Wednesday, October 11, 2006

Fed Watching

Fed Watching is a major pastime among macroeconomists. Evaluating monetary policy keeps us safely off the streets. The Federal Reserve Open Market Committee (FOMC) has a lot to worry about these days as usual. The housing market is slowing, yet inflation remains stubbornly high in spite of falling energy prices. No wonder it decided to “pause” (do nothing) after its last several meetings. Today the Fed released the minutes of the September 20 FOMC meeting, where you can see some details behind the Fed’s take on the course of the economy.

“In their discussion of major sectors of the economy, meeting participants focused especially on developments in the housing market. Although the situation varied somewhat across the nation, housing activity was continuing to contract in most regions. Home sales had slowed considerably, and anecdotal reports suggested that more buyers were canceling contracts for purchases. Participants noted that inventories of unsold homes had climbed sharply in many areas and that builders were taking a number of measures to reduce inventories. Both permits for new construction and housing starts had declined significantly. Available measures of home prices suggested that appreciation had slowed considerably but prices in most areas were not falling, although some sellers were reported to be providing various inducements to potential purchasers that reduced effective prices.” (From the Minutes of the Federal Open Market Committee, September 20, 2006)

You are encouraged to try your hand at Fed watching for one of your Discussion Board posts. Read Chapter 12 in your text book, and check out the Fed links under Macro Web Links on Blackboard.

I’ll bet the Fed stays in monetary policy pause at its next FOMC meeting later this month.

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