Federal Reserve sees slightly better 2010 economy

May 19, 2010

Fed’s new economic forecast paints brighter picture of growth and employment for rest of year

Martin Crutsinger, AP Economics Writer, On Wednesday May 19, 2010, 3:08 pm EDT

WASHINGTON (AP) — Federal Reserve officials have a slightly brighter view of the economy than they did at the start of the year.

Fed officials say in an updated forecast that they think the economy can grow between 3.2 percent and 3.7 percent this year. That’s an upward revision from a growth range of 2.8 percent to 3.5 percent in their January forecast.

The Fed’s latest forecast sees the unemployment rate, now at 9.9 percent, dipping to between 9.1 percent and 9.5 percent by year’s end. In the January forecast, the Fed didn’t think unemployment would dip below 9.5 percent this year. The Fed prepared the latest forecast for its late-April meeting.

The Fed predicts an inflation gauge tied to consumer spending — excluding volatile food and energy costs — will rise just 0.9 percent to 1.2 percent this year. In January, the officials forecast an increase in prices of 1.1 percent to 1.7 percent.

The Fed’s updated outlook was prepared at its last meeting, April 27-28, and released Wednesday. It’s roughly in line with an Associated Press survey of leading economists done about a month earlier. According to the AP’s survey, the economy will grow 3 percent this year, and the unemployment rate will inch down to 9.3 percent by year’s end.

The Fed’s new outlook represents the middle range of forecasts of officials on the Federal Open Market Committee. That’s the group of Fed board members and central bank presidents who meet eight times a year to set interest rates.

At four of those meetings, including the April session, the central bank updates its economic outlook.

The Fed left its forecasts for next year and 2011 and the longer-run expectations mainly unchanged from January.

The Fed described the changes in economic growth in 2010 as a “modest” upward revision. The minutes said the figures available for the April meeting on consumer spending and business outlays were “broadly consistent with a moderate pace of economic recovery.”

But the Fed stressed that the economic recovery is expected to remain moderate, with the unemployment rate falling only gradually.

“Participants continued to expect the pace of the economic recovery to be restrained by household and business uncertainty, only gradual improvement in labor market conditions and slow easing of credit conditions in the banking sector,” the Fed minutes said.

Advertisements

Tapping The New [Extended] Home-Buyer Tax Credit

November 16, 2009

By Amy Hoak
DOW JONES

House shopping usually slows down in the winter, as people put their home searches on hold to trim the tree, buy presents to put under it and avoid the chilly weather.

This winter, however, might be different, thanks to the extended–and expanded–first-time home-buyer tax credit.

“We’re going to see far more interest in the fourth quarter than we generally do because of the tax credit,” said Heather Fernandez, vice president of Trulia.com, a real estate search engine. Traffic surged on the site on Nov. 5, the day Congress approved the credit extension, she said.

The new law extends the tax credit for first-time home buyers and opens it up to some existing homeowners as well: The credit is now 10% of the home price, up to $8,000 for first-time buyers and up to $6,500 for repeat buyers.

All buyers must have a binding contract on a house in place on or before April 30. The sale must close on or before June 30.

To be considered a first-time home buyer, an individual must not have owned a home in the past three years. And to be eligible, existing homeowners need to have lived in the same principal residence for five consecutive years during the eight-year period that ends when the new home is purchased. The credit is only for principal residences.

Income limits have risen as well. According to the IRS, the home-buyer tax credit now phases out for individuals with modified adjusted gross incomes between $125,000 and $145,000, and between $225,000 and $245,000 for people filing joint returns.

Will Credit Spur More Buyers?

The inclusion of move-up buyers might inspire homeowners to take action and list their house if they’ve been putting it off, said Carolyn Warren, a Seattle, Wash.-based mortgage broker and banker and author of the book “Homebuyers Beware.”

“If somebody loves their home, it’s not going to entice them to sell. If they’ve had it in the back of their minds and really would like to move up, it might push them into doing it sooner than later,” Warren said.

The credit isn’t expected to have as large of an effect on move-up buyers as it has on first-time buyers, according to the Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions. The maximum tax credit is about 4% of the average purchase price for first-time buyers, but about 2% of the average purchase price for move-up buyers.

