nearly 1% on its report day, which is a very strong reading.  It's no surprise, though, given how strong the Energy sector has been over the last few weeks.  

One sector sticks out on the downside, and that's Technology.  Tech was weak coming into earnings season, but anyone looking for a bounce from strong earnings has to be disappointed.  So far this season, the average Tech stock that has reported has fallen 1.6% on its report day.  

Below is a look at the average one-day reaction to companies that have beaten consensus earnings estimates on their report dates this season.  As shown, Consumer Staples stocks that have beaten estimates have gained the most on their report days at +2.49%.  Interestingly, even though the Energy sector has the best one-day average gain for all of its stocks that have reported earnings, the Energy stocks that have beaten estimates have only gained +1.37% on their report days, ranking it 4th out of the 8 sectors featured.

The weakness in Technology shows up in this chart as well.  The average Tech stock that has beaten earnings estimates has only gained 0.45% on its report day, which is the smallest gain of any sector.  

Finally, below is a chart showing the average one-day change by sector for companies that have missed EPS estimates.  Tech and Energy are again big standouts.  For Energy, it can't get any better, because even the companies in the sector that have missed estimates have averaged gains on their report days.  For Tech, it can't get much worse.  As shown, Tech stocks that miss estimates have gotten punished severely with an average one-day decline of 6.71%!  That's by far the worst reading of any sector.  

So far this season, Tech stocks that have beaten estimates have averaged the smallest gains of any sector, while Tech stocks that have missed have averaged by far the largest declines.  Clearly investors have taken a decidedly bearish turn on Tech this earnings season by punishing misses and not rewarding beats.  If you're still bullish on the sector even after such disappointing performance, you're hoping this represents a short-term washout for Tech that overshot to the downside.  Expectations heading into next earnings season will likely be very poor for Tech, so if stocks in the sector can deliver, the reverse should occur where beats go up big and misses decline very little.

Start your day with our Morning Lineup, and end it with The Closer -- some of the most insightful and actionable market analysis on the Street.  Sign up for a 5-day free trial to Bespoke Premium today!

The Week Email Broke

In the past few days I have been putting out technical fires almost non stop on several ends, most of them related to email delivery to my subscribers as well as folks on my respective mailing lists. It all started early this week, a few days after Yahoo changed its DMARC policy to stop fraudulent emails. In response many email receivers started bouncing emails with Yahoo.com from addresses sent from non-Yahoo servers. Then a week ago AOL announced the same change to its DMARC policy and I expect to see similar chaos across mailing lists and various email service providers.

What this has meant on my end specifically is that a ton of email addresses started bouncing and then suddenly email delivery intermittently stopped altogether on my remotely hosted servers. Meaning alerts were sent to my mail servers but they never got there – what happened to them and how they exactly disappeared nobody really knows. I have talked to (and sometimes screamed at) various network engineers, my website hosting firm, my connectivity providers, etc. – everyone has a different idea as to who’s to blame and quite frankly none of them seem to have a clue.

You know me to be quite pragmatic and this is my current take: Effectively email is currently broken as a reliable and effective way of communicating and conducting business. It’s impossible to know if a message will be delivered and when – sometimes it just get delayed by a few hours and sometimes it never gets there. Trying to figure out what exactly happens condemns you to countless hours of drafting support requests, making phone calls, and crawling around in your server’s logs, mostly without any further hints as to what has happened.

As I cannot let this ruin my business I started to look for alternative solutions, starting with how to deliver alerts to my subscribers as well as anyone following Evil Speculator. Twitter still works fine it seems but that won’t work for delivering alerts for CrazyIvan. In the past I had been using SMS for my alerts but at 5 cents per message it’s simply not an option plus there is a 140 byte message length limitation (the average CrazyIvan alert has around 300 characters – it adds up). I looked at Whatsapp and Viber and pertinent serviced and they seemed ideal but almost all of them (with the exception of Telegram) follow the walled garden model in that they control everything and there are no reliable APIs that are guaranteed to work a few months down the line.

When I lamented the current state of affairs with Scott he suggested Jabber which is based on the open source XMPP protocol. There are clients available for iOS, Android, Linux, OSX, Windows, pretty much any platform you can shake a stick at. Plus you can run your own service on your own server and have people sign up for accounts there without the hassle of spam or various phishing attempts. And that’s basically what I did – I just finished setting up a Jabber service on evilspeculator.com and have already tested sending messages to my Android phone. I was even able to run a C# test that sent a test alert to my mobile – how cool and it’s FREE! I’ll be using that piece of code for CrazyIvan and I expect to have that up and running by Monday.

