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THE FEDERAL RESERVE ALERT

 

Federal Reserve Watch and Commentary

Click to Federal Reserve Board Money Policy Site

FOMC Meeting date: LAST MEETING: February 1st. to 2nd. 2000

MEETING OUTCOME:

  • The Federal Reserve Bank FOMC and Board of Governors RAISED BOTH the Federal Funds & Discount rates by Twenty Five bases points (0.25%) to 5.75% and 5.25% respectively.
  • The Bank also emphasized its inflationary fears as demand continues to outpace supply.

 

MEETING AGENDA:

  • The Federal Reserve Bank will consider raising interest rates to tame an inflationary economy.


 BEIGE BOOK (12 DISTRICTS) REPORT OF JANUARY 19TH. 2000
  • The Economy continues to enjoy  a "strong" expansion, and "moderately strong" rise in wages, which have been balanced by increased productivity.
  • Labor markets are still tight, and getting worst in some areas.
  • Third district (Philadelphia) reported a rise in raw materials prices. However, price competition is easing the situation. Bank lending, especially for residential mortgages, is still down.
  • Fourth district (Cleveland) reported strong growth. The labor market is tight and wages rose slightly. E-tailing quadrupled this holiday season. Steel prices picked up, while construction materials eased.
  • Midwestern "plains" districts (Seventh, Ninth & Tenth) reported moderate to strong economic growth. The Seventh District (Chicago) reported a moderate expansion, slowdown in construction and home sales, while holiday sales were very good. The Ninth District (Minneapolis) reported an increased wage pressure due to a strong and robust economy. Consumer spending, construction (minus homes), and holiday sales are up. The Tenth District (Kansas City) reported a strong economic activity due to an exceptionally good holiday season. The Tenth district however reported a weak manufacturing and home mortgage market.
  • Western districts (Eleventh & Twelfth) reported strong economic growth. The Eleventh district (Dallas) reported a strong holiday season and manufacturing sector, especially in electronics, while home construction eased. The Twelfth district (San Francisco) reported a tight labor market, wage pressures, and higher raw materials cost, especially in manufacturing. The Twelfth also reported a robust loan demand and holiday sales (especially in electronics).
  • The Mid-Atlantic Fifth District (Richmond) reported a strong growth as consumers spent during the holiday season, especially on construction materials to rebuild after the hurricane season. The district also reported wage increases in the retail and services sectors. Building materials shortages are a growing concern in the district.
  • Southeastern districts (Sixth & Eighth Districts) had mixed economic activity. The Eighth district (St. Louis) had lower-than-anticipated holiday sales, but a better-than-anticipated fall crop harvest The Eighth saw real estate lending drop, while other types of loans picked up. The Sixth district (Atlanta) reported moderate growth as electronics, jewelry and toys had an exceptional holiday season, while plant closings were the norm in the Apparel sector.
  • New England districts (First & Second Districts) continue to have a very tight labor market. The First District (Boston) have rising wages as pay increases hover around 6%. As such, many retailers are looking at e-commerce as a way out from the labor crunch. The Second District (New York) also reported a severe labor shortage (especially in office staff), and a drop in loan demand due to labor and land shortages.



 HUMPHREY-HAWKINS (CONGRESSIONAL) REPORT OF JULY 22nd. 1999
  • Economy near Ninth year of economic growth.
  • Lowest unemployment rate since the 70's.
  • Inflationary pressures can be eased by foreign markets recovery and growth.
  • Year 2000 Nominal GDP projected at 4.2
  • Year 2000 Real GDP projected at 2.1
  • Year 2000 CPI projected at 2.4



 RECENT ECONOMIC DATA RELEASES:
  • The US Producer Price Index (PPI) rose 0.3% in December, in line with expectations.
  • The Consumer Price Index (CPI) grew 0.2% in December, lower-than-anticipated.
  • U.S. unemployment rate held steady in December at 4.1%, well above anticipation.
  • The U.S. Trade deficit for November rose a record $26.5 billion.
  • Housing starts rose a higher-than-anticipated 7.1% in December.
  • The National Association of Home Builders' (NAHB) Housing Market Index (HMI) is at 71 for January. This indicates a slowing but still strong housing market.
  • US Wholesale Inventories grew a stronger-than-anticipated 1.1% in November.
  • The Conference Board reported January Consumer Confidence Index (CCI) at 144.7, the highest level in its 32 year history.
  • Existing Home Sales in December dropped a higher-than-anticipated 1.4%.
  • U.S. Durable goods orders rose 4.1% in December, well above expectations.
  • The US GDP grew 5.8% in Q4, well above expectations.
  • US Employment Cost Index grew a grater-than-anticipated 1.1% in Q4.
  • The National Association of Purchasing Managers (NAPM) Index of economic activity fell to 56.3 in January, still stronger-than-expected.


