Download Agriculture and the Chicago Fed

Economic Outlook
March 20, 2014
Bloomington, Illinois
David Oppedahl
Senior Business Economist
312-322-6122
[email protected]
Federal Reserve System
Board of Governors of the
Federal Reserve System
1
?
Janet L. Yellen
Vacant
Chair
Vice Chair
3
4
Daniel K. Tarullo
Jeremy Stein
5
6
Jerome Powell Sarah Bloom Raskin
?
Vacant
Goals of Monetary Policy
• Price stability -- low and stable inflation
• Economic growth
• Low unemployment
• Moderate interest rates
The “Great Recession” ended in June 2009 and
the economy grew by 2.5% in 2013
Real gross domestic product
percent
8
Quarterly change (saar)
6
4
2
0
-2
-4
Percent change from a year earlier
-6
-8
-10
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
Chicago Fed National Activity Index
shows hesitant growth since 2009
2
(standard deviation from trend growth,
Above
Trend
Growth
3-month moving average)
1
0
-1
Below
Trend
Growth
-2
-3
-4
-5
1999
'01
'03
'05
'07
'09
'11
'13
In December 2008, the FOMC lowered
the Fed Funds rate target to a range up to 0.25%
7
Federal Funds Rate (effective),
Yields in percent per annum
6
5
4
3
2
1
0
1999
'01
'03
'05
'07
'09
'11
'13
Credit spreads between Corporate High Yield securities
and Corporate Aaa securities have been edging lower
Credit spreads between Corporate High Yield and Corporate Aaa
percent
18
16
14
12
10
8
6
4
2
0
2007
2008
2009
2010
2011
2012
2013
2014
Quantitative easing was necessary
Assets of the Federal Reserve
Billions of dollars
4,000
3,500
3,000
Maiden Lane II & III
2,500
2,000
Term Asset-Backed Securities
Loan Facility
AIG Support
Central Bank Swaps
1,500
Commercial Paper Facility
1,000 Maiden Lane
Securities Held Outright
Term Auction Credit
500
0
2007
2008
2009
2010
2011
2012
2013
Food price increases smaller than core
inflation (less food and energy)
(Consumer price index, percent change from year ago)
8
6
4
2
0
-2
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
CPI LFE
CPI Food
Oil prices are still high,
yet remain below peaks
Real West Texas Intermediate oil price
dollars per barrel, 2013 dollars
160
140
120
100
80
60
40
20
0
1970
'75
'80
'85
'90
'95
'00
'05
'10
Real natural gas prices higher but remain low
Real natural gas price
dollars per mmbtu, 2013 dollars
16
14
12
10
8
6
4
2
0
1994 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Even including the volatile food and energy
components, inflation remains contained
Consumer price index
percent
8
Percent change from a year earlier
6
4
2
0
Q4-2013
-2
-4
Blue Chip CPI Forecast
-6
-8
Actual
2013
1.2
Quarterly change (saar)
Forecast
2014 2015
1.9
2.1
-10
2000 '01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
Employment fell by over 8.7 million jobs
between December 2007 and February 2010,
but has added over 8 million jobs since then
Total employment
percent
6
4
2
0
-2
-4
Percent change from a year earlier
-6
-8
Monthly change (saar)
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
After peaking in October 2009,
the unemployment rate has fallen by
3.3 percentage points
Unemployment rate
percent
11
10
9
8
7
6
5
4
3
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
The unemployment rate is forecast to edge lower
Unemployment rate
percent
Blue Chip Forecast
10
Q4-2013
8
6
4
2
0
2000 '01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
The path of this recovery has been below past deep
recession recovery cycles
Business cycle recovery path
index - business cycle trough = 100
124
122
120
118
116
114
112
110
108
106
104
102
100
98
1981-82
average annualized growth: 5.4%
average annualized growth: 5.3%
1974-75
average annualized growth: 2.4%
2008-09
-8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
quarters before trough
quarters after trough
Growth in real GDP boosted by inventories in 2013
