Category: Recession

Economics Update

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Employment-to-Population Ratio: Men (25-54 Years)

Labour Force Participation Rate: Men (25-54 Years)

And Barry Ritholtz scares the hell out of us

Well, today is Jobless Thursday, and new unemployment claims fell by 29,000 to 469,000, which is better, but not good.

The numbers needs to be below 400K before we see anything near real job growth.

The 4 week moving average fell by 3,500 to 470,750, though that number is still bigger than it was at the start of the year.

Continuing claims fell significantly, to 4,500,000, and next week, I will be a no longer be a part of that number (I file for the prior 2 weeks on Sunday).

Still, the news is an improvement, as is the latest Beige Book from the Federal Reserve, which shows signs of employment.

In any case, the ADP report on private sector jobs shows a loss of 20,000 jobs, which is the best month from them since January 2008.

So, the picture is not good, but appears to be improving, but fragile.

But if you want to be scared, just look at Barry Ritholtz’s analysis of historical employment for adult males, see the graph pr0n.

On a more personal level, personal bankruptcies rose in February.

We are seeing continued growth in manufacturing, at least according to the Institute for Supply Management Manufacturing Index, which fell to 56.5 from 58.4, but since any reading above 50 means expansion, it’s still positive.

The services sector is also showing encouraging growth.

Still, real estate is a mess, with pending home sales index falling 7.6%, though part of this might be the snowpocalypse.

Still, interest rates are not a problem with the 30-year fixed-rate mortgage rate averaging 4.97 %, which is the first time in a while that it has been below 5%.

Finally, the Bank of England left its benchmark rates unchanged, as well as holding off on more quantitative easing. (Printing money)

Economics Update

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H/t Calculated Risk


That bump is the tax credit h/t Calculated Risk

The big news is the upward revision of US GDP in the 4th quarter, though it should be noted that this delta is all inventory shrinking less quickly than expected, everything else was revised down.

Go to Calculated Risk to see a handy table illustrating this.

Meanwhile real estate is grim, with Freddy Mac reporting that delinquencies in single housings rising 16 basis points to 4.03 in January, and existing home sales falling sharply.

As I have said before, we are seeing the effects of the home buyer tax credit, not any real market recovery.

Meanwhile, in the old standards of energy and currency, people are feeling more sanguine about Greece, which means that they are looking for more return, and less safety, which pushed the dollar lower, and the lower dollar drove crude oil higher.

Economics Update

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H/t the Big Picture

It’s jobless Thursday, and the new numbers suck wet farts from dead pigeons, specifically, they are up 12% over the past 2 weeks,to 496,000, up 22,000, and well over the consensus estimate 460,000.

Ouch.

Meanwhile, both the The 4-week moving average and the continuing claims rose by 6K, to 473,750 and 4.617 million.

Note however, that he Snowpocalypse may have had something to do with this.

Note also that that the durable goods orders number sucked too, it was up only because of aircraft orders, and as the picture on the right shows, there really is no increase at all once you take out spending on military items going back a very long time.

Meanwhile, in Japan, their consumer prices fell by 1.3% year over year, which is triggering a shouting match between the Finance Ministry, who want QE, and the Bank of Japan, who are still inflation hawks.

Meanwhile in currency, the dollar rose, largely on concerns about Greece and Euro Zone.

And yes, I know, I need to post something about the Greek problem, but it’s sprawling, and I’m still trying to make a synthesis.

In energy, the crappy jobs numbers drove oil down.

Economics Update

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The lede today is that consumer confidence fell much more than expected, down to 46.0, when the consensus forecast was 55.0, a 10 month low.

Additionally, home prices fell in the 4th quarter, though the housing optimists are noting that the year over year drop is “only” 2½%.

When one considers the fact that the 4th quarter was juiced by tax credits, it’s worse than it looks.

Japan, on the other hand, Japan’s exports grew sharply in the 4th quarter, with a 40.9% year over year, the biggest jump since 1980, largely on increases in exports to China.

Still the dismal consumer confidence numbers put the market in a mind to doubt that there will soon be a robust recovery, which drove oil prices down, and led to a flight to safety which pushed the Yen and the dollar up.

Economics Update

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Chicago Fed Index

OK, the good news is that the Federal Reserve Bank of Chicago’s national activity index was positiver, so we are back to something resembling treading water, and US commercial real estate prices rose 4.1% in December.

