FOMC Statement


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Federal Reserve Press Release


Release Date: December 16, 2008

The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent.

Geitner ought to be able to hit that one..

Since the Committee’s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.

Aggregate demand continued to fall

Meanwhile, inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters.

Inventory liquidations to continue and OPEC not expected to hike prices

The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.

Low interest rates per se are believed to promote growth and employment.

The focus of the Committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level.

A larger balance sheet promotes growth, employment, and marketing functioning.

As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant.

This implies the purchases have some benefit other than from keeping interest rates for these securities lower than otherwise, as it didn’t say the purpose was lowering mortgage interest rates.

The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.

Seems they still don’t grasp that it’s about ‘price’ (interest rates) and not ‘quantity’.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.

In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 1/2 percent.

They are still keeping it higher than the Fed Funds rates and still demanding collateral.

In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Cleveland, Richmond, Atlanta, Minneapolis, and San Francisco. The Board also established interest rates on required and excess reserve balances of 1/4 percent.

No mention of the USD swap lines to foreign central bands that was last reported to be well over $600B.

Still no evidence of a working understanding of monetary operations and reserve accounting.


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What happened in July?


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Through Q2 08 GDP was muddling through with modestly positive numbers.

Then it hit the wall in July as crude oil and the commodities in general broke down courtesy of Mike Masters and Joe Lieberman.

Soon afterward the main street credit crunch intensified.

What I now suspect happened is that the US energy/commodity industry got the rug pulled out from under it as the transfer of nominal wealth from pension funds to passive commodity strategies to energy and commodity producers fell?

The straw that broke the camel’s back?

This sector had been holding up well with the higher prices, and energy producing regions had been doing reasonably well.

Domestically, the US produces about 8 million bpd of crude plus a lot of natural gas and other commodities that fell in price.

While the fall in prices benefited consumers, they were/are slow to react with more spending.


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US Govt. Budget report


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U.S. Government Releases FY 2008 Financial Report

Washington – The Treasury Department and the Office of Management and Budget today released the Fiscal Year 2008 Financial Report of the United States Government. The report details the U.S. government’s current financial position, as well as its short-term and long-term financial outlook, complementing the President’s Budget to be released in the spring of 2009.

“Throughout this unprecedented year, the Treasury Department has worked to achieve and maintain the stability of the financial system with short-term actions, but we must not forget the long-term needs that pose a significant threat to our country’s fiscal sustainability,” said Treasury Secretary Henry M. Paulson, Jr. “The projected costs for Medicare, Medicaid and other social programs are much greater than the resources that will be available to pay for them. Changes are needed to ensure these programs are fiscally sustainable.”

Just in case you thought Paulson knew something about reserve accounting and monetary operations.

“It is without question that we face extraordinary challenges in our financial markets and the larger economy,” said OMB Director Jim Nussle. “As a result, the bottom-line budget results in the short-term are sobering. It is imperative to continue to aggressively confront today’s challenges. Functioning markets and a healthy economy will not only help put the federal budget back on a path towards balance, but will position us to take on inevitable future economic challenges, such as the our nation’s biggest budgetary challenge, the entitlement crisis.”

At least Nussle ducks the S word (sustainable).

I suspect he knows sustainability isn’t an issue.

And that government deficits equal non government savings of USD financial assets, etc.


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2008-12-16 USER


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ICSC UBS Store Sales YoY (Dec 16)

Survey n/a
Actual -0.40%
Prior 0.40%
Revised n/a

 
Continues to move lower.

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ICSC UBS Store Sales WoW (Dec 16)

Survey n/a
Actual 0.60%
Prior -0.80%
Revised n/a

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Redbook Store Sales Weekly YoY (Dec 9)

Survey n/a
Actual -0.80%
Prior -0.40%
Revised n/a

 
Continues to move lower.

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Redbook Store Sales MoM (Dec 9)

Survey n/a
Actual -0.40%
Prior -1.10%
Revised n/a

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ICSC UBS Redbook Comparison TABLE (Dec 9)

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Consumer Price Index MoM (Nov)

Survey -1.3%
Actual -1.7%
Prior -1.0%
Revised n/a

 

Karim writes:

  • Headline CPI dropped 1.7% M/M in November after 1.0% decline last month (Y/Y now at +1.1%)
  • Core was flat in November after 0.1% decline (Y/Y at 2.0% and 3 month annualized at 0.4%… core is decelerating quickly and inflation certainly not a concern for Fed at this point)
  • OER was up 0.3% M/M, but partly due to a decline in utility prices that increases economic rents

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CPI Ex Food and Energy MoM (Nov)

Survey 0.1%
Actual 0.0%
Prior -0.1%
Revised n/a

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Consumer Price Index YoY (Nov)

Survey 1.5%
Actual 1.1%
Prior 3.7%
Revised n/a

 
Way down, as crude oil and gasoline are lower than they were last year.

