by Calculated Risk on 6/20/2012 02:00:00 PM

Here are the updated projections from the FOMC meeting.

Fed Chairman Ben Bernanke's press conference starts at 2:15 PM ET. Here is the video stream.


Live Video streaming by Ustream

Below are the update projections starting with when participants project the initial increase in the target federal funds rate should occur, and the participants view of the appropriate path of the federal funds rate. I've included the chart from the April meeting to show the change.


The four tables below show the FOMC June meeting projections, and the previous two projections to show the change (January and April).

Click on graph for larger image.

"The shaded bars represent the number of FOMC participants who project that the initial increase in the target federal funds rate (from its current range of 0 to ¼ percent) would appropriately occur in the specified calendar year."

Here is the April chart for comparison.

There was a shift to 2015 with two additional participants.

A key is the same number of participants think the FOMC should raise rates before 2014.

"The dots represent individual policymakers’ projections of the appropriate federal funds rate target at the end of each of the next several years and in the longer run. Each dot in that chart represents one policymaker’s projection."

Most participants still think the Fed Funds rate will be in the current range into 2014.

On the projections, GDP was revised down, unemployment rate up, and inflation down.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2012	2013	2014
June 2012 Projections	1.9 to 2.4	2.2 to 2.8	3.0 to 3.5
April 2012 Projections	2.4 to 2.9	2.7 to 3.1	3.1 to 3.6
January 2012 Projections	2.2 to 2.7	2.8 to 3.2	3.3 to 4.0

¹ Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

GDP projections have been revised down for 2012, and revised down for 2013 and 2014.

The unemployment rate increased to 8.2% in April, and the projection for 2012 has been revised up.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2012	2013	2014
June 2012 Projections	8.0 to 8.2	7.5 to 8.0	7.0 to 7.7
April 2012 Projections	7.8 to 8.0	7.3 to 7.7	6.7 to 7.4
January 2012 Projections	8.2 to 8.5	7.4 to 8.1	6.7 to 7.6

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

The forecasts for overall and core inflation were revised down to reflect the recent decrease in inflation.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2012	2013	2014
June 2012 Projections	1.2 to 1.7	1.5 to 2.0	1.5 to 2.0
April 2012 Projections	1.9 to 2.0	1.6 to 2.0	1.7 to 2.0
January 2012 Projections	1.4 to 1.8	1.4 to 2.0	1.6 to 2.0

Here is core inflation:

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2012	2013	2014
June 2012 Projections	1.7 to 2.0	1.6 to 2.0	1.6 to 2.0
April 2012 Projections	1.8 to 2.0	1.7 to 2.0	1.8 to 2.0
January 2012 Projections	1.5 to 1.8	1.5 to 2.0	1.6 to 2.0

by Calculated Risk on 6/20/2012 12:30:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in April suggests that the economy has been expanding moderately this year. However, growth in employment has slowed in recent months, and the unemployment rate remains elevated. Business fixed investment has continued to advance. Household spending appears to be rising at a somewhat slower pace than earlier in the year. Despite some signs of improvement, the housing sector remains depressed. Inflation has declined, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually. Consequently, the Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee anticipates that inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate.

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 expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities. Specifically, the Committee intends to purchase Treasury securities with remaining maturities of 6 years to 30 years at the current pace and to sell or redeem an equal amount of Treasury securities with remaining maturities of approximately 3 years or less. This continuation of the maturity extension program should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative. The Committee 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. The Committee is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed continuation of the maturity extension program.

At 2:00 PM, the FOMC Forecasts will be released, and at 2:15 PM, Fed Chairman Ben Bernanke will hold a press briefing.

Here is the previous FOMC Statement for comparison.

by Calculated Risk on 6/20/2012 11:42:00 AM

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From AIA: Substantial Drop in Architecture Billings Index

Following the first negative reading in five months, the Architecture Billings Index (ABI) has had a significant drop in May. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the May ABI score was 45.8, following a mark of 48.4 in April. This score reflects a sharp decrease in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 54.0, down slightly from mark of 54.4 the previous month.

“For the second year in a row, we’re seeing declines in springtime design activity after a healthy first quarter. Given the ongoing uncertainly in the economic outlook, particularly the weak job growth numbers in recent months, this should be an alarm bell going off for the design and construction industry,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “The commercial/industrial sector is the only one recording gains in design activity at present, and even this sector has slowed significantly. Construction forecasters will have to reassess what conditions will look like moving forward.”

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 45.8 in May, the lowest since July of last year. Anything below 50 indicates contraction in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. This suggests further weakness in CRE investment (it will be some time before investment in offices and malls increases).
All current Commercial Real Estate graphs

by Calculated Risk on 6/20/2012 09:00:00 AM

LPS released their First Look report for May today. LPS reported that the percent of loans delinquent increased in May from April, and declined year-over-year. The percent of loans in the foreclosure process decreased slightly and remains at a very high level.

LPS reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) increased to 7.20% from 7.12% in March. The percent of delinquent loans is still significantly above the normal rate of around 4.5% to 5%. The percent of delinquent loans peaked at 10.97%, so delinquencies have fallen over half way back to normal. The increase was in the less than 90 days delinquent category.

The following table shows the LPS numbers for May 2012, and also for last month (April 2012) and one year ago (May 2011).

LPS: Percent Loans Delinquent and in Foreclosure Process
	May-12	Apr-12	May-11
Delinquent	7.20%	7.12%	7.96%
In Foreclosure	4.12%	4.14%	4.11%
Number of loans:
Loans Less than 90 days	1,967,000	1,927,000	2,265,000
Loans More than 90 days	1,575,000	1,595,000	1,921,000
Loans In foreclosure	2,027,000	2,048,000	2,164,000
Total	5,569,000	5,570,000	6,350,000

The number of delinquent loans, but not in foreclosure, is down about 15% year-over-year (644,000 fewer mortgages delinquent), and the number of loans in the foreclosure process is down 6% or 137,000 year-over-year (the percent in foreclosure is mostly unchanged, but the number of total loans has declined).

The percent of loans less than 90 days delinquent is about normal, but the percent (and number) of loans 90+ days delinquent and in the foreclosure process are still very high.

by Calculated Risk on 6/20/2012 07:00:00 AM

From the MBA: Government Refinance Applications More Than Double in Latest MBA Survey

The Refinance Index increased 1 percent from the previous week. The seasonally adjusted Purchase Index fell 9 percent from one week earlier.

“Refinance volume increased again last week, but the composition of activity changed markedly. Despite rates remaining near all-time lows, conventional refinance application volume declined, and the HARP share of refinance activity dropped to 20 percent,” said Michael Fratantoni, MBA's Vice President of Research and Economics. “On the other hand, FHA refinance volume exploded to an all-time high, more than doubling over the week. New, lower FHA premiums on streamlined refinance loans came fully into effect, and borrowers seized the opportunity to lower their mortgage rates without increasing their FHA premiums. Purchase activity fell off last week, but this is likely only a recalibration following the Memorial Day holiday, as the level of activity remains within the narrow band seen for the past 3 years.”

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.87 percent, matching the lowest rate in the history of the survey, from 3.88 percent, with points increasing to 0.49 from 0.43 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Click on graph for larger image.

The purchase index is still very weak, and is mostly moving sideways.

Refinance activity continues to increase, especially with the surge in FHA streamline refinancing - and because mortgage rates are near the record low set the previous week.

It usually takes around a 50 bps decline from the previous mortgage rate low to get a huge refinance boom - and rates have fallen about that far - and refinance activity is now at the highest level since 2009.