Yes, that is a month to month number, and a pretty big jump at that, though it’s worth noting that, “prices are still down 29.2 percent year over year and 40 percent from the peak.”

Additionally, short sales of have jumped again in January:

According to the latest Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions, short sales accounted for a substantial 15.9 percent of home purchase transactions in January. This was well above the share of other distressed property activity – with damaged REO accounting for 13.4 percent of activity and move-in ready REO making up 13.8 percent.

The January figures represent a steady increase in short sale popularity. As recently as November of 2009, short sales accounted for 12.4 percent of the home purchase market, according to the Campbell report, behind move-in ready REO at 12.6 percent and nearly even with damaged REO transactions at 12.3 percent.

I would note that when you add short sales, damaged REO (basically foreclosures), and undamaged REO together, means that at least 43.1% of all sales.

In energy, oil continues to climb, approaching $80/bbl, and in currency, and the dollar was mixed.

Economics Update

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I already blogged about the big news of the day, the increase in the rate for the discount window, so the lede here, as it is every jobless Thursday, is initial unemployment claims, which rose by 31,000 to 473,000, though the 4 week moving average fell slightly, and continuing claims were unchanged.

The Federal Reserve Bank of Philadelphia released its index of regional manufacturing activity, and the index is positive, indicating continued growth, for the 6th straight month.

In Wally World, Wal-Mart’s same store sales fell in the 4th quarter.

I’m not sure if this is just generally bad news, or if it implies that shoppers are moving upscale and spending more.

The rest of the news is driven by today’s Fed announcement, which drove treasuries down, and thus yields up, as well as pushing the dollar, and crude oil higher.

Umm……Holy Crap?

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The Federal Reserve has just raised the interest rate on its discount window, an emergency lending facility used by banks, by 25 basis points, from ½% to ¾%, and shortened the term of the loans from 28 days to 24 hours. (The 28 days bit was an emergency measure, so the overnight duration is the pre-meltdown status quo)

This facility is used for short term lending, but it’s not frequently used, as generally, for overnight liquidity, etc., banks use the Federal Funds Rate, which dictates what rate banks use when they lend to each other.

The increase is on the difference between the discount window and the Federal Funds Rate. The discount window is more expensive, because its use is discouraged, the Fed prefers banks to deal in commercial money, not government money.

The Fed is saying that this does not represent a change in policy, and this is a small part of of the monetary picture, to be sure, but it is a tightening, and actions, as the saying goes, speak louder than words.

My guess, and my Federal Reserve Kremlinology is by no means authoritative, is that now that Bernanke has been safely confirmed by the Senate, he is looking toward creating an environment in which monetary policy can work.

Monetary policy, at least on the expansionary side of the equation, work now, because interest rates are below 1% and you can’t cut interest rates below 0%, at least not under the current regulatory environment.*

It’s called the “Zero Bound” problem, and I’m sure that Bernanke, as well as the whole Fed, wants to be back in a world where inflation and employment can be managed in both directions though monetary tools.

Krugman actually wants this too, he’s been clear on this.

I just think that this move is somewhat premature.

The full statement is after the break.

*Actually, you can, with inflation devaluing currency, as I have said many times, but raising inflation targets gives central bankers the hives.


Press Release
Federal Reserve Press Release

Release Date: February 18, 2010
For release at 4:30 p.m. EDT

The Federal Reserve Board on Thursday announced that in light of continued improvement in financial market conditions it had unanimously approved several modifications to the terms of its discount window lending programs.

Like the closure of a number of extraordinary credit programs earlier this month, these changes are intended as a further normalization of the Federal Reserve’s lending facilities. The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy, which remains about as it was at the January meeting of the Federal Open Market Committee (FOMC). At that meeting, the Committee left its target range for the federal funds rate at 0 to 1/4 percent and said it anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

The changes to the discount window facilities include Board approval of requests by the boards of directors of the 12 Federal Reserve Banks to increase the primary credit rate (generally referred to as the discount rate) from 1/2 percent to 3/4 percent. This action is effective on February 19.

In addition, the Board announced that, effective on March 18, the typical maximum maturity for primary credit loans will be shortened to overnight. Primary credit is provided by Reserve Banks on a fully secured basis to depository institutions that are in generally sound condition as a backup source of funds. Finally, the Board announced that it had raised the minimum bid rate for the Term Auction Facility (TAF) by 1/4 percentage point to 1/2 percent. The final TAF auction will be on March 8, 2010.