So if you are a sub and have not been receiving any alerts then it’s most likely because – heck, nobody really knows. But what you should know is that the Mole is on the case and by next week I will add Jabber messaging to CrazyIvan and over the coming weeks to various other services I have been offering. All you will have to do is to sign up for a free account – initially you’ll have to request one via email but eventually the system will add Jabber accounts at evilspeculator.com automatically for any new subscriber.

A side effect of having to deal with all those technical issues is that I have not been able to trade much and my posting regime has suffered. My sincere apologies for that but as you can imagine it’s extremely distracting when your paying subs scream at you for not receiving their alerts. Actually almost all of them have been super patient and more than accommodating – many thanks for that.

I will do my best to restore notification services as soon as possible. Of course I will continue to offer email alerts and updates but obviously fixing delivery issues caused by a shift to a more stringent global standard is a bit out of my hands. The only portion I can control is my end and that is why I strongly recommend you sign up for a Jabber account at evilspeculator.com as soon as it is available. I am shooting for early next week. Until then please take it easy on the poor battered Mole –  he has been working hard to resolve this. And he is very much looking forward to restoring sanity and to returning to his usual evil schemes. Which is trading and keeping you guys out of trouble. Speaking of which, I hope to post regular updates tomorrow – until then.

Cheers,

The post The Week Email Broke appeared first on The Evil Speculator.

3D Printer Builds 10 Small Houses a Day for $5,000 Each

Chinese construction firms can 3-D print 10 low-cost houses a day with machines that add layer after layer of quick-drying cement in a process called "contour crafting".
A private company in east China recently used a giant printer set to print out ten full-sized houses within just one day.

The stand-alone one-story houses in the Shanghai Hi-Tech Industrial Park look just like ordinary buildings. They were created using an intelligent printing array in east China's city of Suzhou.

The array consists of four printers that are 10 meters wide and 6.6 meters high and use multi-directional automated sprays. The sprays emit a combination of cement and construction waste that is used to print building walls layer-by-layer.

Ma Yihe, the inventor of the printers, said he and his team are especially proud of their core technology of quick-drying cement. Ma said he hopes his printers can be used to build skyscrapers in the future.

This technology allows for the printed material to dry rapidly. Ma has been cautious not to reveal the secrets of this technology.
MarketWatch provides this image of the 33 foot wide by 22 foot tall building.



To label aesthetics as "unappealing" would be a huge understatement. But what do you expect for a house that costs $5,000?

2,500 Sq Ft Printed Home

Using similar technology, and larger printers, MSN notes 3D Printer Can Build 2,500 Square Foot House in 24 Hours.


The University of Southern California is testing a giant 3D printer that could be used to build a whole house in under 24 hours.

Professor Behrokh Khoshnevis has designed the giant robot that replaces construction workers with a nozzle on a gantry, this squirts out concrete and can quickly build a home according to a computer pattern. It is “basically scaling up 3D printing to the scale of building,” says Khoshnevis. The technology, known as Contour Crafting, could revolutionise the construction industry.

As Khoshnevis points out, if you look around you pretty much everything is made automatically these days – “your shoes, your clothes, home appliances, your car. The only thing that is still built by hand are these buildings.”



“It’s a CAD/CAM solution,” says Khoshnevis. The buildings are “designed on computer and built by a computer”. Contour Crafting hopes to generate “entire neighbourhoods built at a fraction of the cost, in a fraction of the time, far more safely, and with architectural flexibility that is unprecedented.”

The Contour Crafting solution also produces much stronger structures than traditional building methods. According to Contour Crafting the tested wall is a 10,000PSI (pounds per square inch) strength compared to an average of 3,000PSI for a regular wall.

They would not be as homogenous as the suburbs, says Khoshnevis, because “every [Contour Crafted] building can be different. They do not have to look like track houses because all you have to do is change a computer program” to get a completely different house.

Because the buildings are printed with a nozzle, they can also be far more creative than current constructions. “The walls can be curved” says Khoshnevis and “you can have very exotic architectural features without incurring additional costs.”

Will builders be out of work?

What the implications are for builders is, of course, a major concern. Building and construction has largely escaped the construction line automation of other industries and remains solid employment for millions worldwide. According to the International Labour Organisation construction employs nearly 110 million people worldwide and “plays a major role in combating the high levels of unemployment and in absorbing surplus labour from the rural areas.”

That’s a lot of people Contour Crafting could make redundant, which raises the question of whether the system could do more harm than good.
Contour Crafting

The idea that such technology would do more harm than good is of course preposterous. Falling prices and improved productivity should always be welcome. With this technology, we can easily build "affordable homes".

Here is an interesting video on the "contour crafting" process.



