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Economic Outlook: Fed shows it's human

Thursday, February 21, 2013 9:42 AM


The Federal Reserve revealed Wednesday that its policy-setting Open Market Committee was divided over the issue of asset purchases, sending stock indexes lower.

If nothing else, investors want a steady, confident hand at the helm of this slow-moving economy and the Federal Reserve showed that wasn't the entirely the case. Steady seems to be in fair shape for now, but confidence is wavering.

Previously, the Fed said it would likely keep monetary policy intact until the unemployment rate falls from its current rate of 7.9 percent to 6.5 percent. The Fed issued a disclaimer as well, stating it wouldn't pledge to hold to that target, given unforeseen circumstances could crop up. But now it seems that one of the unforeseen circumstances is disagreement in the Fed's own decision-making body.

Likely as not, this is a healthy discourse. After all, opinions described in the late January meeting minutes included participants who said the $85 billion per month purchasing program should end sooner and those who felt that pulling back to early from economic stimulus had a questionable track record, as well.

The balancing act is jobs and inflation, the two mandates on the Fed's basic job description.

On Thursday, the Bureau of Labor Statistics said annual inflation in January stood at 1.6 percent. Further it was unchanged on a month-to-month basis for the second consecutive month, which followed a 0.2 percent drop in November.

The employment situation isn't so rosy and the problem is that the two are linked. Prices are unlikely to rise while more than 12 million people are out of work because consumers would have no choice but to do without or shop around if prices climb. Prices are extremely opportunistic. If prices can go up, they do. Businesses tend not to sell themselves short very often.

In Canada, home prices were reportedly in decline in January for the fifth consecutive month and a prominent figure was fine with that -- Bank of Canada Gov. Mark Carney.

Carney explained recently that the slowing housing market might be a good sign, as the Canadian economy moves from one driven by consumer borrowing to one driven on the strength of its exports.

In the United States, there are so many strong forces at play that any central bank official that says falling home prices might be at least tolerable would face the wrath of home builders, realtors and presumably anyone who sells or makes everything from toasters to curtains. Likely, in fact, that official would be toast and it would be curtains for his or her career.

But Carney has a no-nonsense approach. "Real wealth is build through innovation, and it's gained through hard work. It's not through some magical asset inflation," he said recently.

To which it should be said: Touche.

In international markets Thursday, the Nikkei 225 index in Japan added 0.84 percent, while the Shanghai composite index in China gained 0.6 percent. The Hang Seng index in Hong Kong advanced 0.71 percent, while the Sensex in India climbed 0.04 percent.

The S&P/ASX 200 in Australia added 0.33 percent.

In midday trading in Europe, the FTSE 100 index in Britain rose 0.37 percent, while the DAX 30 in Germany was up slightly, 0.05 percent. The CAC 40 in France shed 0.31 percent, while the Stoxx Europe 600 lost 0.14 percent.
ANTHONY HALL || United Press International

(Source: UPI )
(Source: Quotemedia)

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