THE
FEDERAL RESERVE WATCH
Federal
Reserve Watch and Commentary
Click
to Federal Reserve Board Monetary Policy Site
FOMC Meeting date: NEXT MEETING: MARCH
19TH. 2002
MEETING
OUTCOME
-
LATEST
NEWS: The Federal Reserve FOMC and the Board
of Governors on Tuesday March 19th. left the
Federal Funds Rate, the interest rate banks
charge each other for overnight loans, UNCHANGED
at 1.75%, and the Federal Discount Rate, the
interest rate the Federal Reserve charges
banks on loans, also UNCHANGED at 1.25%. The
Feds also dropped their threat for further
rate cuts due to recessionary fears.
Please
visit our ARCHIVES
for previous issues.
MEETING AGENDA:
- The
Federal Reserve Bank FOMC will consider either
LEAVING interest rates as they are, or INCREASING
them as the economy continues with its recovery.
In January 2002, the FOMC left interest rates
unchanged after cutting 11 times in 2001.
BOARD MEMBERS' RECENT COMMENTS
- Federal
Reserve Chairman Alan Greenspan stated in
a speech to Independent Community Bankers
of America in Honolulu Hawaii on March 13th.
that the US economy is recovering moderately.
Chairman Greenspan stated that there are "...increasing
signs that some of the forces restraining
the economy over the past year are starting
to diminish..." and that "layoffs
diminished noticeably in January and employment
turned up last month". Greenspan also
talked about the need for increased savings
instead of running deficits financed by foreign
money, which means interest payments end up
in foreign countries.
- Federal
Reserve Governor Mark Olson told a gathering
of America's Community Bankers in Washington
DC on March 12th. that "for the past
few months, we have seen clear indication
that economic conditions are improving and
we are either at, or near the end of the down
cycle".
- Federal
Reserve Bank of Dallas President and voting
FOMC member, Robert McTeer, told a British
American Business Council Southwest gathering
in Houston on March 11th. that the US economy
will see some strong growth in the first quarter.
Commenting on whether the strong growth could
trigger inflation, thus requiring a need for
rate cut at the coming meeting, President
McTeer stated "I personally don't see
any near term impending upward pressures on
inflation that would make that mandatory any
time soon".
- Federal
Reserve Chairman Alan Greenspan stated at
his second day of congressional testimony
on March 7th. that "...evidence suggest
that a recovery is well under way".
- Federal
Reserve Bank of Chicago President and non-voting
FOMC member, Michael Moskow, stated at a University
of Michigan discussion on March 7th. that
"...the key to stopping inflation is
never allowing it to start in the first place",
and that the Q4 2001 productivity growth of
5.2% was "...incredible increase in a
recessionary period".
- Federal
Reserve Bank of San Francisco President and
non-voting FOMC member, Robert Parry, told
a Bankers Club in San Francisco on March 7th.
that this US recession will "...go in
the history books as being both brief and
shallow".
- Federal
Reserve Bank of Dallas President and voting
member of the FOMC, Robert McTeer, stated
in a broadcast at a Dallas/Fort Worth radio
news station on March 6th. that the improving
manufacturing activities, the rise of the
Q4 2001 GDP by 1.4%, and the decline in inventory
liquidation are very positive signs "...that
we have started a recovery". President
McTeer also added that "...there will
be pressure to start the process of tightening
before you actually see inflation....",
given the long lags interest rate actions
have.
- Federal
Reserve Bank of Philadelphia and voting FOMC
member, Anthony Santomero, told the Main Line
Chamber of Commerce gathering in Philadelphia
on March 6th. that he is "...cautiously
optimistic about the US economy in 2002".
- Federal
Reserve Bank of Chicago President and non-voting
FOMC member, Michael Moskow, stated at a Risk
Managers Association gathering in Chicago
on March 5th. that the US economic recovery
is underway, but "...the exact pattern
of the recovery is difficult to predict, but
growth should be on a more solid footing by
the second half of the year". After the
speech, President Moskow stated in an interview
with reporters that he was "...glad to
see that the ISM manufacturing (data) was
54.7 after 18 months of being below 50".
Moskow still cautioned that while the numbers
are encouraging, we are not "...completely
out of the woods yet".
- The
Federal Reserve Chairman, Alan Greenspan,
testified before congress on February 27th.
that.... (see below).