Improvements in technology inevitably raise standards of living. Curiously, people are concerned about it. Central banks will even attempt to fight it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Over at Project Syndicate: The Poverty of Right-Wing Piketty Criticism

Project Syndicate: In The Baffler, Kathleen Geier recently attempted a roundup of conservative criticism of Thomas Piketty’s new book Capital in the Twenty-First Century. The astonishing thing to me is how weak the right’s appraisal of Piketty’s arguments has turned out to be. READ MOAR

Piketty’s argument is detailed and complicated. But five points seem particularly salient:

  1. A society’s wealth relative to its annual income will grow (or shrink) to a level equal to its net savings rate divided by its growth rate.

  2. Time and chance inevitably lead to the concentration of wealth in the hands of a relatively small group: call them “the rich.”

  3. The economy’s growth rate falls as the low-hanging fruit of industrialization is picked; meanwhile, the net savings rate rises, owing to a rollback of progressive taxation, the end of the chaotic destruction of the first half of the twentieth century, and the absence of compelling sociological reasons for the rich to spend their incomes or their wealth rather than save it.

  4. A society in which the rich have a very high degree of economic, political, and sociocultural influence is an unpleasant society in many ways.

  5. A society in which the wealth-to-annual-income ratio is a very large multiple of the growth rate is one in which control over wealth falls to heirs--what Geier elsewhere has called an “heiristocracy”; such a society is even more unpleasant in many ways than one dominated by a meritocratic and entrepreneurial rich elite.

Now, even in thumbnail form, this is a complicated argument. As a result, one would expect that it would attract a large volume of substantive criticism. And, indeed, Matt Rognlie has attacked (4), arguing that the return on wealth varies inversely with the wealth-to-annual-income ratio so strongly that, paradoxically, the more wealth the rich have, the lower their share of total income. Thus, their economic, political, and sociocultural influence is weaker as well.

Tyler Cowen of George Mason University, echoing Friedrich von Hayek, has argued against (4) and (5). The “idle rich,” according to Cowen, are a valuable cultural resource precisely because they form a leisured aristocracy. It is only because they are not bound to the karmic wheel of earning, getting, and spending on necessities and conveniences that they can take the long and/or heterodox view of things and create, say, great art.

Still others have waved their hands and hoped for a new industrial revolution that will create more low-hanging fruit and be accompanied by another wave of creative destruction. Should that happen, more upward mobility will be possible, thus negating (2) and (3).

But the extraordinary thing about the conservative criticism of Piketty’s book is how little of it has developed any of these arguments, and how much of it has been devoted to a furious denunciation of its author’s analytical abilities, motivation, and even nationality.

Clive Crook, for example, argues that “the limits of the data [Piketty] presents and the grandiosity of the conclusions he draws...borders on schizophrenia,” rendering conclusions that are “either unsupported or contradicted by [his] own data and analysis.” And it is “Piketty’s terror at rising inequality,” Crook speculates, that has led him astray.

Meanwhile, James Pethokoukis thinks that Piketty’s work can be reduced to a tweet: “Karl Marx wasn’t wrong, just early. Pretty much. Sorry, capitalism. #inequalityforevah.”

And then there is Allan Meltzer’s accusation of excessive Frenchness. Piketty, you see, worked alongside his fellow Frenchman Emmanuel Saez “at MIT, where...the [International Monetary Fund’s] Olivier Blanchard, was a professor....He is also French. France has, for many years, implemented destructive policies of income redistribution.”

Combining these strands of conservative criticism, the real problem with Piketty’s book becomes clear: its author is a mentally unstable foreign communist. This is an old tactic on the US right, one that destroyed thousands of lives and careers during the McCarthy era. But the depiction of ideas as being somehow “un-American” has always been an epithet, not an argument.

Now, in the center-left American communities where I live and work, Piketty’s book has been received with praise bordering on reverence. We are impressed with the amount of work that he and his colleagues have put into collecting, assembling, and cleaning the data; the intelligence and skill with which he has constructed and presented his arguments; and how much blood Arthur Goldhammer sweated over the translation.

To be sure, everyone disagrees with 10-20% of Piketty’s argument, and everyone is unsure about perhaps another 10-20%. But, in both cases, everyone has a different 10-20%. In other words, there is majority agreement that each piece of the book is roughly correct, which means that there is near-consensus that the overall argument of the book is, broadly, right.

Unless Piketty’s right-wing critics step up their game and actually make some valid points, that will be the default judgment on Piketty’s book. Red-baiting or French-bashing is unlikely to help.