Easing the terms of primary credit was one of the Federal Reserve’s first responses to the financial crisis. On August 17, 2007, the Federal Reserve reduced the spread of the primary credit rate over the FOMC’s target for the federal funds rate to 1/2 percentage point, from 1 percentage point, and lengthened the typical maximum maturity from overnight to 30 days. On December 12, 2007, the Federal Reserve created the TAF to further improve the access of depository institutions to term funding. On March 16, 2008, the Federal Reserve lowered the spread of the primary credit rate over the target federal funds rate to 1/4 percentage point and extended the maximum maturity of primary credit loans to 90 days.

Subsequently, in response to improving conditions in wholesale funding markets, on June 25, 2009, the Federal Reserve initiated a gradual reduction in TAF auction sizes. As announced on November 17, 2009, and implemented on January 14, 2010, the Federal Reserve began the process of normalizing the terms on primary credit by reducing the typical maximum maturity to 28 days.

The increase in the discount rate announced Thursday widens the spread between the primary credit rate and the top of the FOMC’s 0 to 1/4 percent target range for the federal funds rate to 1/2 percentage point. The increase in the spread and reduction in maximum maturity will encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve’s primary credit facility only as a backup source of funds. The Federal Reserve will assess over time whether further increases in the spread are appropriate in view of experience with the 1/2 percentage point spread.
2010 Monetary Policy Releases

Last update: February 18, 2010

Economics Update

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Mortgage applications fell last week, with home purchases leading the way relative to refinancing on the way down.

Even so, housing starts rose sharply, though as Calculated Risk notes, a lot of this is likely from home builders trying to complete houses in time before the latest round of housing tax credits expire at the end of April.

In the world of actually making stuff, US industrial output rose more than expected in January.

In the “looming train wrecks” category, the newly released minutes from the Fed’s January meeting show increasing confidence in the economy, it appears that there are some strong voices for the Federal Reserve to significantly shrinking their balance sheet, would would likely result in a significant, probably in excess of 50 basis points (½%), increases in mortgage rates, which would make an already shaky real estate market even more problematic.

In any case, the news on housing starts and industrial output drove both oil and the dollar is higher.

Economics Update

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Capital One charge-off rates, H/t Calculated Risk

Well, the New York Federal Reserve Bank just released its Empire State Manufacturing, Index, and it rose more than expected, from 15.9 in December to 24.9 in January, though I have no clue as to how the numbers went up:

……The details of the report were mixed. New orders slowed to 8.8 in February from 20.5 in the prior month. Shipments inched lower. However, inventories were flat in February after 17 straight negative monthly readings. Employment was positive for the second straight month……

I’m a little bit confused, but it appears that what we are seeing here is almost entirely stronger inventories, so as been noted before, it appears to be an inventory bounce.

In consumer credit, things appear to be moderating, in that default rates for the major card companies did not increase last month, or more accurately they didn’t rise last month for major credit card companies, except for Capital One, whose charge off rates rose from 10.14% to 10.41% in January. (See chart pr0n)

In real estate the National Association of Home Builder confidence index rose last month, albeit from an amazingly unambiguously crappy 15 to startlingly unambiguously crappy 17, where 50 is neutral.

In England, inflation rose sharply in January, to a 3.5% annual rate, which really isn’t scary at all, and additionally it should be noted that much of this was driven by the VAT (sales tax) increasing from 15% to a 17.5 as that stimulus measure expired, as shown by the fact that the, “CPIY rate of inflation, which strips out the effect of indirect taxes, fell from 2.8 per cent in December to 1.9 per cent in January.”

I just want to say, once again, that low inflation is a part of the problem, and another parts are the inflation hawks, both among regulators and among bond investors.

In currency, the dollar fell on reduced concerns about the Greek financial meltdown, which increased risk appetite.

I am not sure why investors had reduced concerns about Greece though. (I’ll get to the Greek crisis in more detail later)

Additionally, we have a report that the Bank of Japan is planning more quantitative easing if the Yen strengthens to OJ May Expand Easing Should Yen Reach ¥87:$1.00.

In any case, the falling dollar had commodity traders buying oil, which drove the price higher.