Read the rest of this entry »


U.S. bailout program increased moral hazard: watchdog

October 21, 2009

Wed Oct 21, 2009 1:30am EDT
By David Lawder

WASHINGTON (Reuters) – The U.S. government’s $700 billion financial bailout program has increased moral hazard in the markets by infusing capital into banks that caused the financial crisis, a watchdog for the program said on Wednesday.

The special inspector general for the U.S. Treasury’s Troubled Asset Relief Program (TARP) said the plan put in place a year ago was clearly influencing market behavior, and he repeated that taxpayers may never recoup all their money.

The bailout fund may have helped avert a financial system collapse but it could reinforce perceptions the government will step in to keep firms from failing, the quarterly report from inspector general Neil Barofsky said.

He said there continued to be conflicts of interest around credit rating agencies that failed to warn of risks leading up to the financial crisis. The report added that the recent rebound in big bank stocks risked removing urgency of dealing with the financial system’s problems.

“Absent meaningful regulatory reform, TARP runs the risk of merely reanimating markets that had collapsed under the weight of reckless behavior,” the report said. “The firms that were ‘too big to fail’ last October are in many cases bigger still, many as a result of government-supported and -sponsored mergers and acquisitions.”

ANGER, CYNICISM, DISTRUST

The report cites an erosion of government credibility associated with a lack of transparency, particularly in the early handling of the program’s initial investments in large financial institutions.

“Notwithstanding the TARP’s role in bringing the financial system back from the brink of collapse, it has been widely reported that the American people view TARP with anger, cynicism and distrust. These views are fueled by the lack of transparency in the program,” the report said.

Read the rest of this entry »


Dow closes above 10,000 for 1st time in a year

October 14, 2009

DJ comeback: Stock market’s best-known barometer closes above 10,000 for 1st time in a year

By Sara Lepro and Tim Paradis, AP Business Writers
5:08 pm EDT, Wednesday October 14, 2009

NEW YORK (AP) — When the Dow Jones industrial average first passed 10,000, traders tossed commemorative caps and uncorked champagne. This time around, the feeling was more like relief.

The best-known barometer of the stock market entered five-figure territory again Wednesday, the most visible sign yet that investors believe the economy is clawing its way back from the worst downturn since the Depression.

The milestone caps a stunning 53 percent comeback for the Dow since early March, when stocks were at their lowest levels in more than a decade.

“It’s almost like an announcement that the bear market is over,” said Arthur Hogan, chief market analyst at Jefferies & Co. (JEF) in Boston. “That is an eye-opener — ‘Hey, you know what, things must be getting better because the Dow is over 10,000.'”

Cheers went up briefly when the Dow eclipsed the milestone in the early afternoon, during a daylong rally driven by encouraging earnings reports from Intel Corp. and JPMorgan Chase & Co. (JPM) The average closed at 10,015.86, up 144.80 points.

It was the first time the Dow had touched 10,000 since October 2008, that time on the way down.

“I think there were times when we were in the deep part of the trough there back in the springtime when it felt like we’d never get back to this level,” said Bernie McSherry, senior vice president of strategic initiatives at Cuttone & Co.

Ethan Harris, head of North America economics at Bank of America Merrill Lynch (BAC), described it as a “relief rally that the world is not coming to an end.”

The mood was far from the euphoria of March 1999, when the Dow surpassed 10,000 for the first time. The Internet then was driving extraordinary gains in productivity, and serious people debated whether there was such a thing as a boom without end.

“If this is a bubble,” The Wall Street Journal marveled on its front page, “it sure is hard to pop.”

It did pop, of course. And then came the lost decade.

Read the rest of this entry »


Freddie Mac: 30-yr mortgage average still falling

October 8, 2009

SAN FRANCISCO (MarketWatch) — Freddie Mac (FRE) said Thursday that the 30-year fixed-rate mortgage average declined further to 4.87% with an average 0.7 point for the week ending Oct. 8 from 4.94% last week. The last time the average was this low was May 21, when the average was 4.82%. The average was 5.94% a year ago. “Such low rates are spurring mortgage demand,” said Frank Nothaft, Freddie Mac chief economist, in a statement. “Mortgage applications surged to a 19-week high over the week ending on October 2nd, according to the Mortgage Bankers Association. Moreover, applications for home purchases were at the strongest pace since the beginning of this year.”


