by Calculated Risk on 3/18/2015 02:19:00 PM

Statement here "Patient" was removed, unlikely rate hike in April, "growth has moderated".

As far as the "Appropriate timing of policy firming",  participant views were unchanged (15 participants expect the first rate hike in 2015, and 2 in 2016), but "dots" moved down (fewer rate hikes).

The FOMC projections for inflation are still on the low side through 2017.

Yellen press conference here.

On the projections, GDP for 2015 was revised down, the unemployment rate was revised down again, and inflation projections were revised down (include core inflation).

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2015	2016	2017
Mar 2015 Meeting Projections	2.3 to 2.7	2.3 to 2.7	2.0 to 2.5
Dec 2014 Meeting Projections	2.6 to 3.0	2.5 to 3.0	2.3 to 2.5
Sept 2014 Meeting Projections	2.6 to 3.0	2.6 to 2.9	2.3 to 2.5

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

The unemployment rate was at 5.5% in February, so the unemployment rate projection for Q4 2015 was revised lower. 

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2015	2016	2017
Mar 2015 Meeting Projections	5.0 to 5.2	4.9 to 5.1	4.8 to 5.1
Dec 2014 Meeting Projections	5.2 to 5.3	5.0 to 5.2	4.9 to 5.3
Sept 2014 Meeting Projections	5.4 to 5.6	5.1 to 5.4	4.9 to 5.3

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

As of January, PCE inflation was up only 0.2% from January 2014, and core inflation was up 1.3%.   PCE inflation wa revised down for 2015, and will be well below the FOMC's 2% target.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2015	2016	2017
Mar 2015 Meeting Projections	0.6 to 0.8	1.7 to 1.9	1.9 to 2.0
Dec 2014 Meeting Projections	1.0 to 1.6	1.7 to 2.0	1.8 to 2.0
Sept 2014 Meeting Projections	1.6 to 1.9	1.7 to 2.0	1.9 to 2.0

PCE core inflation was up only 1.3% in January.  Core PCE inflation was revised down for 2015 and 2016.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2015	2016	2017
Mar 2015 Meeting Projections	1.3 to 1.4	1.5 to 1.9	1.8 to 2.0
Dec 2014 Meeting Projections	1.5 to 1.8	1.7 to 2.0	1.8 to 2.0
Sept 2014 Meeting Projections	1.6 to 1.9	1.8 to 2.0	1.9 to 2.0

by Calculated Risk on 3/18/2015 02:00:00 PM

Dropped "patient", "economic growth has moderated", unlikely to hike rates in April.

FOMC Statement:

Information received since the Federal Open Market Committee met in January suggests that economic growth has moderated somewhat. Labor market conditions have improved further, with strong job gains and a lower unemployment rate. A range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately; declines in energy prices have boosted household purchasing power. Business fixed investment is advancing, while the recovery in the housing sector remains slow and export growth has weakened. Inflation has declined further below the Committee's longer-run objective, largely reflecting declines in energy prices. Market-based measures of inflation compensation remain low; survey-based measures of 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 that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of energy price declines and other factors dissipate. The Committee continues to monitor inflation developments closely.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. Consistent with its previous statement, the Committee judges that an increase in the target range for the federal funds rate remains unlikely at the April FOMC meeting. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. This change in the forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range.

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 and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams.
emphasis added

by Calculated Risk on 3/18/2015 11:55:00 AM

Note: LA area ports were impacted by labor negotiations that were settled on February 21st.

Container traffic gives us an idea about the volume of goods being exported and imported - and usually some hints about the trade report for February since LA area ports handle about 40% of the nation's container port traffic.

The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.

Click on graph for larger image.

On a rolling 12 month basis, inbound traffic was down 1.3% compared to the rolling 12 months ending in January.   Outbound traffic was down 1.4% compared to 12 months ending in January.

Inbound traffic had been increasing, and outbound traffic had been mostly moving sideways or slightly down.  The recent downturn was due to labor issues.

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year).

Imports were down 18% year-over-year in February, exports were down 17% year-over-year.

The labor issues are now resolved - the ships are rapidly disappearing from the outer harbor - and I expect port traffic will be at record levels for March (catching up).

by Calculated Risk on 3/18/2015 09:54:00 AM

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

From the AIA: Architecture Billings Index Improves in February

After its first negative score in ten months, the Architecture Billings Index (ABI) showed a nominal increase in design activity in February, and has been positive ten out of the past twelve months. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the February ABI score was 50.4, up slightly from a mark of 49.9 in January. This score reflects a minor increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 56.6, down from a reading of 58.7 the previous month.

“The health of the institutional market has been the key factor for positive business conditions for the design and construction industry in recent months, and it is encouraging to see that sector remain on solid footing,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “However, we’re seeing some slowing in the other major construction sectors. Design billings for residential projects had its first negative month in over three years, and commercial design billings have seen only modest growth in recent years.”
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 50.4 in February, up from 49.9 in January. Anything above 50 indicates expansion 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.  The multi-family residential was negative for the first time in over three years - and might be indicating a slowdown for apartments. (just one month)

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 index was mostly positive over the last year, suggesting an increase in CRE investment in 2015.

by Calculated Risk on 3/18/2015 07:00:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

Mortgage applications decreased 3.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 13, 2015. ...

The Refinance Index decreased 5 percent from the previous week. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.99 percent from 4.01 percent, with points increasing to 0.40 from 0.39 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index.

2014 was the lowest year for refinance activity since year 2000.

2015 will probably see a little more refinance activity than in 2014, but not a large refinance boom.

The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is 1% higher than a year ago.