BOARD MEMBERS' COMMENTS

  •  

  • All speeches given by Federal Reserve Board members since the last meeting seem to be centered on the need to control the growth of the economy before it becomes inflationary. The Federal Reserve chair Alan Greenspan seem to be most concerned about the "Wealth Effect" that high equity prices are creating.



THE GENERAL CONSENSUS ABOUT COMING MEETING:

  • The general consensus is, the Federal Reserve WILL raise the Federal discount and Federal funds rates about Fifty bases points (0.50) each in February.
  • We agree with the consensus.



FOMC Meeting date: LAST MEETING: December 21st. 1999

 MEETING OUTCOME:

  • The Federal Reserve Bank WILL NOT raise both the Federal Funds & Discount rates.



 MEETING AGENDA:
  • The Federal Reserve Bank discusses Discount and/or Federal Funds rates hike.


 BEIGE BOOK (12 DISTRICTS) REPORT OF DECEMBER 8TH. 1999
  • The Economy continues to enjoy a "moderate to strong" expansion nationwide.
  • Labor shortage persists, but with little inflationary pressures.
  • Third district (Philadelphia) reported signs of economic slowdown in Construction. Bank lending is down, while retailers face a tough time staffing for the holidays.
  • Fourth district (Cleveland) had mixed results. Residential housing demand was slowing, while commercial construction was up. The labor market is tight, and wages rose slightly. The district seems to have the least concerns about the Y2K frenzy.
  • Midwestern "plains" districts (Seventh, Ninth & Tenth) have strong wage pressures. The Tenth (Kansas City) experienced some economic easing up in Retail and Agriculture. Thanks to the Holiday season & government payments, the Midwestern districts are expecting a good holiday season.
  • Western districts had strong economic growth. Construction slowed in the eleventh (Dallas) district and some parts of the twelfth district (San Francisco); Arizona and California had strong construction sectors. Energy related activities picked up in the eleventh district, while agriculture suffered to an unusual dry weather.
  • The Mid-Atlantic Fifth District (Richmond) seem to be getting over the hurricane season. Commercial lending, due to the robust economic activity, has increased, so has the level of employment. Retail sales have also rebounded, while residential mortgage lending is struggling.
  • Southeastern districts (Sixth & Eighth Districts) had mixed economic activity. The Eighth district (St. Louis) had strong manufacturing growth, while some sectors were showing signs of a slowdown. The Sixth district (Atlanta) had moderate growth. Retail sales was lower than anticipated, while construction and new homes sales were flat and declining respectively. However, the Sixth District seem to be off on a strong holiday season.
  • New England districts (First & Second Districts) have a very tight labor market. The First District (Boston) have rising wages, and retail and manufacturing prices keep rising too as we head into the holiday season. The Second district (New York) have strong price pressures in manufacturing and real estate. Credit demand is low as banks raised credit standards. Also in the second district, retail sales picked up around the thanksgiving holiday.



 HUMPHREY-HAWKINS (CONGRESSIONAL) REPORT OF JULY 22nd. 1999
  • Economy near Ninth year of economic growth.
  • Lowest unemployment rate since the 70's.
  • Inflationary pressures can be eased by foreign markets recovery and growth.
  • Year 2000 Nominal GDP projected at 4.2
  • Year 2000 Real GDP projected at 2.1
  • Year 2000 CPI projected at 2.4



 RECENT ECONOMIC DATA RELEASES:
  • Retail sales grew larger-than-anticipated (0.9%) in November.
  • The Producer Price Index (PPI) grew a modestly (0.2%) in November. However, the core PPI, which analysts anticipated will rise, was flat.
  • The Consumer Price Index (CPI) grew moderately (0.1%).
  • U.S. Industrial Production (IP) for November grew Three bases points (0.3%), slightly above analysts' forecast, but within this year's average. Capacity utilization was at 81%, the highest in a year.
  • The U.S. Trade deficit hit a new high, due primarily higher oil prices.



 THE GENERAL CONSENSUS ABOUT COMING MEETING:
  • The consensus is, the Federal Reserve WILL NOT raise interest rates, but will give a strong indication of a rate hike in February.
  • We agree with the consensus.

 

 
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