- Federal
Reserve Vice Chairman, Roger Ferguson, stated
at a speech in Canton Ohio, on February 27th.
that the "...signs of economic recovery
are increasing". Governor Ferguson also
stated that the leveling off in layoffs is
a good sign, and that there are "..signs
that capital spending may be improving, but
the strength and durability of that.."
are not yet clear. He added that "...until
there is a clearer perspective with regard
to business investment, I believe that there
is still reason for some reservations regarding
the contours of the recovery".
- Federal
Reserve Bank of Atlanta president, and non-voting
FOMC member, Jack Guynn told a Rotary Club
gathering in Nashville Tennessee on February
25th. that he thinks "...the economy's
going to return to sustained positive growth
by the third quarter of the year...",
but the recovery is "...likely to be
more moderate than we are accustomed to seeing...",
due mostly to investment spending uncertainty.
- Federal
Reserve Bank of Minneapolis and voting FOMC
member, Gary Stern, stated in an interview
on February 15th. that he doesn't see serious
inflation problems in the next few quarters,
so his "...foot is not heading for the
brakes....." as in the Feds raising interest
rates to combat inflation fears
- Federal
Reserve Bank of Atlanta President, and non-voting
FOMC member, Jack Guynn, stated in a Bloomberg™
interview on February 14th. that the Federal
Reserve might have to raise rates again IF
the recovery prompts inflation. He continued
that "the economy turns much more
quickly in many reports today, and I would
suggest that policy too, needs to be prepared
to more nimble than has been the case in the
past".
Board
Members Testimonies and Speeches page
THE GENERAL CONSENSUS ABOUT COMING MEETING:
- Most
economists think the Feds might hold rates
again.
- OUR
VIEW: We agree.
RECENT
ECONOMIC DATA RELEASES (from old to newer data):
-
Chicago
PMI Index, a good measure of manufacturing
activity in the Chicago area, rose to 45.1%
in January.
-
US
Agricultural Prices rose only 1% in January.
-
The
US Employment Cost Index (ECI) for Q4 2001
rose 0.9%. Benefit Costs rose 1.2%, due mostly
to health insurance cost increases.
-
US
Personal Income rose 0.4% in December, while
Personal Consumption declined 0.2%.
-
The
Conference Board reported that its Help Wanted
Index, a good measure of blue collar employee
demand, rose 1 point in December to 46, its
first rise in 12 months.
-
US
Jobless Claims for weekending January 26th.
rose 30,000 to 390,000. The 4-week moving
average declined 15.250 to 386,000.
-
US
Construction Spending rose 0.2% in December,
due to a slight increase in residential construction.
Non-residential and Public Construction declined
in December.
-
The
Economic Cycle Research Institute (ECRI) reported
that, its Future Inflation Gauge Index (ECRI
FIG) declined 0.8% in January.
-
The
University of Michigan Consumer Sentiment
Survey rose to 93.0 in January, its highest
level since January 2001.
-
US
Payroll Jobs declined 89,000 in January, as
the US Unemployment Rate declined to 5.6%,
due to a seasonal labor force decline, as
opposed to job creation.
-
The
Institute of Supply Management (ISM), formerly
known as the NAPM, reported that its index
rose to 49.9% in January - any point below
50% is a contraction.
-
Chicago
Fed National Activity Index (CFNAI), a good
measure of the national economy, rose to -1.1%
in December, well better than the November
level of -1.44%.
-
US
Vehicle Sales in January came in at 15.8 million
units sold, which beat estimates.
-
Semiconductor
Billings declined 4% in December.
-
US
Factory Orders rose 1.2% in December, in line
with economists' estimates.
-
The
Institute of Supply Management (ISM), formerly
known as the NAPM, reported that its Non-manufacturing
Business Activity Index declined by 50 basis
points (0.50%) to 49.6% - any point below
50% is a contraction.
-
US
Productivity rose 3.4% in Q4 2001, as Hourly
Compensation rose 2.3%, while Unit Labor Costs
declined 1.1% in the same period. Average
Hours worked also declined. US productivity
grew only 1.8% for all of 2001, its lowest
yearly growth since 1995.
-
The
Mortgage Bankers Association (MBA) reported
that its MBA Mortgage Applications Survey
Index for week ending February 1st. rose 5.3%
to 567.3. The Purchase Index rose to 340.9.
The Refinance Index rose to 1884.2. The 30-year
Fixed Mortgage Rate declined to 6.85%.
-
The
Energy Information Administration (EIA) reported
that, US crude oil inventory for week ending
February 1st. rose 2.4 million barrels, while
Distillates declined 1.5 million barrels.
