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As Expected, Fed Continues Taper; Rates Will Remain Low Indefinately

by on April 30, 2014 8:44 pm BST
 

It is baffling. The Federal Reserve said the US economy is gaining momentum after the advanced gross domestic product data showed a mere .1 percent expansion in the first quarter. This was a whopping 1.1 percent less than expected, which was suppose to be the worst case weather-related scenario.

The FOMC statement included “growth in economic activity has picked up recently, after having slowed sharply.” The Fed points to increasing household spending, which rose to the highest levels since 2008. This must be the board range of economic indicators Fed Chair Janet Yellen mentioned because there is no other mention of other factors gaining momentum. By board, she means pick and choose.

The Fed continues to remain vague in regards to their interest rate policy. The Fed funds rate is expected to remain near-zero for an indefinite period of time (it’s already been five years). The minutes said a “wide range of information” would be taken into consideration. Economists expect growth to expand to three percent this coming quarter.

But let’s dive into two key factors in the economic revival economists are foreseeing. Long-term unemployment is staggering. There are nearly four million Americans that have been unemployed six months or longer. The total share of unemployment hit 30 percent in the heart of the recession in 2009, but it have yet to break through that level after five years of quantitative easing. The kicker: one of the Fed’s dual candidates is to keep employment at full capacity.

The housing market has been another factor in the long-deserved recovery economists pine for. However, housing statistics have fallen – well before the polar vortex – and continue to slump. New home sales fell 14.5 percent in March o 384,000 at an annualized pace. This is the lowest since last July. Builder’s confidence is stagnant, and the S&P/Case-Shiller Home Price Index had a slower annual pace of growth with only five cities reporting home price appreciation and 13 cities reporting declines.

As we all ignored the $4.2 trillion dollar gorilla in the room, the Fed is not tapering because the economy is rosey or even budding.