Economy Watch: Interest Rates, Inflation, Negative-Homeowner Equity
- Dec 18, 2014
Economists, pundits, and other Fed-watchers had wondered, before the Federal Open Market Committee released its latest meeting minutes on Wednesday, exactly what would happen to two little words: “considerable time.” That is, would the central bank remove those words from its guidance about interest rates? The Fed has said for quite a while that it would be a “considerable time” before rates went up.
This is what the FOMC said on Wednesday: “To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate … Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.”
In other words, the vague “considerable time” has indeed been phased out, replaced with “it can be patient,” which seems equally vague. Still, the consensus among Fed-watchers is that the change means that the central bank just inched a little closer to higher rates, but there’s still no timetable for a rise in rates.
Inflation a Wisp of Its Former Self
The Consumer Price Index for All Urban Consumers declined 0.3 percent in November, the Bureau of Labor Statistics reported on Wednesday. Over the last 12 months, the all items index increased 1.3 percent.
Driving the drop in prices is gasoline, which posted its sharpest decline since December 2008. The indexes for fuel oil and natural gas also declined, and the energy index fell 3.8 percent. Take food and energy out of the equation – the so-called core rate of inflation – and prices increased 0.1 percent in November.
The all-items index increased 1.3 percent over the last 12 months (ending in November), a notable decline from the 1.7 percent figure for the 12 months ending October. The index for all items less food and energy has increased 1.7 percent over the last 12 months, compared to 1.8 percent for the 12 months ending October, the BLS said.
Negative-Homeowner Equity Dwindles
The national negative equity rate continued to decline in the third quarter, falling to 16.9 percent, according to the third quarter Zillow Negative Equity Report, which the company released on Wednesday. That’s down almost half from its 31.4 percent peak in the first quarter of 2012, which means that more than 7 million previously underwater homeowners – that is, those homeowners owing more on their home than it’s worth — have escaped from negative equity since that peak.
Nationally, of those homeowners who are still underwater, around half are only underwater by 20 percent or less; that is, they’re fairly close to escaping negative equity. On the other hand, 1.9 percent of owners with a mortgage remain deeply underwater, owing at least twice what their home is worth.
Wall Street, which has been skittish lately, bounced back on Wednesday, with the Dow Jones Industrial Average up 288 points, or 1.69 percent. The S&P 500 advanced 2.04 percent and the Nasdaq gained 2.12 percent.