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FOMC meeting watch: Change in forward guidance expected

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WASHINGTON (9/16/14)--Should the Federal Open Market Committee's (FOMC) quantitative easing program come to an end in October as many predict, the Federal Reserve's monetary-policy making body likely then must decide how it will determine when to raise interest rates from near-zero levels.

Evidence of what will go into that decision could emerge Wednesday when the FOMC concludes a two-day meeting and releases its always-anticipated policy statement.

Some economists believe at the end of the meeting the Federal Reserve will announce an alteration to the forward guidance that will shape that decision, often referred to as its "exit strategy."

But as mere statements about monetary policy from the Fed can shake up markets dramatically, there's no guaranteeing what the FOMC will release, Paul Ashworth, Capital Economics chief North American economist, told Forbes.com .

"Whether or not the forward-looking guidance will be tweaked at this upcoming meeting, is nevertheless, still up in the air," Ashworth said. "It is possible that officials can't reach an agreement on the exact wording. With the first rate hike still at least six months away, a decision doesn't need to be taken immediately."

The Fed has maintained that it plans to keep interest rates pinned down long after the asset-purchase program expires, especially if "projected inflation continues to run below the committee's 2% longer-run goal, and provided that longer-term inflation expectations remain well anchored" ( MarketWatch Sept. 15).

If that language is removed from the policy statement this week, however, that could signal a hastening of when the FOMC plans to raise those rates from mid- to late 2015 to perhaps March of next year, according to some.

"We expect the Fed will begin to set the stage (this) week by signaling that its zero-bound interest rates policy will soon be history," Bernard Baumohl, chief global economist at The Economic Outlook Group, told MarketWatch .

Buoyed by autos, Aug. retail sales surge

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WASHINGTON (9/15/14)--Retail sales climbed rapidly in August, with the majority of the gain driven by auto sales, according to numbers from the Commerce Department Friday.

Total sales ramped up 0.6%, which is the fastest pace since April, though that number falls to 0.3% when excluding auto sales, which jumped 1.5% for the month, the largest increase since March (Economy.com Sept. 12).

In addition to autos, the uptick in retail sales was fueled by miscellaneous retailers and building supply stores, while department stores and gas stations experienced declines for the month.

Excluding automobiles, overall retail sales, which account for one-third of consumer spending, has climbed 4.1% higher since this time last year.

"The August retail sales report posted a much more positive picture of sales growth than the previous one," said Scott Hoyt, Moody's analyst (Economy.com Sept. 12). "Not only did sales rise at a healthy pace, with non-auto sales exceeding expectations, but material upward revisions to June and July removed the slowing trend from the data."

Upward revisions from previous months were widespread, including in department stores, sporting goods and hobby stores, auto dealers, nonstore retailers and apparel stores.

In August, auto dealers, drugstores, restaurants and nonstore retailers led the increase in growth, while department stores and gas stations posted sales below their year-ago levels.

MBA survey: Weekly mortgage apps plummet 7.2%

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WASHINGTON (9/12/14)--Even accounting for the Labor Day holiday, mortgage applications stumbled this week, sinking by 7.2%, according to data from the Mortgage Bankers Association's weekly mortgage application survey ( Economy.com Sept. 10).

Refinance applications fueled the drop with a 10.7% retreat for the week, while purchase applications fell by 2.6%.

On a four-week moving average, refinance activity has gained 0.5% over the past month, but still sits 25% lower than this time last year. Refinance applications currently constitute about 55% of all applications.

Purchase activity, meanwhile, has declined 1.3% over the last month and falls 11.6% below year-ago levels.

With these latest readings, the overall mortgage application gauge has hit its lowest level since 2000.

"There appears to be little impetus for purchase activity to noticeably improve over the next few months, given that most Americans are just doing OK, but not great," said Gregory Bird, Moody's analyst ( Economy.com ).

Mortgage rates also continue to hover near their record-low post-recession levels.

The 30-year fixed-rate conforming mortgage rate climbed 2 basis points to 4.27% for the week, which is 8 points below the rate seen four weeks ago and 53 points below levels this time last year.

Five-year adjustable-rate mortgage rates fell by 7 basis points down to 3.12%, which is 47 basis points lower year-over-year.

