RSS Feed by Calculated Risk on 6/15/2013 08:48:00 PM
Saturday, June 15, 2013
FOMC Projections Preview: Disinflation Watch
The FOMC meets on Tuesday and Wednesday of the coming week. I expect no policy change following the FOMC meeting with the Fed continuing to purchase $85 billion in longer-term Treasury and agency mortgage-backed securities per month. I also expect the forward guidance thresholds will remain unchanged.
In the press conference on Wednesday, I expect Fed Chairman Ben Bernanke to argue we still need to see "substantial improvement" in the labor market, and to note the downside risks to the economy, especially from current fiscal policy. He will probably make it clear that the Fed will not raise rates for a "considerable" time after the end of QE, and it seems likely he will express some concern about the low level of inflation.
Looking at the May 1st FOMC statement, the sentence on inflation will probably be changed:
"Inflation has been running somewhat below the Committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable."This will probably be changed to something like "Measures of underlying inflation have trended lower, and the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term".
The first part of the sentence is from the November 2010 FOMC meeting; the last part of that sentence is from the FOMC's March 2009 statement. Those were key meetings for the FOMC: In 2009, the FOMC expanded QE1, and in November 2010, the FOMC announced QE2.
On the projections, it looks like GDP will be downgraded again, and inflation projections will be reduced. The projections for the unemployment rate will probably be unchanged. Note: December 2012 projections included to show the trend, TBA - To be announced.
The central range for 2012 GDP will probably be closer to the lower end of the March projections.
| GDP projections of Federal Reserve Governors and Reserve Bank presidents | |||
|---|---|---|---|
| Change in Real GDP1 | 2013 | 2014 | 2015 |
| June 2013 Meeting Projections | TBA | TBA | TBA |
| Mar 2013 Meeting Projections | 2.3 to 2.8 | 2.9 to 3.4 | 2.9 to 3.7 |
| Dec 2012 Meeting Projections | 2.3 to 3.0 | 3.0 to 3.5 | 3.0 to 3.7 |
The unemployment rate was at 7.6% in May and the June projections will probably be unchanged.
| Unemployment projections of Federal Reserve Governors and Reserve Bank presidents | |||
|---|---|---|---|
| Unemployment Rate2 | 2013 | 2014 | 2015 |
| June 2013 Meeting Projections | TBA | TBA | TBA |
| Mar 2013 Meeting Projections | 7.3 to 7.5 | 6.7 to 7.0 | 6.0 to 6.5 |
| Dec 2012 Meeting Projections | 7.4 to 7.7 | 6.8 to 7.3 | 6.0 to 6.6 |
Projections for inflation will probably be reduced. Goldman Sachs believes the FOMC will lower the central projection for PCE inflation to 1.25% in 2013, and core PCE to 1.3%. The current concern is that inflation is below the Fed's target.
| Inflation projections of Federal Reserve Governors and Reserve Bank presidents | |||
|---|---|---|---|
| PCE Inflation1 | 2013 | 2014 | 2015 |
| June 2013 Meeting Projections | TBA | TBA | TBA |
| Mar 2013 Meeting Projections | 1.3 to 1.7 | 1.5 to 2.0 | 1.7 to 2.0 |
| Dec 2012 Meeting Projections | 1.3 to 2.0 | 1.5 to 2.0 | 1.7 to 2.0 |
Here is core inflation:
| Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents | |||
|---|---|---|---|
| Core Inflation1 | 2013 | 2014 | 2015 |
| June 2013 Meeting Projections | TBA | TBA | TBA |
| Mar 2013 Meeting Projections | 1.5 to 1.6 | 1.7 to 2.0 | 1.8 to 2.0 |
| Dec 2012 Meeting Projections | 1.6 to 1.9 | 1.6 to 2.0 | 1.8 to 2.1 |
Conclusion: I expect no change to policy at this meeting, but a slight downgrade to the economic projections - and some concern about inflation (but probably not enough to increase the size of QE3 purchases).
Schedule for Week of June 16th
by Calculated Risk on 6/15/2013 12:30:00 PM
The key event this week will be the FOMC statement and press conference on Wednesday. No changes in policy are expected, but Fed Chairman Ben Bernanke is expected to reiterate that rates will stay low for a long long time.
There are three key housing reports that will be released this week, housing starts on Tuesday, homebuilder confidence survey on Monday, and existing home sales on Thursday.
For manufacturing, the NY Fed (Empire State) and Philly Fed June surveys will be released this week. For prices, CPI will be released on Tuesday.
8:30 AM: NY Fed Empire Manufacturing Survey for June. The consensus is for a reading of 0.0, up from -1.4 in May (above zero is expansion).
10:00 AM ET: The June NAHB homebuilder survey. The consensus is for a reading of 45, up from 44 in May. This index increased sharply last year, but has moved sideways recently with some builders complaining about higher costs and lack of buildable land. Any number below 50 still indicates that more builders view sales conditions as poor than good.
8:30 AM: Housing Starts for May. Total housing starts were at 853 thousand (SAAR) in April, 16.5 percent below the revised March estimate of 1.021 million. Single family starts declined slightly to 610 thousand SAAR in April.
The consensus is for total housing starts to increase to 950 thousand (SAAR) in May.
