2011 December | timiacono.com - Part 10

A “Nothing Sandwich” from the Fed

The Federal Open Market Committee made no changes to monetary policy at their last meeting of the year that concluded a short time ago and provided no further hints at action they are likely to take next year.

They simply upgraded their assessment of the U.S. economy after the generally positive data that has been received since they met last month and, with a much friendlier board composition in 2012, will begin their work anew in six weeks.

Gone next year will be board members who cast dissenting votes on more accommodative policy changes in the fall – Richard Fisher of the Dallas Fed, Charlie Plosser of Philadelphia, and Narayana Kocherlakota of Minneapolis – while three of the four incoming voting members – John Williams of San Francisco, Dennis Lockhart of Atlanta, and Sandra Pianalto of Cleveland – appear open to more easing should the economy stumble.

The only 2012 voting member who has voiced opposition to more easy money from the Fed will be Richmond Fed President Jeffrey Lacker, so, when considering the improvement in the economy in recent months, the “nothing sandwich” from the group today shouldn’t be surprising in the least.

Markets were clearly looking for more, but they’ll have to wait until next year.

Today’s FOMC policy statement is shown below alongside the one from last month.


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Since we’ll be out when the Federal Open Market Committee meeting adjourns in an hour or so, offering up yet another policy statement for an increasingly fragile global economy, this story at The Onion seemed worth sharing between now and the time that we return.

To no one’s surprise, Fed Chief Ben Bernanke came in #1 in the short list of most influential economists and, sadly, the satire website’s characterization of what he’s accomplished probably isn’t too far off the mark.

Economists and the Housing Bubble

More evidence that economists in general and dismal scientists at the Federal Reserve in particular are hopelessly and dangerously detached from reality (i.e., guided by the mistaken belief that, if something doesn’t exist in their models, neither does it exist in the real world) comes via this Associated Press story about a new study by the central bank detailing how wild speculation drove the late, great U.S. housing bubble.

A new federal report shows that speculative real estate investors played a larger role than originally thought in driving the housing bubble that led to record foreclosures and sent economies plummeting in Nevada, California, Arizona, Florida and other states.

Researchers with the Federal Reserve Bank of New York found that investors who used low-down-payment, subprime credit to purchase multiple residential properties helped inflate home prices and are largely to blame for the recession. The researchers said their findings focused on an “undocumented” dimension of the housing market crisis that had been previously overlooked as officials focused on how to contain the financial crisis, not what caused it.

More than a third of all U.S. home mortgages granted in 2006 went to people who already owned at least one house, according to the report. In Arizona, California, Florida and Nevada, where average home prices more than doubled, investors made up nearly half of all mortgage-backed purchases during the housing bubble. Buyers owning three or more properties represented the fastest-growing segment of homeowners during that time.

“This may have allowed the bubble to inflate further, which caused millions of owner-occupants to pay more if they wanted to buy a home for their family,” the researchers noted.

I saw this last week when it was originally published and should have mentioned it at the time (the report from the New York Fed can be found here), but, now that it’s getting lots of attention in the mainstream media it’s a case of better late than never.

Retail Sales Disappoint

The Commerce Department reported(.pdf) that retail sales in the U.S. advanced for the sixth straight month, but the increase was less than expected, sales rising just 0.2 percent in November after a surge of 1.3 percent in September and a gain of 0.6 percent in October.

Excluding autos, sales rose 0.2 percent after a gain of 0.6 percent in October while sales excluding both autos and gasoline rose 0.2 percent in November after a gain of 0.7 percent.

Gasoline station sales dropped 0.1 percent after declining 0.4 percent, but they are still up 12.9 percent from a year ago due to higher prices at the pump, not higher energy demand.

Auto sales rose 0.7 percent after a surge of 1.0 percent the month prior while the biggest monthly increase in November occurred at electronics & appliance stores with a jump of 2.1 percent jump after surging 3.3 percent in October, a testament to America’s love for such products as Apple’s iPad2.

Seven retail categories saw higher sales while six declined, paced by a drop of 1.2 percent at miscellaneous store retailers and a decline of 0.3 percent at home improvement stores.

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