Redacted version of the April 2014 FOMC Statement

March 2014April 2014Comments
Information received since the Federal Open Market Committee met in January indicates that growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions.Information received since the Federal Open Market Committee met in March indicates that growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions.Weather is always a weak reason for a bad result.  You almost never see anyone claim good weather boosted results.

Didn’t they see today’s weak GDP report?

Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated.Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated.No significant change.  What improvement?  Note: this is the one remaining place where they mention the “unemployment rate.” Shh.
Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow.Household spending appears to be rising more quickly. Business fixed investment edged down, while the recovery in the housing sector remained slow.Shades household spending down, lowers their view on business fixed investment.
Fiscal policy is restraining economic growth, although the extent of restraint is diminishing.Fiscal policy is restraining economic growth, although the extent of restraint is diminishing.No change.  Funny that they don’t call their tapering a “restraint.”
Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.No change.  TIPS are showing slightly lower inflation expectations since the last meeting. 5y forward 5y inflation implied from TIPS is near 2.41%, up 0.15% from March.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.No change. Any time they mention the “statutory mandate,” it is to excuse bad policy.
The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace and labor market conditions will continue to improve gradually, moving toward those the Committee judges consistent with its dual mandate.The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace and labor market conditions will continue to improve gradually, moving toward those the Committee judges consistent with its dual mandate.No change.
The Committee sees the risks to the outlook for the economy and the labor market as nearly balanced.The Committee sees the risks to the outlook for the economy and the labor market as nearly balanced.No change.
The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.No change.  CPI is at 1.5% now, yoy.
The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions.The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions.No change.
In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in April, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $25 billion per month rather than $30 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $30 billion per month rather than $35 billion per month.In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in May, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $20 billion per month rather than $25 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $25 billion per month rather than $30 billion per month.Reduces the purchase rate by $5 billion each on Treasuries and MBS.  No big deal.

 

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.No change
The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.No change.  But it has almost no impact on interest rates on the long end, which are rallying into a weakening global economy.
The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability.The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability.No change. Useless paragraph.
If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings.If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings.No change.  Says that purchases will likely continue to decline if the economy continues to improve.
However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.No change.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate.To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate.No change.
In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.Monetary policy is like jazz; we make it up as we go.  Also note that progress can be expected progress – presumably that means looking at the change in forward expectations for inflation, etc.
The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.No change.  Its standards for raising Fed funds are arbitrary.
When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.No change.
The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.No change.
With the unemployment rate nearing 6-1/2 percent, the Committee has updated its forward guidance. The change in the Committee’s guidance does not indicate any change in the Committee’s policy intentions as set forth in its recent statements. That sentence lasted only one month.  Note that the phrase “unemployment rate” is close to being banned by the FOMC.  The dual mandate is not so dual, at least in the old sense.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Richard W. Fisher; Sandra Pianalto; Charles I. Plosser; Jerome H. Powell; Jeremy C. Stein; and Daniel K. Tarullo.

 

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Richard W. Fisher; Narayana Kocherlakota; Sandra Pianalto; Charles I. Plosser; Jerome H. Powell; Jeremy C. Stein; and Daniel K. Tarullo.Kocherlakota rejoins the majority, even with no change to the “fifth paragraph” of the March statement.
Voting against the action was Narayana Kocherlakota, who supported the sixth paragraph, but believed the fifth paragraph weakens the credibility of the Committee’s commitment to return inflation to the 2 percent target from below and fosters policy uncertainty that hinders economic activity. Thus ends the lamest vote against an FOMC decision that I have ever seen.  The differences between the last statement’s fifth and sixth paragraphs were minuscule.

Comments

  • Small $10 B/month taper.  Equities and long bonds both rise.  Commodity prices fall.  The FOMC says that any future change to policy is contingent on almost everything.
  • They shaded household spending down, and lowered their view on business fixed investment.  Don’t know they keep an optimistic view of GDP growth, especially amid falling monetary velocity.
  • At least they are abandoning the unemployment rate as their measure of labor conditions.
  • They missed a real opportunity to simplify the statement.  More words obfuscate, they do not clarify.
  • In the past I have said, “When [holding down longer-term rates on the highest-quality debt] doesn’t work, what will they do?  I have to imagine that they are wondering whether QE works at all, given the recent rise and fall in long rates.  The Fed is playing with forces bigger than themselves, and it isn’t dawning on them yet.
  • The key variables on Fed Policy are capacity utilization, unemployment, inflation trends, and inflation expectations.  As a result, the FOMC ain’t moving rates up, absent increases in employment, or a US Dollar crisis.  Labor employment is the key metric.
  • GDP growth is not improving much if at all, and much of the unemployment rate improvement comes more from discouraged workers, and part-time workers.
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