by Calculated Risk on 1/28/2015 04:27:00 PM

Every week the EIA releases a petroleum status report. I wanted to post an excerpt this week for two reasons: 1) Oil inventories are at a record level for this time of year (see blue line on graph), and 2) the US is a very large oil importer at 7.4 million barrels per day (contrary to some myths).

From the EIA: Weekly Petroleum Status Report

U.S. crude oil refinery inputs averaged about 15.3 million barrels per day during the week ending January 23, 2015, 347,000 barrels per day more than the previous week’s average. Refineries operated at 88.0% of their operable capacity last week. ...

U.S. crude oil imports averaged over 7.4 million barrels per day last week, up by 204,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.2 million barrels per day, 4.8% below the same four-week period last year. ...

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 8.9 million barrels from the previous week. At 406.7 million barrels, U.S. crude oil inventories are at the highest level for this time of year in at least the last 80 years.
emphasis added

by Calculated Risk on 1/28/2015 02:00:00 PM

As expected ... solid growth, patient on policy.

FOMC Statement:

Information received since the Federal Open Market Committee met in December suggests that economic activity has been expanding at a solid pace. Labor market conditions have improved further, with strong job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately; recent declines in energy prices have boosted household purchasing power. Business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has declined further below the Committee’s longer-run objective, largely reflecting declines in energy prices. Market-based measures of inflation compensation have declined substantially in recent months; 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 decline further 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 lower energy prices 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. Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.

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 1/28/2015 11:13:00 AM

From Tim Duy: While We Wait For Yet Another FOMC Statement...  Excerpt:

The Fed recognizes that hiking rates prematurely to "give them room" in the next recession is of course self-defeating. They are not going to invite a recession simply to prove they have the tools to deal with another recession.

The reasons the Fed wants to normalize policy are, I fear, a bit more mundane:

1. They believe the economy is approaching a more normal environment with solid GDP growth and near-NAIRU unemployment. They do not believe such an environment is consistent with zero rates.

2. They believe that monetary policy operates with long and variable lags. Consequently, they need to act before inflation hits 2% if they do not want to overshoot their target. And they in fact have no intention of overshooting their target.

3. They do not believe in the secular stagnation story. They do not believe that the estimate of the neutral Fed Funds rate should be revised sharply downward. Hence 25bp, or 50bp, or even 100bp still represents loose monetary policy by their definition.

I am currently of the opinion that there is a reasonable chance the Fed is wrong on the third point, and that they have less room to maneuver than they believe. If so, they will find themselves back at the zero bound in the next recession, very quickly I might add. ...

Whether or not they can maintain their mid-year target is of course the topic du jour. But the logic of those who believe the Fed will not have what it needs in June and thus expect the first hike much later is more convincing than those who argue that they will raise rates due to some pressing need to prepare for the next recession.

by Calculated Risk on 1/28/2015 07:01:00 AM

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

Mortgage applications decreased 3.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 23, 2015. This week’s results include an adjustment to account for the Martin Luther King holiday. ...

The Refinance Index decreased 5 percent from the previous week. The seasonally adjusted Purchase Index decreased 0.1 percent from one week earlier.
...
The FHA share of total applications increased to 9.1 percent this week from 8.0 percent last week. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 3.83 percent from 3.80 percent, with points decreasing to 0.26 from 0.29 (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.

It looks like 2015 will see more refinance activity than in 2014, especially from FHA loans!

The second graph shows the MBA mortgage purchase index.  

According to the MBA, the purchase index is up 1% from a year ago.

by Calculated Risk on 1/27/2015 09:01:00 PM

I don't expect much to change in the FOMC statement. I expect "patient" to remain:

"Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy."

And this sentence will probably be dropped (it seemed like a one time transition sentence):

"The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored."

The major data flow has been consistent with the FOMC's view; the consensus estimate of Q4 GDP is at 3.2%, and the December employment report was solid (252 thousand jobs added, unemployment rate declined to 5.6%). Inflation too low is an ongoing concern, but overall I think the FOMC will be, uh, patient.

Wednesday:
• At 7:00 AM, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 2:00 PM, FOMC Meeting Statement. The FOMC is expected to retain the word "patient" in the FOMC statement