Wednesday, July 9, 2014

* FOMC Minutes - Not Just Headlines but also Details

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* Read the Full FOMC Minutes Here *

1. Monthly bond-buying program could end sooner rather than later; potential October exit growing increasingly likely.

2. The Fed at its June meeting voted to reduce the program another $10 billion to $35 billion, while keeping its target funds rate near zero.

3. Minutes indicated little taste for increasing rates ahead of schedule, with market expectations that the first hike probably won't come until mid-2015 despite improving economic data that has seen both unemployment and inflation at the Fed's target levels.

Source: Fed Minutes: QE likely to end with final $15B reduction in October

4. Ex-Obama advisor sees sooner Fed rate hike

5. Committee agreed that beginning in July, it would add to its holdings of agency MBS at a pace of $15 billion per month rather than $20 billion per month, and it would add to its holdings of Treasury securities at a pace of $20 billion per month rather than $25 billion per month.

Highlight Details

1. Real gross domestic product (GDP) had dropped significantly early in the year but that economic growth had bounced back in recent months.

Real GDP growth in the first half of this year as a whole was lower, on net, than in the projection for the April meeting.

In the economic forecast prepared by the staff for the June FOMC meeting, In particular, the available readings on exports, inventory investment, outlays for health-care services, and construction pointed to much weaker real GDP in the first quarter than the staff had expected.

Employment & Unemployment
2. Average pace of employment gains stepped up, although [unemployment] was still elevated.

Total nonfarm payroll employment expanded in April and May at a faster rate than the average monthly pace during the previous two quarters. The unemployment rate dropped to 6.3 percent in April and remained at that level in May.

However, the labor force participation rate also declined in April and then held steady in May, while the employment-to-population ratio remained flat. Both the share of workers employed part time for economic reasons and the rate of long-duration unemployment edged down in recent months, although both measures were still high. Initial claims for unemployment insurance decreased slightly, on net, over the intermeeting period, and the rate of job openings stepped up in April; nevertheless, the rate of hiring was unchanged and remained at a modest level.

Labor market conditions generally continued to improve over the intermeeting period. That improvement was evidenced by the decline in the unemployment rate as well as by changes in other indicators, such as solid gains in nonfarm payrolls, a low level of new claims for unemployment insurance, uptrends in quits and job openings, and more positive views of job availability by households.

Wages & Compensation
3. Increases in measures of labor compensation remained modest.

Compensation per hour in the nonfarm business sector rose about 2-1/4 percent over the year ending in the first quarter; with small gains in labor productivity, unit labor costs advanced more slowly than compensation per hour. Over the year ending in May, average hourly earnings for all employees increased around 2 percent.

4. Consumer price inflation picked up in recent months, while measures of longer-run inflation expectations remained stable.

U.S. consumer price inflation, as measured by the PCE price index, was about 1-1/2 percent over the 12 months ending in April, below the Committee's longer-run objective of 2 percent. Near-term inflation expectations from the Michigan survey declined slightly, on balance, in May and early June, while longer-term inflation expectations from the survey were little changed.

The staff's forecast for inflation in the near term was revised up a little as recent data showed somewhat faster increases in consumer prices than anticipated.

5. Industrial production increased, on balance, in April and May, as manufacturing output and production in the mining sector expanded and more than offset a further decline in the output of utilities from the elevated levels recorded during the unusually cold winter months.

Personal Consumption
5. Real personal consumption expenditures (PCE) declined a little in April following strong gains in February and March. The component of the nominal retail sales data used by the Bureau of Economic Analysis to construct its estimate of PCE edged down in May, but light motor vehicle sales moved up briskly

Personal Disposable Income
6. Real disposable income continued to rise in April, and households' net worth likely increased as equity prices and home values advanced further; however, consumer sentiment in the Thomson Reuters/University of Michigan Surveys of Consumers moved down somewhat in May and early June.

7. The pace of activity in the housing sector remained subdued. Starts of new single-family homes declined slightly, on net, in April and May, although starts of multifamily units increased.

8. Existing home sales only edged up in April and were still below last year's average level, while pending home sales were little changed.

Forward Looking
9. Real private expenditures for business equipment and intellectual property products were estimated to have increased slowly in the first quarter as a whole.

10. Other forward-looking indicators, such as surveys of business conditions, were also generally consistent with modest increases in business equipment spending in the near term. Nominal business spending for nonresidential structures was essentially unchanged in April. Recent data on the book value of inventories, along with readings on inventories from national and regional manufacturing surveys, did not point to significant inventory imbalances in most industries except in the energy sector, where inventories appeared unusually low after having been drawn down during the winter.

Federal Spending
11. Federal spending data for April and May pointed toward only a small decline in real federal government purchases in the second quarter, as the pace of decreases in defense expenditures seemed to ease

International Trade
12. The U.S. international trade deficit widened in March and in April. Both imports and exports recovered from weak readings in February, with imports of consumer goods, automotive products, and capital goods rising significantly and exports of capital goods and industrial supplies showing particular strength.

The staff viewed the extent of uncertainty around its June projections for real GDP growth and the unemployment rate as roughly in line with the average over the past 20 years. Nonetheless, the risks to the forecast for real GDP growth were viewed as tilted a little to the downside, as neither monetary policy nor fiscal policy was seen as being well positioned to help the economy withstand adverse shocks. At the same time, the staff viewed the risks around its outlook for the unemployment rate and for inflation as roughly balanced.

However, the staff still anticipated that real GDP growth would rebound briskly in the second quarter, consistent with recent indicators for consumer spending and business investment, along with the expectation that exports and inventory investment would return to more normal levels and that economic activity that had been restrained by the severe winter weather would bounce back.

In their discussion of the economic situation and the outlook, meeting participants viewed the information received over the intermeeting period as suggesting that economic activity was rebounding in the second quarter following a surprisingly large decline in real GDP in the first quarter of the year. Labor market conditions generally improved further. Although participants marked down their expectations for average growth of real GDP over the first half of 2014, their projections beginning in the second half of 2014 changed little. Over the next two and a half years, they continued to expect economic activity to expand at a rate sufficient to lead to a further decline in the unemployment rate to levels close to their current assessments of its longer-run normal value.

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1 comment:

  1. the crystal ball says things are going to get better...