-
US
January Chain Store Sales rose a strong 5.2%.
-
US
Jobless Claims for the weekending February
2nd. declined 15,000 to 376,000. The 4 week
moving average declined 5750 to 380,500.
-
US
Consumer Credit for December declined $5.1
billion.
-
US
Wholesale Trade declined 0.4% in December,
while Inventories declined 0.8%. The Inventory-to-Sales
ratio came in at 1.29.
-
Kansa
City Fed Manufacturing Survey rose 6% in January.
-
The
Richmond Fed Manufacturing Survey came in
at 4.00 in January, due mostly to improvements
in New Orders, Shipments, and the Average
Workweek indices for the Federal Reserve District.
-
The
Mortgage Bankers Association (MBA) reported
that for weekending February 8th, its MBA
Mortgage Applications Survey Index rose 2.5%
to 581.7. The Purchase Index declined to 314.7.
The Refinance Index rose to 2134.9. The 30-year
Fixed Rate Mortgage declined to 6.81%.
-
MARTS
reported that US Retail Sales declined only
0.2% in January. Excluding Autos, retail sales
rose a strong 1.2% from the month before,
and 2.5% over the year.
-
The
Energy Information Administration (EIA) reported
that for week ending February 8th, US Crude
Oil inventories rose 2.5 million barrels,
while Distillates rose 200,000 barrels in
the same period.
-
US
Business Inventories declined 0.4% in December,
as the Inventory-to-Sales ratio stayed at
1.39 for the 3rd. straight month.
-
US
Jobless Claims for weekending February 9th.
declined 8,000 to 373,000. The 4-week moving
average declined 5,500 to 376,000.
-
US
Import Prices rose 0.4% in January, due primarily
to higher oil prices. US Export Prices declined
0.1%, due primarily to a weaker global economy.
-
The
National Association of Home Builders (NAHB)
reported that, its NAHB Housing Market Index
declined 2 points to 58 in December, due to
a decline in Traffic of Prospective Buyers,
which declined 4 points to 46.
-
The
University of Michigan Consumer Sentiment
Survey for February declined to 90.9, due
mostly to Enron and corporate accounting concerns.
-
The
US Producer Price Index (PPI), a good measure
of producer inflation, rose 0.1% in January.
The Core PPI declined 0.1%.
-
US
Industrial Production declined 0.1% in January,
in line with what economists were expecting.
-
US
New Residential Building Permits rose 3% to
1.706 million in January. Housing Starts rose
6% to 1.68 million, as demand for single family
homes continue to rise.
-
The
Mortgage Bankers Association (MBA) reported
that for weekending February 15th, its MBA
Mortgage Applications Survey Index declined
8.8% to 530.5. The Purchase Index declined
to 290.2. The Refinance Index declined to
1927.9. The 30-year Fixed Rate Mortgage declined
to 6.78%.
-
US
Semiconductor Book-to-Bill Ratio rose to 0.81
in January - the second monthly increase in
a row.
-
The
US Consumer Price Index (CPI), a good measure
of consumer inflation, rose 0.2% in January.
The Core CPI, which excludes volatile energy
and food sectors, also rose 0.2% for the period.
-
US
E-Commerce Sales rose 13.1% in Q4 2001 to
$10 billion, in line with estimates.
-
US
Trade Deficit declined to $25.3 billion in
December, as exports rose $100 million, while
imports declined $3.1 billion.
-
The
Philadelphia Fed Survey improved in February
by rising to a very strong 16.0.
-
US
Jobless Claims for weekending February 16th.
rose 10,000 to 383,000. The 4 week moving
average rose 5,750 to 373,000.
-
The
Energy Information Administration (EIA) reported
that for weekending February 16th, US Crude
Oil inventory declined 3.1 million barrels,
while Distillates declined 1.8 million barrels.
-
The
Conference Board reported that US Index of
Leading Economic Indicators rose 0.6% in January,
the 4th monthly increase in a row. The Coincident
Index was unchanged, while the Lagging Index
declined 0.2%.
-
US
Existing Home Sales rose to 6.04 million,
the highest level ever, and first time above
the 6 million units mark.
-
The
Conference Board reported that the US Consumer
Confidence unexpectedly declined to 94.1 in
February.
-
US
Durable Goods Orders rose a better-than-expected
2.6% in January, thanks to a strong Airplanes
(21.6%), Semiconductor (14.2%), Transportation
Equipment (5.9%), and cars (4.3%) orders.
