The Economy: A View from the Fed Economic Outlook Montgomery, AL January 16, 2013

Transcription

1 The Economy: A View from the Fed 2013 Economic Outlook Montgomery, AL January 16, 2013

2 Sources: Federal Open Market Committee The View from the Fed: The December Summary of Economic Projections (GDP)

3 Sources: Federal Open Market Committee The View from the Fed: The December Summary of Economic Projections (GDP)

4 Sources: Federal Open Market Committee The View from the Fed: The December Summary of Economic Projections (GDP) Note: This time last year, the GDP growth estimate for 2012 was 2.2 to 2.7 percent.

5 Sources: Federal Open Market Committee The View from the Fed: The December Summary of Economic Projections (GDP) Note: This time last year, the GDP growth estimate for 2012 was 2.2 to 2.7 percent.

6 Sources: Federal Open Market Committee The View from the Fed: The December Summary of Economic Projections (GDP)

7 The Feds two tools: -- Quantitative Easing -- Really low interest rates (for a really long time)

8 The Essence of QE3 the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will purchase longerterm Treasury securities initially at a pace of $45 billion per month. FOMC statement, December

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10 When Will QE Stop? If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgagebacked securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability. FOMC statement, December

11 When Will QE Stop? A Qualification the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases. FOMC statement, December

12 The fiscal policy wild card The Fed has done a great deal to date to promote recovery, but the ongoing effectiveness of Fed efforts does depend critically on the removal of fiscal policy uncertainty.

13 U.S. Fiscal Policy: A Quick Summary

14 U.S. Fiscal Policy: The Scary Summary deficits before the fiscal cliff deal tax hikes: $10 trillion deficits after the fiscal cliff deal tax hikes: About $9.2 trillion Source: Congressional Budget Office

15 An inconvenient truth: The path of federal debt is still unsustainable

16 What is the opposite of Catch-22? If the fiscal authorities get it together A number of our business contacts across the Southeast believe demand could be unleashed with removal of fiscal uncertainties. If the fiscal authorities don t get it together monetary policy simply cannot offset the effects of failing to resolve today's fiscal crisis.

17 When Will QE Stop? open ended does not mean without bound. The program is not QE Infinity.

18 The Other Fed Tool: RLIRFARLT the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent. FOMC statement, December

19 The 6-1/2 Percent Solution the 6 1/2 percent unemployment rate threshold does not apply to the FOMC's asset purchase programs.

20 The View from the Fed: The December Summary of Economic Projections (Unemployment) Sources: Federal Open Market Committee

21 Sources: Bureau of Labor Statistics Federal Reserve Bank of Atlanta How long will it take to get to 6-1/2%? To reach 6.5 percent unemployment by the end of the economy will need to create about this many jobs (on average) per month: , , ,000 Note: Assumes labor force participation = 63.6%

22 percent 9.3 Somewhat positive : The labor market is improving, if slowly Unemployment Rate and Nonfarm Payroll Employment Gains thousands Monthly Nonfarm Payroll Employment Gains December 2012 = Unemployment Rate (left axis) Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 through December 2012 Source: U.S. Bureau of Labor Statistics 22 30

23 Bright Signs The housing market appeared to stabilize The energy industry was vibrant The auto industry continued to record strong and rising sales.

24 The Economy: A View from the Fed 2013 Economic Outlook Montgomery, AL January 16, 2013