Investors trading 3 stocks that may be doomed

August 27, 2009

Investors still trading Fannie, Freddie, AIG shares, even though prices are likely to hit zero

Daniel Wagner, AP Business Writer
Thursday August 27, 2009, 5:36 pm EDT

WASHINGTON (AP) — Investors are still trading common shares of Fannie Mae (FNM), Freddie Mac (FRE) and American International Group Inc. (AIG) by the billions, even though analysts say their prices are almost certain to go to zero.

All three are majority-owned by the government and are losing huge sums of money. The Securities and Exchange Commission and other regulators lack authority to end trading of stocks in such “zombie” companies that technically are alive — until the government takes them off life support.

Shares of the two mortgage giants and the insurer have been swept up in a summer rally in financial stocks. Investors have been trading their shares at abnormally high volumes, despite analysts’ warnings that they’re destined to lose their money.

“People have done well by trading them (in the short term), but when it gets to the end of the road, these stocks are going to be worth zero,” said Bose George, an analyst with the investment bank Keefe, Bruyette & Woods Inc.

Some of the activity involves day traders aiming to profit from short-term price swings, George said. But he said inexperienced investors might have the mis-impression that the companies may recover or be rescued.

“That would be kind of unfortunate,” he said. “There could be a lot of improvement in the economy, and these companies would still be worth zero.”

The government continues to support the companies with billions in taxpayer money, saying they still play a crucial role in the financial system.

Fannie and Freddie buy loans from banks and sell them to investors — a role critical to the mortgage market. They have tapped about $96 billion out of a potential $400 billion in aid from the Treasury Department.

Officials have said AIG’s failure would be disastrous for the financial markets. Treasury and the Federal Reserve have spent about $175 billion on AIG and AIG-related securities. The company also has access to $28 billion from the $700 billion financial industry bailout.

But analysts say the wind-down strategies for the companies are almost sure to wipe out any common equity, making their shares worthless.

Read the rest of this entry »


In sign of strength, S&P 500 breaks past 1,000 as Wall Street rally blows into August

August 3, 2009

By Sara Lepro and Tim Paradis, AP Business Writers
Monday August 3, 2009, 6:02 pm EDT

NEW YORK (AP) — The Standard & Poor’s 500 index (SPX) is four digits again now that the stock market’s rally has blown into August.

The widely followed stock market measure broke above 1,000 on Monday for the first time in nine months as reports on manufacturing, construction and banking sent investors more signals that the economy is gathering strength. The S&P is used as a benchmark by professional investors, and it’s also the foundation for mutual funds in many individual 401(k) accounts.

Wall Street’s big indexes all rose more than 1 percent, including the Dow Jones industrial average (INDU), which climbed 115 points.

The market extended its summer rally on the type of news that might have seemed unthinkable when stocks cratered to 12-year lows in early March. A trade group predicted U.S. manufacturing activity will grow next month, the government said construction spending rose in June and Ford Motor Co. (F) said its sales rose last month for the first time in nearly two years.

“The market is beginning to smell economic recovery,” said Howard Ward, portfolio manager of GAMCO Growth Fund. “It may be too early to declare victory, but we are well on our way.”

The day’s reports were the latest indications that the recession that began in December 2007 could be retreating. Better corporate earnings reports and economic data propelled the Dow Jones industrial average 725 points in July to its best month in nearly seven years and restarted spring rally that had stalled in June.

On Monday, a report from the Institute for Supply Management, a trade group of purchasing executives, signaled U.S. manufacturing activity should increase next month for the first time since January 2008 as industrial companies restock shelves. Also, the Commerce Department said construction spending rose rather than fell in June as analysts had expected. The reports and rising commodity prices lifted energy and material stocks.

Ford said sales of light vehicles rose 1.6 percent in July. Other major automakers said they saw signs of stability in sales. Investors predicted that the government’s popular cash for clunkers program would boost overall auto sales to their highest level of the year.

Read the rest of this entry »


%d bloggers like this: