Fed Ending QE3; CPI; Homebuilder Confidence

The federal monetary stimulus of the economy seems to be on its last legs; CPI for All Urban Consumers dropped 0.2 percent; and homebuilder confidence rose to a level of 59.

The Federal Reserve’s unprecedented stimulus of the economy, sometimes known by the shorthand QE3, seems to be on its last legs. The Federal Open Market Committee said on Wednesday that that the central bank will buy agency mortgage-backed securities totaling only $5 billion in October, rather than $10 billion, and add to its holdings of longer-term Treasury securities to the tune of $10 billion, instead of $15 billion per month. “The committee will end its current program of asset purchases at the next meeting,” the FOMC said in the statement. It doesn’t get any clearer than that from the Fed.

That wasn’t a surprise. Fed watchers speculated about whether there would be a surprise about interest rates, namely that the Fed was going to (at least) hint at raising them sometime in the near future. As it turned out, the central bank did no such thing. By all indications, it’s standing pat for the foreseeable on interest rates.

This is what the FOMC said about interest rates: “… it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal…” What’s a “considerable time”? The Fed’s as inscrutable as the Cheshire Cat on that point.

 

CPI Edges Down in August

The Consumer Price Index for All Urban Consumers dropped 0.2 percent in August, the Bureau of Labor Statistics reported on Wednesday. Over the last 12 months, the all-items index increased 1.7 percent, the smallest 12-month change since March. The index for all items less food and energy also rose 1.7 percent over the last 12 months.

The month-over-month decline in the all-items index was the first one since April 2013. Prices for food and shelter rose, but those increases were more than offset by declines in energy prices, especially gasoline. The BLS’ energy index fell 2.6 percent, with the gasoline index declining 4.1 percent and the indexes for natural gas and fuel oil also decreasing.

Take food and energy out of the equation, and the “core” CPI was unchanged in August, the first month since October 2010 that the index didn’t increase. While the cost of shelter increased, and new vehicles and alcoholic beverages were also more expensive, these advances were offset by declines in several BLS indexes, including airline fares, recreation, household furnishings and operations, apparel, and used cars and trucks.

 

Homebuilders Feeling More Confident

Builder confidence in the market for newly built, single-family homes rose for a fourth consecutive month in September to a level of 59, according to the National Association of Home Builders on Wednesday. This latest four-point gain brings the index to its highest reading since November 2005.

“While a firming job market is helping to unleash pent-up demand for new homes and contributing to a gradual, upward trend in builder confidence, we are still not seeing much activity from first-time home buyers,” NAHB chief economist David Crowe noted in a statement. “Other factors impeding the pace of the housing recovery include persistently tight credit conditions for consumers and rising costs for materials, lots and labor.”

Wall Street had a moderately up day on Wednesday, with the Dow Jones Industrial Average up 24.88 points, or 0.15 percent. The S&P 500 advanced 0.13 percent and the Nasdaq rose 0.21 percent.