Fed Watch

The Federal Open Market Committee concluded its meeting Thursday September 13 by doubling down on Quantitative Easing.

The FOMC statement includes the following.

The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative . . .

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015. ¹

1. FOMC policy statement http://www.federalreserve.gov/newsevents/press/monetary/20120913a.htm

This significant expansion of quantitative easing with new purchases of mortgage-backed securities and the continuation of operation twist with purchases of long term securities as short term securities mature is an unprecedented step by the fed to stimulate the economy. It will undoubtedly be criticized by those who believe that continued purchases of securities will have little impact on production and employment, while threatening future inflation. It will also receive criticism as inappropriate in the election cycle. But, Chair Bernanke seems committed to continuation of this aggressive monetary policy, especially in light of the complete inability of the Federal Government to conduct spending and tax changes to stimulate the economy.

I am confident the Fed is not conducting policy to impact the election results. The research on this topic is convincing. The Fed protects its independent status by avoiding any partisan policy decisions.

 
Will it work? That is a much more difficult question to answer as it requires an assumption of what would have happened without the quantitative easing. The research indicates that there is an impact of monetary policy on production and employment, but that impact is not permanent. It seems Chair Bernanke is signaling that the Fed believes any impact is worth the risk.

St. Croix Valley Economic Dashboard Released

The UW- River Falls Center for Economic Research (CER) in partnership with St. Croix Economic Development Corporation (SCEDC) has released the September 2012 edition of the St. Croix Valley Economic Dashboard 2.0. The dashboard is a snapshot of the economic condition of the labor, consumer and housing markets in the six county St. Croix Valley, which now includes the Wisconsin counties St. Croix, Pierce, Polk and Dunn, as well as the Minnesota counties Chisago, Ramsey and Washington. It presents the latest available data* in one convenient package and can be viewed on the CER's website at www.uwrf.edu/cer.

State and National Indicators

The U.S. seasonally adjusted annually growth rate for the second quarter of 2012 was revised to 1.7 percent, which 0.75 percentage points lower than one year previous. The national unemployment rate fell to 8.1 percent in August, down one percent from a year ago.

In Wisconsin, nonfarm payroll employment increased in July, by 0.7 percent from a year ago. The unemployment rate declined 0.3 percentage points from a year ago to 7.3 percent, but has increased 0.3 percentage points from last month, according to the BLS survey of households. 

The BLS survey of households finds that Wisconsin has gained 19,202 jobs over the last year.  However, the BLS survey of employers finds that Wisconsin lost 21,900 jobs over the last year.  The two surveys seem to indicate that much of improvement in the Wisconsin labor market is driven by job creation in neighboring states, not within Wisconsin.

 

Minnesota’s unemployment rate in July was 5.8 percent, which is 0.8 percentage points lower than one year previous. The BLS survey of employers finds that Minnesota has gained 56,700 jobs over the last year. 

The Philadelphia Fed’s Coincident Index of economic activity indicated the Wisconsin economy contracted at a seasonally adjusted annual rate of .0.96 percent in July , and the Leading Index is predicting essentially zero growth over next the six months. The Minnesota economy contracted at a seasonally adjusted annual rate of 1.70 percent, but the Leading Index for Minnesota is predicting a positive annual growth rate of 1.36 percent over next the six months.

Labor Market

The nationally we have seen steady, albeit slow, improvement in the labor market. The national economy has added a total of 1,808,000 jobs year to date.

The Wisconsin economy lost 6,500 jobs net from June to July and has lost 21,900 jobs since July 2011. The Minnesota economy gained 6,800 jobs net from June to July and has gained 56,700 jobs since July 2011.

    

In July, Wisconsin lost jobs in all major sectors but three, other services, information and manufacturing. The most significant job losses came in the leisure and hospitality sector (5,300 jobs lost) and education and health services (2,000 jobs lost). Minnesota fared much better with increases in 6 major sectors and significant decreases in only 2 sectors.

Conditions in the regional labor market are fairing better than the Wisconsin state average. The regional unemployment rate was unchanged at 6.2 percent in the month of July and it remains lower than the state average in Wisconsin of 7.2 percent, but is slightly above the Minnesota average of 5.8 percent. The data suggests that the St. Croix Valley’s relative economic strength is due to its proximity to the twin cities.

The Wisconsin/Minnesota St. Croix Valley is comprised of St. Croix, Polk, Pierce and Dunn counties in Wisconsin and Chisago, Ramsey and Washington counties in Minnesota. All six counties are located along the Wisconsin-Minnesota border. Four of the six counties, St. Croix , Pierce, Ramsey and Washington, are included in the Minneapolis-St. Paul-Bloomington MN-WI metropolitan area, a 13-county region with of population of 3.25 million residents. For additional information on the September edition of the St. Croix Valley Economic Dashboard, contact Dr. Logan Kelly at cer@uwrf.edu or (715) 425-4993 or William Rubin at bill@stcroixedc.com or (715) 381-4383.

*Please note that most regional data is available with between a one and two month delay, thus the current month's dashboard will have data from previous months.