Economics Update

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As today is a holiday in the United States, it was a fairly slow news day, but over the weekend, we got a report on house prices in the UK, and the asking price rose at the fastest rate in 3 years, of course, the whole problem with the real-estate crisis was the disconnect between ask and offer, so I’d wait for sale prices to rejoice.

In real estate in the US, delinquencies on commercial mortgage backed securities (CMBS) jumped in January.

On the brighter side, Japanese GDP grew strongly, largely on capital spending driven by exports.

In currency and energy, the Euro hit a 9 month low on the mess that is Greece, while crude oil was basically flat, up 6¢/bbl.

Economics Update

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H/t Calculated Risk


It appears that inventories are now in line with sales.
Downward trend is the result of increased efficiencies
H/t Calculated Risk

In the good news/bad news dichotomy, we see that retail sales rose ½% in January but consumer confidence fell:

January sales at U.S. retailers climbed more than anticipated, while consumer confidence unexpectedly fell this month from a two-year high, showing a recovery in household spending may be gradual.

Retail purchases increased 0.5 percent, the third gain in the past four months, Commerce Department figures showed today in Washington. The Reuters/University of Michigan’s consumer sentiment gauge dropped to 73.7 from 74.4 the prior month.

Not sure what this all means, to tell the truth.

Sometimes teasing meaning out of the data is like drinking from a fire hose.

On the other hand, the data from Europe, where disappointing GDP numbers from Italy and Germany have unexpectedly fallen in the 4th quarter, is pretty easy to understand, as is the fact that Bloomberg’s Professional Global Confidence Index, fell on concerns that deficit problems among some nations in the Euro zone will hinder recovery.

By some countries, I mean, of course, the PIIGS (Portugal, Italy, Ireland, Greece and Spain), who are largely hamstrung in their ability to deal with the crisis because of deficit requirements of, and the fixed exchange rate from, being in the Euro zone.

BTW, here’s a story that we may here more of in the next few months: there has been a surprising outflow of funds from “junk bond mutual funds:

High-yield, high-risk bond mutual funds last week had their biggest outflows since 2008, adding to signs that the junk debt market may be set for a “reversal.”

Investors withdrew $1.13 billion from mutual funds invested in high-yield debt, including exchange-traded funds, in the week ended Feb. 5, according to research firm EPFR Global. That’s the most since early in the third quarter of 2008 and reverses a $335.6 million inflow from the previous week, according to Cambridge, Massachusetts-based EPFR.

I do not know what is up (or more accurately down) here but someone out there knows something and is acting on it.

In any case, the problems in Europe, along with new Chinese actions to reign in lending by increasing bank reserve requirements, have raised concerns about the economy which driven crude oil down, and led to a flight to safety which has driven the dollar up.

The Employment Numbers

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H/t Calculated Risk


Employment Population Ration, h/t Calculated Risk


Part time involuntarily, h/t Calculated Risk


Worst recession since WWII, h/t Calculated Risk


Temp hiring, which is a leading indicator, is improving, h/t Calculated Risk


Birth/death model, h/t Daily Reckoning

Well, the good news is that the unemployment rate fell to 9.7%. The bad news is that non farm payroll fell by 20,000, while analysts had forecast an increase of 5,000.

Unemployment falling is therefore entirely the result of people, most notably white women, having stopped looking for work, so I would not call it a good thing.

The fact is that long term unemployment, people who have been unemployed for more than 26 weeks,* has hit 4.1% of the civilian workforce, an all time record.

Barry Ritholtz digs a bit deeper, and finds positive data points:

  • The household survey shows an increase, and the household survey covers small business missed by the business survey.
  • Temp employment increased, and temp hiring leads full time hiring, assuming that companies don’t go “permatemp”.
    • I would note that I have anecdotally observed this when I call “job shops” about contract work. Things to seem to be picking up, hence 2 interviews (1 in person and 1 phone) in the past 2 weeks, as versus 1 (phone) interview in the prior 6 months.
  • Part-time for economic reasons (underemployed) fell sharply (3rd graph from top)

As I noted yesterday, there was a big change in the “birth/death” adjustment, (bottom graph) and the adjustment appears to me to be more of an exercise in political number manipulation than a reasonably applied statistical technique.

