U.S. Outlook: The pause that refreshes?
In this week’s U.S. Outlook report, I consider the Fed’s continuing asset purchases and what it could mean for your finances.
Below is a brief summary followed by a link to the full report, delivered on Nov. 1, 2013.Key observations:
- Since September Fed meeting, mortgage rates have dropped by about a half a percentage point.
- Economic and inflation data will not prompt FOMC to reduce asset purchases before March 2014.
- The market now expects 2 rate hikes by late 2015, bringing the Fed funds rate to only around 0.75 percent by December 2015.
- October FOMC statement indicates Fed sees the recent declines in long-term bond yields removing much of the longer-term downside risks to the economy and housing market.
- October FOMC statement suggests the Fed sees the government shutdown impact as not worth a mention from a longer-term economic outlook perspective.
- Mortgage Bankers Association data through Oct. 25 shows purchase and refi applications may have bottomed-out.
- October ADP employment data shows small and medium size employers cut back September hiring, foreshadowing weak October payroll report next Friday.
- We are expecting 120K net new non-farm jobs for October versus consensus of 125K.
- The Fed’s long-term inflation objectives are not being met.
- Producer price inflation at 0.3 percent over the last 12 months is at its lowest level since 2009.
- If inflation remains at current low levels, the Fed may need to scale up monthly asset purchases.
To read my remarks in full, check out this week’s US Outlook Report.