FOMC Meeting date: NEXT MEETING: JUNE 25TH-26TH 2002
MEETING
OUTCOME
LATEST NEWS: The Federal Reserve FOMC and the Board of
Governors on Wednesday June 26th. 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
had no bias in their traditional statement.
The Federal Reserve Bank FOMC will consider either LEAVING interest
rates as they are, or INCREASING them as the economy continues with
its recovery. The FOMC left interest rates unchanged on May 7th, after cutting 11 times in 2001.
BOARD MEMBERS' RECENT COMMENTS
Federal Reserve Bank of San Francisco President and non-voting FOMC member,
Robert Parry, stated in a USA Today interview on June 13th. that he is
"comfortable" with the low state of inflation, and that "..at
this point there is no sign in my view that we are leading up to any
inflationary problem, so I think we can take our time".
Federal Reserve Governor and voting FOMC member, Susan Bies, stated at a
gathering of Tennessee bankers on June 11th. that it is not clear to her
whether 7.5% unemployment rate seen in April is the peak.
Federal Reserve Chairman Alan Greenspan stated at an International Monetary
Conference in Montreal Canada on June 5th. that the US economic prospects look
good, even though the growth in the coming months will be slow...."I
suspect the American economy is in an upswing - it's not going to be a
dramatic upswing, but events look increasingly positive". Chairman
Greenspan also added that the economy will "..not grow at the pace of the
first quarter".
Federal Reserve Bank of Dallas President and voting FOMC member, Robert
McTeer stated on May 30th. that the US economy is not growing strong enough to
boost the jobs market to noticeable levels...."I don't anticipate that
it's going to be a jobless recovery, but at this point the recovery is based
more on productivity gains than rehiring of unemployed people".
Federal Reserve Bank of Minneapolis President and voting FOMC member, Gary
Sterns, stated in a Reuters® interview on May 23rd. that the US economy is
seeing "...moderate growth in demand, healthy growth in productivity, and
I think the implications......of a low inflation and improving profitability
over time".
Most
economists feel the Feds WILL NOT raise interest
rates this time either. The consensus is building
on a rate hike in (maybe) August.
OUR
VIEW: We agree.
RECENT
ECONOMIC DATA RELEASES (from newer to older data):
The
Mortgage Bankers Association (MBA)
reported that its MBA Mortgage
Applications Survey Index for weekending
June 14th. rose 1.9% to 565.5. The
Purchase Index rose to 359.3. The
Refinance Index rose to 1764.4. The
30-year fixed rate mortgage declined to
6.53%.
The
Energy Information Administration (EIA)
reported that for weekending June 14th, US
crude oil inventory declined by 500,000
barrels, while Distillates rose by 300,000
barrels.
Bank
of Tokyo-Mitsubishi reported that for
weekending June 15th, US Chain Store Sales
rose a strong 0.7%, its second straight weekly
gain.
US
New Residential Construction Housing Starts
rose to 1.73 million units in May.
US
Consumer Price Index (CPI), a good measure .of
consumer inflation, was unchanged in May,
while the Core CPI, which excludes the
volatile energy and food sectors, rose 0.2%.
The
National Association of Home Builders (NAHB)
reported that, its NAHB Housing Market Index held
steady at 60 in June, as expectations held steady,
while buyer traffic rose.
The University of Michigan Consumer Sentiment
Survey declined a whopping 6.8 points in June to 90.8.
US Business Inventories declined 0.2% in April,
while sales rose 1.8, thus pushing the Inventory-to-Sales Ratio
lower to 1.35.
US Industrial Production rose 0.2% in May,
slightly lower than expected. Capacity Utilization rose to
75.5%.
US Retail Sales declined an unexpected 0.9% in May.
The US Producer Price Index (PPI), a good measure of
manufacturer inflation, declined to 0.4% in May, while Core PPI was unchanged.
US Jobless Claims for weekending June 8th. rose
6,000 to 390,000. The 4-week moving average declined 8,750 to
402,500.
The Mortgage Bankers Association (MBA) reported that
for weekending June 7th, its MBA Mortgage Applications Survey Index
declined 5.5% to 554.9. The Purchase Index declined to 359.0. The
Refinance Index rose to 1693.8. The 30-year Fixed Rate Mortgage
declined to 6.65%.
The Energy Information Administration (EIA) reported
that for weekending June 7th, US crude oil inventory declined 1.4
million barrels, while Distillates rose 1.7 million barrels.
US Export Prices (excluding agriculture) were
unchanged in May, while Import Prices (excluding oil) declined 0.1%.
Richmond Fed Manufacturing Survey improved the 5th.
month in a row to 21.0 in May.
Kansas City Fed Manufacturing Survey improved to
19.0 in May.
US Wholesale Trade gained 1.6% in April. Sales rose,
while Inventory declined, thus forcing Inventory-to-Sales Ratio down
to 1.23.
US Consumer Credit rose 6.5% over the year to $8.8
billion in April. Revolving credit led the increase again, due to
credit cards.
US Payroll employment rose 41,000 in May, thus
pushing the Unemployment Rate slightly lower to 5.8%.
The Economic Cycle Research Institute (ECRI)
reported that, its Future Inflation Gauge (ECRI FIG) Index rose 0.4%
in May.
US Chain Store Sales rose a better than expected
3.4% in May.
US Jobless Claims for weekending June 1st. declined
32,000 to 383,000. The 4-week moving average declined 8,500 to
411,250.
The Mortgage Bankers Association (MBA) reported that
for weekending May 31st, its MBA Mortgage Applications Survey Index
rose 13.6% to 587.4. The Purchase Index rose to 414.0. The Refinance
Index rose to 1596.4. The 30-year fixed rate mortgage declined to
6.11%.
