The Dow hit a record high yet for most of America this means little. While some fawn and fan over the high rise stock market, here are some stories that actually matter to real people with real lives.
There is nothing more frightening than when those in charge of the economy miss something that was as plain as the nose on your face. Such was the situation with the Federal Reserve and the subprime mortgage crisis in 2007. The FOMC met on August 7th and claimed there was not enough evidence of a subprime problem.
The FOMC just did a great thing. The Federal Reserve tied interest rates and quantitative easing to U.S. labor. The messaging alone is powerful. The Federal Reserve is saying, very clearly, U.S. workers matter. Businesses need to start hiring and increasing wages if they want to actually improve the overall economy.
About 5 million people—more than 40 percent of the unemployed—have been without a job for six months or more, and millions more who say they would like full-time work have been able to find only part-time employment or have stopped looking entirely. The conditions now prevailing in the job market represent an enormous waste of human and economic potential.
More quantitative easing is here. The Federal Reserve will increase purchases of mortgage-backed securities and agency debt by $340 billion by December 31st, 2012. From the FOMC statement:
The Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.
The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year
More astounding is the promise to continue to make MBS purchases until the employment rate is acceptable.
If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.
For those once again thinking they were getting their crack cocaine, quantitative easing, once again they are disappointed.
The FOMC statement showed no change in policy from the Federal Reserve. For the rest of us, the FOMC statement acknowledges our crappy economy.
Information received since the Federal Open Market Committee met in June suggests that economic activity decelerated somewhat over the first half of this year. Growth in employment has been slow in recent months, and the unemployment rate remains elevated. Business fixed investment has continued to advance. Household spending has been rising at a somewhat slower pace than earlier in the year. Despite some further signs of improvement, the housing sector remains depressed. Inflation has declined since earlier this year, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable.
Additionally the Fed doesn't expect things to really improve:
The Federal Reserve will extend their Operation Twist past the June 2012 deadline and downgraded the economic outlook. Originally Operation Twist was $400 billion in Treasuries that were maturity dates of 3 years of less turned into T-bills with maturity dates of 6 to 30 years.
Federal Reserve Chair Ben Bernanke gave testimony before the Joint Economic Committee and the doves fell from the sky. Bernanke cut short Wall Street's addict like demand for more quantitative easing and instead suggested a host of policies to boost hiring and real economic output.
More-rapid gains in economic activity will be required to achieve significant further improvement in labor market conditions.
In fact, Bernanke suggested the next FOMC meeting discussion question will ask: Will there be enough growth going forward to make material progress on the unemployment rate? This is good, Bernanke realizes the #1 threat to the U.S. economy is the jobs crisis.
The Fed Chair also warned on the ongoing sovereign debt crisis in the Eurozone:
A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate-consistent rate of 2 percent over the medium run.
The FOMC has 10 voting members. The news is clear, those in favor or more quantitative easing are now 8 to 2 and if and only if the economy goes further into the tank.
Nevertheless, the staff continued to forecast that real GDP growth would pick up only gradually in 2012 and 2013, supported by accommodative monetary policy, easing credit conditions, and improvements in consumer and business sentiment
We're sure some will hold out hope against hope that more quantitative easing will happen. After all there are two members of the FOMC leaving the door open on more quantitative easing if the unemployment situation gets worse. That said, the next time you see some major investment group claiming QE3 is sure to arrive, check their interests and why that group is making such a claim. Alternatively just read us, we sure knew QE3 was not gonna happen.
The Federal Reserve released the August 9th FOMC meeting minutes and now the world of Wall Street is all ablaze, afire with more quantitative easing dreams and desires.
The FOMC meeting minutes paragraph causing the stir is this:
There is nothing more frightening than when those in charge of the economy miss something that was as plain as the nose on your face. Such was the situation with the Federal Reserve and the subprime mortgage crisis in 2007. The FOMC met on August 7th and claimed there was not enough evidence of a subprime problem.
For those once again thinking they were getting their crack cocaine, 
The Federal Reserve will 
Federal Reserve Chair Ben Bernanke 
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