-
US
New Home Sales declined an unexpected 14.8%
to 823,000 in January, its largest monthly
decline since January 1994.
-
The
Energy Information Administration (EIA) reported
that for week ending February 22nd, US crude
oil inventory declined 2.5 million barrels,
while Distillates declined 3.0 million barrels.
-
The
Mortgage Bankers Association (MBA) reported
that for week ending February 22nd, its MBA
Mortgage Applications Survey Index rose 3.9%
to 551.1. The Purchase Index rose to 315.5.
The Refinance Index declined to 1921.6. The
30-year fixed rate mortgage declined to 6.19%.
-
US
Agricultural Prices rose 4.2% in February,
due mostly to the stellar performance of commercial
vegetables.
-
The
Conference Board reported that its Help Wanted
Index, a good measure of blue collar employee
demand, held steady at 47 in January.
-
The
Chicago Fed National Activity Index (CFNAI),
a good measure of economic activity in the
country, improved to -0.86%.
-
Chicago
Purchasing Managers Institute (PMI) reported
that, its Chicago PMI rose to 53.1% in February
- any point above 50% shows an expansion.
-
The
US Gross Domestic Product (GDP) for Q4 of
2001 was revised higher to a growth of 1.4%.
-
US
Jobless Claims for weekending February 23rd.
rose 17,000 to 378,000. The 4-week moving
average declined 3,000 to 373,250.
-
US
Construction Spending rose 1.5% in January.
-
The
Institute for Supply Management (ISM), formerly
known as the NAPM, reported that its ISM Index
rose to 54.7% in February - any point above
50% is an expansion.
-
The
University of Michigan reported that its Consumer
Sentiment Survey declined to 90.7 in February.
-
US
Personal Income rose 0.4% in January, due
mostly to increases in transfer payments like
unemployment, social security, etc. Salaries
and Wages declined for the period.
-
US
Vehicle Sales came in at 16.7 million in February,
the strongest level in 3 months, but lower
than February the year before.
-
The
Institute for Supply Management (ISM), formerly
known as the NAPM, reported that its ISM Non-Manufacturing
Activity Index rose to a stronger-than-expected
58.7% in February - any point above 50% is
an expansion.
-
Worldwide
Semiconductor Billings declined 1.7% in January,
in line with expectations. Asia pacific (excluding
Japan) saw an increase; North America was
unchanged, while Europe and Japan saw a decline.
-
US
Factory Orders rose 1.6% in January, as Manufacturing
Shipments rose a strong 2.0% in the same period.
-
The
Energy Information Administration (EIA) reported
that for weekending March 1st, US Crude Oil
inventory rose 4.3 million barrels, while
Distillates declined 1.9 million barrels.
-
The
Mortgage Bankers Association (MBA) reported
that for weekending March 1st, its MBA Mortgage
Applications Survey index rose 14.5% to 631.2.
The Purchase Index rose to 335.4. The Refinance
Index rose to 2351.7. The 30-year Fixed Rate
Mortgages rose to 6.81%.
-
US
Chain Store Sales rose a strong 6.2% in February,
thanks to the 10% increase in discount stores
sales.
-
US
Productivity for Q4 2001 was revised upward
to a growth of 5.2%. Unit Labor Costs declined
2.7%, as hours worked declined 3.6%. Real
Hourly Compensation rose 2.5%.
-
US
Jobless Claims for weekending March 2nd. declined
5,000 to 376,000. The 4-week moving average
declined 1,250 to 372,750.
-
US
Consumer Credit rose over 9% in January to
$12.9 billion, as non-revolving credit continue
to increase.
-
US Employment rose 66,000 in February, as
the Unemployment Rate decreased to 5.5%.
-
The Economic Cycle Research Institute (ECRI)
reported that, its Future Inflation Gauge
(ECRI FIG), a good measure of future inflation,
rose 2.6% in February - a clear sign that
the economic recovery is not just on the way,
but has price pressures too.
-
Kansas
City Fed Manufacturing Survey improved slightly
in February as Production improved from -37
to -29. Manufacturing eased from January's
6 to 3 - still in the positive.
-
US
Wholesale Trade improved 1.2% in January,
as Inventories declined 0.2%. The Inventories-to-Sales
Ratio declined to 1.28.
-
Richmond
Fed Manufacturing Survey improved in February
to 23.0.