8:30 AM: Consumer Price Index for May. The consensus is for a 0.2% decrease in CPI in May and for core CPI to increase 0.2%.
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.
During the day: The AIA's Architecture Billings Index for May (a leading indicator for commercial real estate).
2:00 PM: FOMC Meeting Announcement. No change to interest rates or QE purchases is expected at this meeting.
2:00 PM: FOMC Forecasts This will include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections.
2:30 PM: Fed Chairman Ben Bernanke holds a press briefing following the FOMC announcement.
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for an increase to 340 thousand from 334 thousand last week.
9:00 AM: The Markit US PMI Manufacturing Index Flash for June. The index was at 52.3 in May.
10:00 AM: Existing Home Sales for April from the National Association of Realtors (NAR). The consensus is for sales of 5.00 million on seasonally adjusted annual rate (SAAR) basis. Sales in April were at a 4.97 million SAAR. Economist Tom Lawler is estimating the NAR will report a May sales rate of 5.2 million.
A key will be inventory and months-of-supply.
10:00 AM: the Philly Fed manufacturing survey for June. The consensus is for a reading of -0.5, up from -5.2 last month (above zero indicates expansion).
10:00 AM: Regional and State Employment and Unemployment (Monthly) for May 2013
Unofficial Problem Bank list declines to 757 Institutions
by Calculated Risk on 6/15/2013 08:35:00 AM
This is an unofficial list of Problem Banks compiled only from public sources.
Here is the unofficial problem bank list (update: Link fixed - was linking to old list) for June 14, 2013.
Changes and comments from surferdude808:
As anticipated, it was quiet week for changes to the Unofficial Problem Bank List as the OCC will wait until next Friday to provide its enforcement actions through mid-May 2013. There were three removals, which leave the list holding 757 institutions with assets of $274.8 billion. Last year, the list held 919 institutions with assets of $354.0 billion.
The OCC terminated actions against Communityone Bank, National Association, Asheboro, NC ($1.4 billion Ticker: FNBN) and Metrobank, National Association, Houston, TX ($1.1 billion Ticker: MCBI). The other removal was an unassisted merger of The First National Bank of Grant Park, Grant Park, IL ($110 million) with Midland States Bank, Clayton, IL.
We continue to monitor the operating status of the banking subsidiaries of Capitol Bancorp, LTD, but there is nothing new to report since the closing of the North Las Vegas unit last week.
Friday, June 14, 2013
Goldman FOMC Preview: "Calming the Market"
by Calculated Risk on 6/14/2013 10:21:00 PM
A short excerpt from a research note by Jan Hatzius and Sven Jari Stehn at Goldman Sachs: FOMC Preview: Calming the Market
The economic data have improved a bit since the last FOMC meeting ... But the improvement has been far from “substantial.” Growth remains in the sluggish 1-3% range ... and jobs gains remain moderate.The FOMC meeting is on Tuesday and Wednesday, with the FOMC statement and projections scheduled for release at 2 PM ET on Wednesday. Fed Chairman Ben Bernanke will hold a press conference at 2:30 PM. I'll post a preview on Sunday, but I don't expect any changes to policy.
Inflation, meanwhile, has continued to fall further below the FOMC’s 2% PCE target. ...
Financial conditions have tightened since the last FOMC meeting, as bond yields have risen, mortgage and credit spreads have widened ... The tightening in financial conditions appears in large part driven by worries that Fed officials will soon tighten policy.
... While we do not expect the committee to deviate much from the existing message, we anticipate that Fed officials will, on the margin, try to calm markets at the June 18-19 FOMC meeting.
We therefore expect the FOMC statement to show only modest changes, mostly focused on acknowledging the lower inflation numbers. Moreover, the committee is likely to downgrade its 2013 growth and inflation numbers moderately. While Chairman Bernanke is likely to reiterate in the post-statement press conference that the QE tapering decision is data dependent, we expect him to dissuade markets from frontloading too much of the entire monetary tightening process—not just the end of QE but also the normalization of the funds rate—as soon as the committee takes the first step in that direction.
Lawler: Early Look at Existing Home Sales in May
by Calculated Risk on 6/14/2013 03:51:00 PM
From housing economist Tom Lawler:
Based on local realtor/MLS reports I’ve seen so far across the country, I estimate that existing home sales as measured by the National Association of Realtors ran at a seasonally adjusted annual rate of about 5.2 million in May, up 4.6% from April’s pace and up 13.3% from last May’s pace.
On the inventory front, data from inventory trackers might suggest that the inventory of existing homes in May increased by 3 1/2 to 4%. As I’ve noted before, however, the NAR’s inventory estimates don’t always track “listings” month-to-month, with the NAR’s inventory estimate for April always showing an “out-sized” gain, and May showing a smaller increase/larger decline, relative to “listings trackers.” Based on limited historical data, I’d estimate that the NAR’s inventory estimate for May will be up 1.9% from April, which would result in a year-over-year decline of 10.9%.
CR Note: The NAR is scheduled to report May existing home sales next Thursday, June 20th, and the consensus is for sales of 5.0 million.
Based on Tom's estimates, this would put inventory at around 2.2 million for May, and months-of-supply around 5.1. This would still be a very low level of inventory - probably the lowest for May since 2001 or so - but this would be the smallest year-over-year decline in inventory since 2011 (when inventory started to decline sharply).