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CPI Ex Food and Energy YoY (Nov)

Survey 2.1%
Actual 2.0%
Prior 2.2%
Revised n/a

 
Core drifting lower though owner equivalent rent went up .30% as utility costs fell and rents stayed about the same.

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CPI Core Index SA (Nov)

Survey n/a
Actual 216.849
Prior 216.801
Revised n/a

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Consumer Price Index NSA (Nov)

Survey 212.699
Actual 212.425
Prior 216.573
Revised n/a

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Consumer Price Index TABLE 1 (Nov)

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Consumer Price Index TABLE 2 (Nov)

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Consumer Price Index TABLE 3 (Nov)

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Housing Starts (Nov)

Survey 763K
Actual 625K
Prior 791K
Revised 771K

 
Keeps falling as the headlines have the public and financial institutions scared stiff.

Karim writes:

  • Housing Starts dropped to 625k in November (record low with about 50 years of data!) from 771k last month and 1,179k last year (this should put more downward pressure on residential investment in GDP through early 2009)
  • Permits dropped to 616k in November (record low with about 50 years of data!) from 730k last month and 1,111k last year
  • Token “Sliver” lining- less pressure on inventories from new homes

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Building Permits (Nov)

Survey 700K
Actual 616K
Prior 708K
Revised 730K

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Re: Fed cut


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(email exchange)

The Fed has no way of ‘pumping money into the economy’ = they only alter interest rates.

Except by making loans they don’t plan on collecting (the swap line advances to CB’s?)

Which is functionally equivalent to fiscal spending which does add income and financial assets to the economy.

>   
>   Rodger wrote:
>   
>   You and I were talking about a 0% fed funds rate. Almost there, now. Last I
>   heard, down to .25%. It will have no benefit. Wait, correction on that. There
>   will be one benefit. It gets us almost to the point where the Fed will stop
>   focusing on useless interest rate cuts, and start pumping money into the
>   economy. I hope.
>   
>   Rodger
>   


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Re: Fed swaps up $85.6 to $628B


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(email exchange)

Thanks, way up!

Probably means USD credit is tightening up for non-US institutions, and maybe the unlimited lines are starting to get used for a lot more than just funding previously existing assets.

>   
>   On Fri, Dec 12, 2008 at 9:53 PM, Cesar wrote:
>   
>   Fed swaps up $85.6 to $628B.
>   


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2008-12-15 USER


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Empire State Manufacturing Survey (Dec)

Survey -28.00
Actual -25.76
Prior -25.43
Revised n/a

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Empire State Manufacturing Survey ALLX 1 (Dec)

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Empire State Manufacturing Survey ALLX 2 (Dec)

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Net Long Term TIC Flows (Oct)

Survey $40.0B
Actual $1.5B
Prior $66.2B
Revised $65.4B

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Total Net TIC Flows (Oct)

Survey n/a
Actual $286.3B
Prior $143.4B
Revised $142.6B

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TIC ALLX (Oct)

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TIC TABLE 1 (Oct)

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TIC TABLE 2 (Oct)

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TIC TABLE 3 (Oct)

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Industrial Production MoM (Nov)

Survey -0.8%
Actual -0.6%
Prior 1.3%
Revised 1.5%

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Industrial Production YoY (Nov)

Survey n/a
Actual -5.5%
Prior -4.5%
Revised n/a

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Capacity Utilization (Nov)

Survey 75.6%
Actual 75.4%
Prior 76.4%
Revised 76.0%

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Capacity Utilization TABLE 1 (Nov)

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Capacity Utilization TABLE 2 (Nov)

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Capacity Utilization TABLE 3 (Nov)


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2008-12-12 USER


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Producer Price Index MoM (Nov)

Survey -2.0%
Actual -2.2%
Prior -2.8%
Revised n/a

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PPI Ex Food and Energy MoM (Nov)

Survey 0.1%
Actual 0.1%
Prior 0.4%
Revised n/a

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Producer Price Index YoY (Nov)

Survey 0.2%
Actual 0.4%
Prior 5.2%
Revised n/a

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PPI Ex Food and Energy YoY (Nov)

Survey 4.2%
Actual 4.2%
Prior 4.4%
Revised n/a

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Advance Retail Sales MoM (Nov)

Survey -2.0%
Actual -1.8%
Prior -2.8%
Revised -2.9%

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Advance Retail Sales YoY (Nov)

Survey n/a
Actual -7.4%
Prior -4.6%
Revised n/a

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Retail Sales Less Autos MoM (Nov)

Survey -1.8%
Actual -1.6%
Prior -2.2%
Revised -2.4%

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Business Inventories MoM (Oct)

Survey -0.2%
Actual -0.6%
Prior -0.2%
Revised -0.4%

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Business Inventories YoY (Oct)

Survey n/a
Actual 4.6%
Prior 5.4%
Revised n/a

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University of Michigan Confidence (Dec P)

Survey 54.5
Actual 59.1
Prior 55.3
Revised n/a

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University of Michigan TABLE Inflation Expectations (Dec P)


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