-
US
Retail Sales rose only 0.3% in February. Excluding
automobile sales, retail sales rose 0.2%.
-
The
Mortgage Bankers Association (MBA) reported
that its MBA Mortgage Applications Survey
for weekending March 8th. declined 16% to
530.0. The Purchase Index declined to 314.6.
The Refinance Index declined to 1783.0. The
30-year fixed rate mortgage rose to 7.08%.
-
The
Energy Information Administration (EIA) reported
that for weekending March 8th, US crude oil
inventory rose 400,000 barrels, while Distillates
declined 2.8 million barrels.
-
US
Trade Deficit worsened in Q4 2001 to $98.8
billion. The goods deficit improved, but the
services surplus receded sharply.
-
US
Jobless Claims for weekending March 9th. declined
3,000 to 377,000. The 4-week moving average
also declined to 375,000.
-
US
Business Inventories rose 0.2% in January,
but a higher rise in sales pushed the Inventory-to-Sales
ration lower to 1.38.
-
US
Import Prices declined 0.5% in February, while
Export Prices were unchanged.
-
The
University of Michigan reported that for the
month of March, its Consumer Sentiment Survey
rose about 5 points to 95.0.
-
US
Industrial Production rose a stronger than
expected 0.4% in February, as Capacity Utilization
also rose to 74.8%.
-
US
Producer Price Index (PPI), a good measure
of producer inflation, rose 0.2% in February.
The Core PPI, which excludes volatile energy
sector, was unchanged for the period.
BEIGE BOOK (12 DISTRICTS) REPORT
OF MARCH 7TH. 2002
- The
US economy is showing recovery signs.
- The
First District (Boston) reported that manufacturing
and retailing is picking up. Business still
slow, but staffing companies are seeing improvements.
Real Estate is not in a free fall again.
-
The Second district (New York) reported a
mixed economy with housing and retail sales
still doing fine, while employment continues
to struggle.
- Third
district (Philadelphia) reported that manufacturing
and retail sales are upbeat about the future.
Auto sales are steady. Real Estate and commercial
loan markets are still weak.
- Fourth
district (Cleveland) reported that the labor
market is still weak. Retail and construction
are still strong sales, while manufacturing,
shipping and trucking continue to improve.
- The
Mid-Atlantic Fifth District (Richmond) reported
that manufacturing and retail were strong.
Demand for temporary workers is up. Demand
for commercial loans was was low, while residential
mortgage loans were still strong.
- Southeastern
Sixth District (Atlanta) reported that retail
sales, and residential real estate were strong.
Tourism and hospitality reported improvements,
while bank lending was soft. Defense contractors
are seeing strong activity. Insurance and
medical costs are rising.
- The
Seventh (Chicago) reported that manufacturing
and labor market were weak due to decreased
consumer spending. Lending improved slightly.
-
The Eighth district (St Louis) reported that
Retailers are optimistic about the future.
Real estate continues to be weak. Farmers
are uncertain as they wait for the package
of the Farm Bill. Lending is improving.
-
The Ninth District (Minneapolis) reported
that mining and residential construction are
up. Commercial construction, tourism and energy
declined.
- Tenth
District (Kansas City) reported that Retail
and home sales rose. Agriculture still suffering
from dry weather.
- The
Eleventh District (Dallas) reported that retail
sales improved, while construction and real
estate continue to weaken. Agriculture was
sluggish, as the energy sector shows signs
of bottoming out.
- The
Twelfth District (San Francisco) reported
that consumer spending is exceedingly high,
as the technology sector continues to pick
up. Commercial real estate and lending are
still weak. Agriculture held steady.
HUMPHREY-HAWKINS (CONGRESSIONAL
TESTIMONY) REPORT OF FEBRUARY 27th. and MARCH
7th. 2002
- The
US Economy is recovering, but the recovery
will be a moderate one.
- US
Foreclosures are up due to the weak economy.
- Chairman
Greenspan stated that he doesn't think it
is wise to put a statutory ceiling on public
debt.
- There
is need to increase minority lending for home
ownership so as to increase their economic
participation.
- Chairman
Greenspan stated he doesn't see the need for
a stimulus package.
- Greenspan
stated on the second day of testimony that
the recovery is already underway.
<--Previous Meetings-->
Please
visit our ARCHIVES
for previous issues.
he
Federal Reserve analysis brought to you by the
Economics Department,
BusinessJeeves.Com © 1999-2000. All Rights Reserved.
|