In any case, if you scroll down on the full BLS report, they talk about the adjustment:

Table A presents revised total nonfarm employment data on a seasonally adjust-
ed basis for January through December 2009. The revised data for April 2009
forward incorporate the effect of applying the rate of change measured by the
sample to the new benchmark level, as well as updated net business birth/death
model adjustments and new seasonal adjustment factors. The November and
December 2009 revisions also reflect the routine incorporation of additional
sample receipts into the November final and December second preliminary
estimates. The total nonfarm employment level for March 2009 was revised down-
ward by 902,000 (930,000 on a seasonally adjusted basis), or 0.7 percent. The
previously published level for December 2009 was revised downward 1,390,000
(1,363,000 on a seasonally adjusted basis).

So they were off by over 1 million in December … Oopsie.

You can see Bloomberg’s interactive page on the effects here.

*Full disclosure, this set includes yours truly, who has been out of work for about 30½ weeks.

Big Change in Birth/Death Adjustment

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Last night, I made a brief mention of changes to the birth/death adjustment for jobs numbers.

Birth/death is basically a way to deal with the fact that small companies are being formed and ceasing to exist all the time, and the normal methods, the survey of employers miss the effect on net employment.

Well, tomorrow, the Department of Labor will release their annual adjustment, and it looks like the statistical fudge factor missed 824,000 job losses.

I guess they thought that all those people had chucked it all to become professional eBay merchants, but they were wrong:

As bad as the government’s jobs readings numbers have been during the Great Recession, we’ll soon find out the real situation likely was worse.

Much worse.

ob losses during the recession may have been underestimated by close to a million jobs. So instead of employers cutting just over 7 million jobs from their payrolls since the economic downturn began in December 2007, it’s expected that the Labor Department’s new estimate will be a loss of 8 million jobs.

“It’s an enormous understatement of the severity of the crisis,” said Heidi Shierholz, labor economist with the Economic Policy Institute, a union-supported think tank. “It confirms that things were actually worse on the ground than what the reports suggested.”

(emphasis mine)

The phrase, “The problem is that BLS models appear to have grossly overestimated the number of new businesses that opened during the recession.” is kind of an understatement.

With banks not lending to anyone how can someone start a business anyway?

I’m inclined to think that this was something that was driven in some manner by electoral concerns from Bush and His Evil Minions™, but that might just be tinfoil hat.

Economics Update

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In the “recovery, my tuchas” division, we have the latest ADP estimate as to job losses, which shows that yet again, private sector employment fell, though the panglossian financial “journalists”, are now expecting employment to grow this month.

I don’t think so, seeing as how this is when the so-called birth/death adjustment gets rejiggered for the new year (more on this later).

Along with this, the Institute for Supply Management’s index of nonmanufacturing activity continues to remain in the doldrums, which is better than it was early last year, but still does not point to employment increases.

In the nexus of real estate and banking, mortgage applications were up sharply this week, but this was refinance activity, not home purchases.

In the old favorites of currency and energy, the dollar rose on the ADP report, as well as concerns about the potential Greek meltdown, while oil fell slightly on reports of strong inventories.

Economics Update (a Day Late)

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Busy day yesterday, both good and bad, so this is short.

First, we have the personal bankruptcy numbers dropped 10% from December to January, but are up 15% year over year, and the American Bankruptcy Institute expects 2010 BK levels to be higher than 2009.

In real estate, pending sales of existing homes rose slightly in December, but the percentage of homes remaining vacant rose in the 4thquarter.

Real estate is not going to lead us out of the recession, and absent cram-down legislation, government action is not going to help.

Economics Update

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Well, we had mixed signals, with factory activity rising faster than expected and construction spending falling faster than expected.

As to what you follow, I’ll go with disposable personal income and personal consumption expenditures, where spending went up less than income, increasing the savings rate, meaning that the consumer is still well into the “paradox of thrift”, and as The Big Picture observes, most of the increase in personal income is from government stimulus spending, but Obama has decided to go all 1937 on the budget. (Separate post for the budget)

Meanwhile in central bank/bond finance land, the Obama’s budget, along with the industrial growth reading pushed bond prices down, and yields up.

Meanwhile, in Oz, the Reserve Bank of Australia kept its benchmark rate at 3.75%, it had been expected to raise the rate to 4%, and so its currency took a hit.

Meanwhile in currency and energy, the ISM’s index of national factory activity drove both oil and the dollar up.

Economics Update

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Worst post-Depression recession
H/t Economic Policy Institute

So, US GDP grew at a 5.7% annual rate in the 4th quarter, according to the advance estimate from the Bureau of Economic Analysis.

