by Calculated Risk on 2/25/2011 03:20:00 PM

This speech from Fed Vice Chair Janet Yellen provides the Fed's view of the impact of QE2: Unconventional Monetary Policy and Central Bank Communications (see Effectiveness of Asset Purchases and the associated graphs).

Yellen also commented on forward guidance:

Down the road, once the recovery is well established and the appropriate time for beginning to firm the stance of policy appears to be drawing near, the FOMC will naturally need to adjust its "extended period" guidance and develop an alternative communications strategy to shape market expectations about the policy outlook.

This is part of the timeline I outlined earlier this week: When will the Fed raise rates?

My view is the Fed will complete the $600 billion “QE2” large-scale asset purchase program (probably in June, but they may taper it off), then they will stop the reinvestment of maturing MBS and Treasury Securities (could be concurrent with the end of QE2), and then the FOMC will change the "extended period" language. That suggests the Fed will not raise until 2012 at the earliest.

Earlier today, Richmond Fed President Jeffrey Lacker suggested QE2 might end early, via MarketWatch:

Federal Reserve should seriously consider adjusting its $600 billion bond-buying program in light of a recent pickup in U.S. economic activity, said Jeffrey Lacker, president of the Richmond Federal Reserve Bank, on Tuesday.
...
“The distinct improvement in the economic outlook since the [bond-buying] program was initiated suggests taking that re-evaluation quite seriously,” Lacker said ...

I think it is very unlikely the program will end early. Note: I've heard suggestions that high oil prices might lead to an expanded QE2 (or QE3) - that also seems unlikely to me at this point. It would probably take renewed weakness in the U.S. economy before we see additional stimulus.

by Calculated Risk on 2/25/2011 12:30:00 PM

A few notes and stories ...
• The Irish election is today. The polls stay open until 10 PM (5 PM ET).
Here is the Irish Times for election results. The yield on Ireland's Ten Year bond is up to 9.35% - very near the all time high.

• There is a meeting of several EU leaders, apparently including Angela Merkel and Nicolas Sarkozy, in Helsinki on March 4th, and then a special eurozone debt crisis summit on March 11th.

• Portugal will probably be high on the agenda. The yield on Portugal's Ten Year bond is at 7.55% - an all time high.

• There has been some concern about Italy because they import a large amount of oil from Libya. The yield on Italy's Ten Year bond is up to 4.85% - but the WSJ reports Italy’s €9.5B Bond Sale Goes Smoothly.

• And on oil, Bloomberg reports: Spain Cuts Speed Limit on Highways as Oil Surges on Libya (ht Brian)

Spain will cut the speed limit on its highways, slash the price of train tickets and increase the use of biofuels after oil prices surged because of turmoil in North Africa.

Spain will reduce the speed limit on highways to 110 kilometers per hour (68 miles per hour) from 120 kilometers per hour ...

• Here are the Ten Year yields for Spain, Greece, and Belgium. Still elevated ...

by Calculated Risk on 2/25/2011 09:55:00 AM

The final February Reuters / University of Michigan consumer sentiment index increased to 77.5, the highest level in three years.

Click on graph for larger image in graphic gallery.

This was above the consensus forecast of 75.4.

In general consumer sentiment is a coincident indicator. This is still fairly low, but improving.

by Calculated Risk on 2/25/2011 08:30:00 AM

From the BEA: Gross Domestic Product, 4th quarter 2010 (second estimate)

The small downward revision came mostly from PCE, imports, and state and local government expenditures (see table at bottom for changes in contribution to GDP).

Click on graph for larger image in graph gallery.

This graph shows the quarterly GDP growth (at an annual rate) for the last 30 years. The current quarter is in blue.

The dashed line is the median growth rate of 3.05%. The current recovery is still below trend growth.

The following table shows the changes from the advance release (this is the Contributions to Percent Change in Real Gross Domestic Product).

Contributions to Percent Change in Q4 Real Gross Domestic Product
	Advance	2nd Estimate (Revision)	Change
Percent change at annual rate:
Gross domestic product	3.2	2.8	-0.4
Percentage points at annual rates:
Personal consumption expenditures	3.04	2.88	-0.16
Goods	2.26	2.2	-0.06
Durable goods	1.48	1.44	-0.04
Nondurable goods	0.78	0.76	-0.02
Services	0.78	0.68	-0.1
Gross private domestic investment	-3.2	-3.13	0.07
Fixed investment	0.5	0.57	0.07
Nonresidential	0.43	0.51	0.08
Structures	0.02	0.11	0.09
Equipment and software	0.41	0.39	-0.02
Residential	0.08	0.06	-0.02
Change in private inventories	-3.7	-3.7	0
Net exports of goods and services	3.44	3.35	-0.09
Exports	1.04	1.18	0.14
Goods	0.85	0.99	0.14
Services	0.19	0.19	0
Imports	2.4	2.17	-0.23
Goods	2.29	2.07	-0.22
Services	0.11	0.11	0
Government consumption expenditures and gross investment	-0.11	-0.31	-0.2
Federal	-0.01	-0.02	-0.01
National defense	-0.11	-0.12	-0.01
Nondefense	0.1	0.1	0
State and local	-0.1	-0.29	-0.19

by Calculated Risk on 2/24/2011 10:46:00 PM

Here is the weekly update on hotels from HotelNewsNow.com: San Diego tops ADR, RevPAR weekly increases

Overall, the U.S. hotel industry’s occupancy increased 6.7% to 59.1%, ADR was up 3.3% to US$99.32, and RevPAR finished the week up 10.2% to US$58.72.

Note: RevPAR: Revenue per Available Room.
Click on graph for larger image in graph gallery.

This graph shows the seasonal pattern for the hotel occupancy rate.

The occupancy rate really fell off a cliff in the 2nd half of 2008, and then 2009 was the worst year for the occupancy rate since the Great Depression. The occupancy rate started to improve in the Spring of 2010, and was above the 2008 rates later in the year.

However, so far, 2011 is closer to the weak occupancy rates of 2009 and early 2010 than to the median for 2000 through 2007 - although it does appear occupancy improved last week.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

Earlier today:
• New Home Sales decrease in January
• Home Sales: Distressing Gap
• Fannie, Freddie, FHA combined REO Inventory at Record Level