News of the Competition (09/11/2014)

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  • NEW YORK  (9/11/14)-- A federal judge dismissed a lawsuit by the New York Bankers Association (NYBA) that sought to block enforcement of a 2012 New York City law designed to ensure that banks holding the city's deposits document how well they meet the needs of low- and moderate-income neighborhoods. In a 33-page decision, U.S. District Judge Katherine Polk Failla said the bankers group had lacked standing to bring its October 2013 lawsuit because former Mayor Michael Bloomberg was refusing to enforce the law at the time, giving it "dead-letter" status. The bankers association said the law gave the city illegal power to regulate banks and conflicted with federal and state law ( Reuters Sept. 10). The law mandated the formation of a new Community Investment Advisory Board to evaluate investments made by banks that hold the city's deposits in low-income communities. Banks would be required to document services they provide in such communities, including affordable housing and loans. The bankers association argued that the city law conflicted with state and federal requirements and that its members could potentially "lose the ability to be a depository for some of the city's more than $6 billion in deposits," Reuters reported ...

Labor market concerns homebuyers most: Fannie Mae

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WASHINGTON (9/11/14)--U.S. citizens don't expect big things from the housing market this year, according to a recent survey by Fannie Mae, with the overall labor market and a lack of personal income growth fueling the tepid expectations ( CNBC.com Sept. 8).

The share of consumers who believe it's a good time to buy a home dropped for the second straight month, according to the survey.

Only 64% of those surveyed believe now is a good time to buy, tied for an all-time low.

"The August National Housing Survey results lend support to our forecast that 2015 will likely not be a breakout year for housing," Doug Duncan, Fannie Mae senior vice president/chief economist, told CNBC. com.

"The deterioration in consumer attitudes about the current home-buying environment reflects a shift away from record home-purchase affordability without momentum in consumer personal financial sentiment to compensate for it," Duncan added.

Home sellers also appear less optimistic.

Home-price appreciation has slowed considerably in 2014, according to recent market data, perhaps contributing to the fact that only 38% of those polled said now is a good time to sell a home.

This all despite mortgage rates still hovering near record lows.

"The drivers of the flattening have been continued rent growth, a slowdown in home-price growth and some easing in rates," analysts from Deutsche Bank said ( CNBC.com ).

Small business optimism continues rebound in Aug.

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WASHINGTON (9/10/14)--Small-business confidence climbed to its second-highest point since 2007, the National Federation of Independent Businesses (NFIB) reported in its monthly survey Tuesday.

Rising by 0.4 to 96.1, the reading is the second straight monthly gain since June's 1.6-point drop ( Economy.com Sept. 9).

Further, Newtek Business Services Inc. reported this week it has seen increasing levels of economic output from small businesses, citing that its Small Business Authority index has risen nearly 7% year-over-year. Newtek is a CUNA Strategic Services alliance provider.

"The small business economy seems to be picking up a little bit of steam, despite a lack of robust growth in new employment hires," said Barry Sloane, Newtek president/CEO and chairman. "The low-interest rate environment continues to make the financing market for equity and debt fertile, as well as encourages consumers to spend instead of save."

Only 3% of small-business owners said they believed the economy would worsen in the next six months in August, a drop from the 6% who felt that way in July, according to the NFIB survey. 

A net 10% of small businesses said they plan to hire new workers in the next three to six months, slightly down from July. But 22% said they have upped employee compensation, just shy of a post-recession high, Moody's said.

A net 15% reported plans to raise compensation further over the next few months as well.

"Pay raises have been conspicuously absent thus far in the recovery as slack was wound up in the labor market," said Nate Kelley, Moody's analyst ( Economy.com ). "Not only would higher pay add some much-needed fuel to the consumer spending engine that drives economic growth, but it would also draw workers back into the job market."

Auto loans buoy July consumer credit numbers

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WASHINGTON (9/9/14)--In line with national trends, consumer credit at credit unions rose substantially in July, climbing $5.4 billion overall, according to the Federal Reserve's monthly consumer credit report, released Monday.

Largely driven by auto and student loans, nonrevolving credit, which encompasses big ticket items such as cars and homes, increased by $5 billion, while revolving credit, or credit cards, rose by about $400 million.

"Consumers appear to be growing less reluctant to take on credit card debt as confidence rallies with a healing job market," said Andrew Davis, Moody's analyst (Economy.com Sept. 8). "After seesawing through much of the recovery, revolving loan balances have now advanced for five consecutive months, the longest streak since prior to the Great Recession."

Overall at U.S. financial institutions, consumer credit balances jumped by $26 billion, noticeably higher than the $18.8 billion climb in June.

Revolving credit balances rose by $5.4 billion in July nationally, well above the $3.2 billion average gain over the past three months, according to Moody's.

Nonrevolving credit, which hasn't fallen since August 2011, swelled by $20.6 billion. Year-over-year, nonrevolving consumer credit was 8.5% higher in July.

"The release of pent-up vehicle demand is benefiting nonrevolving balance growth," Davis said. "Vehicle sales have held above 16 million units SAAR since April and hit their fastest pace since early 2006 in August."