Some points: First, 5.7% is a spectacularly good number, the best in about 6 years, second, I expect that as more data comes in, future revisions will be downward, third, much of this growth was from a low “deflator” number, basically meaning that the numbers were juiced by the extraordinarily low inflation numbers, and fourth, as Krugman notes, it was an inventory blip, with over half of the growth being restocking of depleted inventories, not real growth.

Even with this number, as the graph pr0n shows, we are still down from peak more than any other recession since WWII.

Still, the Reuters/University of Michigan Surveys of Consumers was up more than forecast, to 74.4, and given that consumer spending is most of our economy, it is a big deal.

As to energy and currency, the GDP numbers did what was expected, with the dollar strengthening, and the stronger dollar pushing oil down.

[on edit]
Just in, in 2009, wages and benefits rose the least since statistics began to be kept in 1982.

Economics Update

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H/t Calculated Risk

It’s what Atrios calls “Jobless Thursday”, and while the number of people filing for initial unemployment claims fell, it was less than forecast, claims fell t0 470,000, not the estimate of 450,000, the 4 week moving average rose, and the number of continuing claims fell by 57,000 to 4.6 million.

On a brighter side (above link) orders for durable goods did rise in December, as did orders for capital goods, and while the Federal Reserve Bank of Chicago’s economic activity index of fell in December, the 3-month moving average rose.

Personally, I tend to place more credence in the transportation based indices, and so the fact that the Baltic Dry Index, an index of shipping costs, fell to a 3 month low, to be the thing that I would hold onto, which makes me bearish ………… Then again, I’m always bearish.

Since I missed the economics update yesterday, I should note that the Federal Reserve Open Market Committee kept its benchmark Fed Funds rate 0.25%, effectively 0%, and while their statement was significantly more upbeat than last time, they are still signaling that the rates will remain low for some time.

Meanwhile, in real estate, Freddie Mac issued a report showing that mortgage delinquencies jumped in December, and new-home sales fell again in December, in yet another indication that the recent activity was an artifact of the tax credit, as opposed to any real market turn around.

One interesting data point, again from Freddie, is that the ratio of people cashing out from their houses to those lowering balances or rates hit an all time low, meaning that people were refinancing to lower their payments, and not using their homes as an ATM.

In the long run, this is a good thing, but in the short run, it runs headlong into the paradox of thrift.

In the more general world of finance and banking, we are seeing skittishness about things like the Greek financial problems, and so there is a flight to quality, which has increased demand for US Treasuries, which has driven the rate on the 1-month treasury to a negative interest for the first time in 10 months, interestingly enough, the T-bill auctions seem to indicate that it’s Americans who are fleeing to quality, as the last auction had robust demand, but foreign buyers seemed to be backing off, at least the foreign central banks.

In consumer debt, credit card charge-offs fell a little in December, which indicates that people are a bit more able to pay off their debt, though the fact that Chase had a “payment holiday” may be a large reason for this.

In the old standards of energy and currency, crude oil fell slightly, while the dollar hit a 6½ month high against the Euro, largely on concerns that Greece will go the way of Ukraine, the Baltic States, or Iceland.

Of course, since Greece is in the Euro zone, when none of the other nations were, that is where it gets pretty hinky.

Full FOMC statement after the break:

Press Release
Federal Reserve Press Release

Release Date: January 27, 2010
For immediate release

Information received since the Federal Open Market Committee met in December suggests that economic activity has continued to strengthen and that the deterioration in the labor market is abating. Household spending is expanding at a moderate rate but remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software appears to be picking up, but investment in structures is still contracting and employers remain reluctant to add to payrolls. Firms have brought inventory stocks into better alignment with sales. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack continuing to restrain cost pressures and with longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter. The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

In light of improved functioning of financial markets, the Federal Reserve will be closing the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility on February 1, as previously announced. In addition, the temporary liquidity swap arrangements between the Federal Reserve and other central banks will expire on February 1. The Federal Reserve is in the process of winding down its Term Auction Facility: $50 billion in 28-day credit will be offered on February 8 and $25 billion in 28-day credit will be offered at the final auction on March 8. The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30 for loans backed by new-issue commercial mortgage-backed securities and March 31 for loans backed by all other types of collateral. The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted.