Economy | - Part 30

Fed Makes the Price of Everything Go Down

Depending upon how you view the Federal Reserve, today’s policy meeting and attendant economic projections along with the press conference that followed by new Fed Chairman Janet Yellen were, collectively, either a stunning success or a dismal failure.

If you’re the financial market or you work on Wall Street, you probably didn’t like what you heard about less money printing and rising interest rates.

That’s why the price of virtually every financial asset went down, some by a lot.

If you’re one of the few Americans who favor a less-involved Fed and have tired of asset bubbles, you probably liked it, though that doesn’t mean to imply that we’re done with asset bubbles.

One thing is certain, the message from the Fed was no”nothing-burger”, as some suggested earlier.

As expected, the central bank left short-term interest rates at the freakishly low rate of 0 to 0.25 percent while it lowered its monthly money printing from $65 billion to $55 billion.

They jettisoned their 6.5 jobless rate target for a more flexible threshold for raising interest rates and were optimistic about the economy improving, but it appears just three words from Ms. Yellen in the press conference were all markets heard – “about six months” – in reference to the time between the end of “tapering” and the start of interest rate hikes.

That puts the beginning of the next Fed “baby-steps” interest rate normalization program sometime next spring (instead of next fall, as previously believed) and that, apparently, was too soon for some traders who chose to hit the sell button sooner rather than later.

There’s more on this from the WSJ here, here, and here, this report was filed at Marketwatch, and Reuters provided this story. As always, the last two policy statements are shown below.


Lights, Camera, Yellen

The odds are pretty good that we’ll get another “nothing burger” from the Federal Reserve today as new Chairman Janet Yellen conducts her first press conference following the conclusion of the policy committee meeting and the release of new economic forecasts.

The snow beckons, so, I’ll be back later in the day with some comments (or maybe not, if it’s as dull as most expect). Until then, from this story at Politico, here’s the setup for today’s festivities along with the Fed Chair during her recent Senate confirmation hearing.

When Fed Chair Janet Yellen faces questions from reporters on Wednesday afternoon, she will have the small task of explaining whether the economy is really improving and what else, if anything, the most powerful financial institution on the planet might do to help.

Yellen will also most likely get peppered with questions on Ukraine, inflation, the jobless rate, too-big-to-fail banks and who knows what else. Jittery investors around the globe will hang on every syllable and a pack of hungry reporters will be eager to get Yellen, in her first news conference as Fed chair, to make some market-moving news.

While there is little chance any of them will succeed — Yellen is widely known to be meticulously prepared — the stakes are nonetheless quite high.Wit

Without the Brooklyn accent, it seems Yellen would have a much more difficult time with this sort of thing. Former Fed chief Ben Bernanke wasn’t all that convincing as a speaker as he always had a little quiver in his voice and let’s not forget the 2006 Maria Bartiromo incident (i.e., Bernanke Slips on Bartiromo Peel) for how things can go awry with the press.

Beef, Milk Prices Surge

Though the government’s official measure of inflation showed only a modest overall increase last month when it was released earlier in the week, milk futures reportedly jumped to a record high on Monday and beef prices have also recently surged as shown in the graphic below from this item at the Wall Street Journal’s economics blog.

This WSJ story ($) in today’s paper details how drought and rising exports have contributed to the recent increase in food prices that, last month, jumped 0.4 percent according to the Labor Department.

I’ve likened inflation concerns in recent years (particularly since the Federal Reserve began its money printing extravaganza in 2008) to “the boy who cried wolf” and, just in the last few weeks, a growing (albeit still pretty small) number of boys are again crying wolf.

Importantly, in the parable, the wolf eventually comes…

Inflation Tame, Housing Starts Mixed

The Labor Department reported that U.S. consumer prices rose 0.1 percent in February for the second straight month and that the annual rate of inflation dropped from 1.6 percent in January to just 1.1 percent last month, one of the lowest rates since 2009.

Falling energy prices were the primary reason for the overall price decline as this index fell 0.5 percent after a gain of 0.6 percent the month before, but food prices rose in February, up 0.4 percent after gains of 0.2 percent and 0.1 percent in prior months.

Also this morning, the Commerce Department reported(.pdf) that housing starts came in just below expectations, but permits for new construction (a key leading indicator for the home building industry) surged in what was a hopeful sign for the housing market this year.

Housing starts fell from an annual rate of 909,000 in January to 907,000 in February and permits jumped 7.7 percent to a rate of 1.018 million after dropping 4.6 percent in January.

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Confidence Begins to Fade

Confirming what was seen in this item earlier in the week via the latest weekly economic confidence survey from Gallup, the mood of the American consumer appears to be fading as a harsh winter gives way to spring, at least according to the latest reading on consumer sentiment from Reuters and the University of Michigan.

In the first of two readings for March, the index fell from 81.6 in February to 79.9 this month, its lowest level in almost a year, save for the most recent episode of the government shooting itself in the foot again last fall via a partial shutdown.

As was the case for the Gallup survey, the overall decline was driven by reduced expectations about the future as this component dropped from 72.7 to 69.4, its lowest level since November. The current conditions component actually rose, from 95.4 to 96.1, as Americans were more confident about their personal finances.

In a testament to the Federal Reserve’s ongoing effort to inflate asset prices, the fewest share of homeowners since 2007 said their homes had lost value over the last year, though respondents said home price gains would slow in the year ahead.

Fear of inflation is still nowhere to be seen as the one-year outlook puts prices 3.2 percent higher while inflation five years from now is seen coming in at a rate of just 2.9 percent.

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