Notes From Underground

The FED‘s statement today showed no surprises and the vote even was the same as Kansas Fed President Esther George voted NO in opposition to further monetary accommodation by the monetary authorities. James Bullard of the St.Louis Fed voted with the severe majority as did Chicago Fed President Charles Evans. The Bullard vote did not surprise as he has shown a pragmatic edge over the last several years but the consensus vote by Charles Evans was surprising. President Evans has been the most vocal proponent of increased Fed action over the last year when he was a non-voting FOMC member. Today’s negative number on the GDP should have provided Mr. Evans with a perfect excuse to push for a larger FED asset purchase program. At least Ms. George votes in a consistent manner with her rhetoric. The FOMC release opened with this phrase”… suggest that growth in economic activity paused in recent months, in large part because of weather-related disruptions and other transitory factors.” Again, as in years past, it is a spate of bad luck that has caused last quarters slowdown. Before it was the Tsunami in Japan which Bernanke termed “bad luck.”

More troubling for the GDP data is that it failed to jive with Monday’s release of the DURABLE GOODS data, which was very robust and after “stripping out the herky jerky transportation sector, orders rose a small but still solid 1.3% as bookings for military orders surged.” The military part of the durable goods surged because orders were brought forward because of the fear of the SEQUESTRATION offered by the fiscal cliff crisis. Yet today’s GDP was reported as weak because of the large cut in defense spending. The GDP data may be revised upwards during the next two months but if this week’s unemployment report is weak the FED will be on the edge as not being aggressive enough. To help ensure employment growth consistent with its mandate  the Fed said: “The Committee will continue purchasing additional agency mortgage-backed securities of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.” So maintain the course.

***The Reserve Bank of New Zealand (RBNZ) kept rates steady but noted concern about the KIWI‘s recent strength. “The high currency is directly suppressing inflation on traded goods, and is undermining profitability in export and export competing industries at the same time, the labour market remains weak and fiscal consolidation is dampening growth.” NZ Governor Wheeler is hoping that global growth is strong enough to relieve the pressure from a very strong currency. All in all it is confusing. If inflation is too low and the currency too strong, CUT THE RATE.

Tags: Charles Evans, durable goods, Esther George, Fed, FOMC, GDP, Gold, James Bullard, Kiwi, QE, RBNZ, Swiss banks

This entry was posted on January 30, 2013 at 9:19 pm and is filed under data, Fed, RBNZ, United States. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.