The Institute of Supply Management (ISM), formerly
known as the NAPM, reported that its Non-Manufacturing ISM Index
rose a better than expected 4.8% to 60.1% - any point above 50%
indicates an expansion in the economy's non-manufacturing sector.
The Energy Information Administration (EIA) reported
that for weekending May 31st, US crude oil inventory rose 6.0
million barrels, while Distillates rose 2.6 million barrels.
The Bank of Tokyo-Mitsubishi reported that for
weekending June 1st, US chain Store Sales rose 0.1%, the first
increase in 4 weeks.
The Institute of Supply Management (ISM), formerly
known as the NAPM, reported that its ISM Index rose to 55.7% in May
- any point above 50% signals an expansion in manufacturing
activity.
US Construction Spending rose 0.2% in April.
US Vehicle Sales declined 7.5% over the year to 15.7
million units sold in May.
The Mortgage Bankers Association (MBA) reported that
for weekending May 17th. declined 5.6% to 502.9. The Purchase Index
declined to 344.3. The Refinance Index declined to 1425.8. The
30-year Fixed Rate Mortgages declined to 6.72%.
The Energy Information Administration (EIA) reported
that US Crude Oil inventory for weekending May 17th. rose to 4.6
million barrels, and Distillates rose 1.4 million barrels.
US Chain Store Sales for weekending May 18th. was
unchanged.
The Conference Board reported that the US Leading
Economic Indicators declined 0.4% in April. 5 of the 10 indicators
declined with Consumer Expectations, Stock Prices, and Money Supply
leading the decliners.
The University of Michigan Consumer Sentiment Survey
rose to 96.0 in May.
The Philadelphia Fed Survey rose to 9.1 in May.
The US Trade Deficit declined 0.4% to $31.6 billion in March.
BEIGE BOOK (12 DISTRICTS)
REPORT OF JUNE 12TH. 2002
The
Conference Board reported that the US Index
of Leading Economic Indicators rose a better
than expected 0.4% in May. The Coincident
Index rose 0.1%, while the Lagging Index
declined 0.2%.
The
US Trade Deficit rose to $35.9 billion in
April.
The
US Current Account Balance saw a bigger than
expected deficit of $112.5 billion in Q1
2002.
The
Philadelphia Fed Survey Index rose to a
better than expected 22 in June.
US
Jobless Claims for weekending June 15th.
declined 2,000 to 393,000. The 4-week moving
average declined 7,250 to 396,250.
The US economic recovery is very sluggish.
The
First District (Boston) reported a growing economy with manufacturing,
retail, software and IT services seen an improving business condition.
Commercial real estate is still struggling.
The Second district (New York) reported signs of improvement. Labor
markets were reported to be firming, and has the housing market.
Office space has stabilized. Bankers are seen a weaker than expected
consumer loan market, but commercial loans are up. Retail Sales were
below expectations in May, as manufacturing declined in the same
period.
Third district (Philadelphia) reported that business
conditions improved, with manufacturing and retail sales expecting
further improvement in the coming months. Services industries have
seen a recent pickup in business, as auto sales held steady.
Commercial real estate have eased in recent months, but new and
existing residential homes demand continue to be strong.
Fourth district (Cleveland) reported that the economy was
mostly the same from the last report. Trucking and shipping have seen
improvements, manufacturing, retail sales and banking were mixed,
while commercial construction deteriorated. Automakers saw an increase
in activity, and so did their suppliers.
The Mid-Atlantic Fifth District (Richmond) reported that its
economic activity rose modestly in April and May. Manufacturing and
auto sales rose, while retail sales were flat, as the services sector
saw a decline. Home sales picked up, and so did commercial leasing -
at a smaller scale.
Southeastern Sixth District (Atlanta) reported that economic
activity was sluggish. Retail sales was below expectations, auto sales
was flat despite incentives, and home sales, although still relatively
high, softened. Price pressures were seen in healthcare, insurance,
and packaging industries.
The Seventh (Chicago) reported that its expansion continued
modestly. Manufacturing and the Labor market improved, while loan
demand and consumer spending were mixed. Bad weather disrupted the
planting season, while farmland values rose to their strongest levels
in years. Bankers saw another quarter of bad farm loans.
The Eighth district (St Louis)
reported that the overall economy is improving slowly. Residential
real estate saw improvements, while commercial real estate, retail
sales and automobile sales were flat to weak. Manufacturing continues
to see cutbacks, but the sector is optimistic about the coming months.
The bad weather delayed planting and damaged crops in the district.
The Ninth District (Minneapolis) reported
that its economy was mixed. Energy, manufacturing, mining, and
residential construction improved. Tourism is optimistic about the
summer. Agriculture and commercial construction were down. Price
increases were seen in college tuition, insurance and steel.
Tenth District (Kansas
City) reported that its economy continues to improve. Retail sales
remained solid, as energy and manufacturing activity picked up.
Commercial real estate and automobile sales declined, while the bad
weather affected planting and damaged crops.
The Eleventh District (Dallas)
reported that the economy is improving slowly. Drought have wrecked
havoc to agriculture in the district. Energy and the manufacturing
sectors picked up. Demand for business and financial services, and
retail sales were generally unchanged. Construction and real estate
activity declined.
The Twelfth
District (San Francisco) reported that the economy continued to
improve. Consumer spending was steady, due mostly to retail discounts.
Residential real estate continue to be strong, while commercial real
estate continue to weaken. Manufacturing, especially in the high tech
sector, improved. Energy prices continued their volatility, while
agriculture improved in the district. Bankers are seen an improvement
in loan demand.
HUMPHREY-HAWKINS (CONGRESSIONAL
TESTIMONY) REPORT OF FEBRUARY 27th., MARCH 7th., and
April 17th. 2002.
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.
