The Economic Recovery seems to be proceeding but new fears
have emerged, as demonstrated by the huge sell off in the “bond market” and
rising treasury rates. Federal Reserve
Chairman Bernanke spoke last week and his remarks tended to rattle many
observers. Some have characterized the Fed’s approach towards “tapering “ is actually
more of a “tightening”. But did the
Chairman really say what he meant to? Or
did observers over-react?
Just today, Monday July 1,2013 the Federal Reserve Bank of
San Francisco posted a publication to subscribers that is a transcript of, John
Williams, President and CEO of the Federal Reserve Bank of San Francisco, and
member of the FOMC, to the Sonoma County Economic Development Board in Rohnert
Park, California, on June 28, 2013. William’s remarks were entitled; The Economic Recovery: Past, Present, and
Future
His remarks about the
past include. “It’s now been four years since the recession ended.
Recessions are never pleasant, but this one was especially grim. Think back
four years to June 2009. The housing market had collapsed. The unemployment
rate stood at 9.5% and was still rising. Consumers and businesses were deeply
shaken. And the stock market had plunged nearly 40%.”
For the present
Williams indicates. “The US economy is well into a period of sustained growth…
we’ve come a long way …from a peak of 10%, the unemployment rate has dropped to
7.6%. Households and businesses have regained much of their lost confidence.
And finally, the housing market is springing back to life. Although things have
improved quite a bit, the economy has not rebounded from this recession as fast
as we hoped. Growth has proceeded in fits and starts, and the overall pace of
recovery has been moderate at best.”
For the Future; Williams
forecast is. “I expect the unemployment
rate to fall to roughly 71⁄4% at the end of this year and drop to about 63⁄4%
by the end of 2014. Economic growth is likely to be sluggish in the current and
next quarter, reflecting federal spending and employment cuts related to
sequestration. It should pick up later in the year. For 2013 as a whole, I see
inflation-adjusted GDP growing about 21⁄4% and picking up to around 31⁄4% in
2014”
Williams, and the SF Fed then specifically attempt to
address the Fed’s policy on Tapering and
Interest Rates. “Of course, the
economy’s increased momentum has raised questions about when the Fed will cut
back, and eventually end, its asset purchase program. So, is it time to act? My
answer is that it’s still too early.
For one thing, we need to be sure that the economy can
maintain its momentum in the face of ongoing fiscal contraction. And it is also
prudent to wait a bit and make sure that inflation doesn’t keep coming in below
expectations, possibly signaling a more persistent decline in inflation.
My forecast assumes that federal fiscal retrenchment has
largely temporary effects on economic growth and that inflation will resume its
gradual rise toward 2%. Looking ahead, if this forecast holds true, then at
some point it will be appropriate to scale back our purchase program and
eventually end it.”
Here is a link to the Federal Reserve Release by Williams. http://www.frbsf.org/economic-research/publications/economic-letter/2013/july/economic-recovery-past-present-future/el2013-18.pdf
Some would say that the market has over reacted to
Bernanke’s remarks. Others would opine
that rates were too low and had to rise.
But clearly the Fed has embraced a strategy to proactively share their
view that they will keep up their efforts to keep rates down so long as the
recovery is lagging and so long as unemployment is high.
As I am wrapping up this Post I came across a chart of 10 year Treasury Bond Yields for the last 100 years. My 30+ year career in real estate and Commercial Lending has led me to expect change and while rates have moved up 100+ basis points the chart reminded me that "this too will pass" and their will be many more opportunities to make good real estate investments. Be Calm and Carry On!
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