Contributions to real GDP growth in 2013
percentage points
3
2.5
2
1.5
0.8
1
0.4
0.2
0.2
0
-0.5
-1
GDP
Consumption
Business
Residential Change in Government Net Exports
Fixed
Investment Inventories
Investment
Gross Domestic Product is forecast to grow
above trend in 2014 and 2015
Real gross domestic product
Blue Chip GDP Forecast
percent
Actual
2013
2.5
8
6
Forecast
2014 2015
2.7
3.0
4
2
0
-2
Q4-2013
Percent change from a year earlier
-4
-6
-8
Quarterly change (saar)
-10
2000 '01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
The stock market has improved since March 2009,
exceeding previous peak
Real S&P 500 stock index
Index: 1990 = 100
350
300
250
200
150
100
50
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Existing home prices fell hard and are up from their low
Real Median sales price - existing single family home
3-month smoothed (2013 dollars)
$275,000
$250,000
$225,000
$200,000
$175,000
$150,000
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
Housing market tanked and moving up from bottom
Housing starts
Home mortgage rate
(millions of units, 3-month moving average, SAAR)
(percent, effective rate for all loans closed)
2.5
9
8
2.0
7
6
1.5
5
1.0
4
0.5
1999
'01
'03
'05
'07
'09
'11
'13
3
1999
'01
'03
'05
'07
'09
'11
'13
Manufacturing is looking up;
orders for capital goods picking up
ISM purchasing managers index
Nondefense capital goods ex. aircraft
(net percent reporting increase)
(orders in millions of dollars, 3-month moving average)
65
70
60
65
55
60
50
45
55
40
50
35
30
1999
'01
'03
'05
'07
'09
'11
'13
45
1999
'01
'03
'05
'07
'09
'11
'13
The dollar’s exchange value peaked in
2002, before falling below earlier range
(Real Broad Trade-Weighted Exchange Value of the US$)
{March 1973=100}
120
110
100
90
80
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
U.S. trade exceeded earlier peaks
(billions of dollars, SA)
250
200
150
100
50
0
1992
1995
1998
2001
Exports
2004
2007
Imports
2010
2013
Value of agricultural exports expected to rise in 2014
160
2014*
140
billion $
120
Exports
100
80
Imports
60
40
20
Surplus
0
FY1970 1975 1980 1985 1990 1995 2000 2005 2010
(*USDA projection)
U.S. Net Farm Income
(billion dollars, 2009 $ for inflation adjustment)
150
Real
100
2014*
50
Nominal
0
1929
1939
1949
1959
1969
1979
1989
1999
2009
*USDA forecast
Annual change in farmland values in
Seventh Federal Reserve District
30
Percent
20
10
0
-10
-20
-30
1970
1975
1980
1985
1990
1995
2000
2005
2010
Year over year changes by quarter in farmland
values in the Seventh Federal Reserve District
30
25
Percent
20
15
10
5
0
-5
1996
1998
2000 2002
2004
2006
2008
2010
2012
Farmland Value Indexes
for Seventh District States
(1981=100)
500
Indiana
400
Wisconsin
Illinois
300
200
Iowa
100
0
1980
1984
1988
1992
1996
2000
2004
2008
2012
Interest rates charged on new farm loans in the
Seventh Federal Reserve District
20
percent
15
Farm operating
10
Farm real estate
5
0
1980
1984
1988
1992
1996
2000
2004
2008
2012
Index of agricultural loan demand for the Seventh
Federal Reserve District (excluding real estate)
140
120
100
80
60
40
1980
1984
1988
1992
1996
2000
2004
2008
2012
Balancing Aggregate Demand And Supply
• Lower interest rates increase aggregate demand
– Relevant rates are long-run real interest rates facing
households and businesses
• Long-run private-sector real interest rates =
expected average short-term nominal rate
minus expected average inflation rate
plus risk premia (duration, credit, inflation uncertainty)
• Two prongs to Fed actions in 2012
– Asset purchases to shrink term premia
– Forward guidance to lower expected short-term rates
Recent Monetary Policy Actions
• Tapering of asset purchases began in December 2013
• Monthly reductions of $10 billion in asset purchases
• Step 1: $35 billion MBS and $40 billion Treasuries
• Step 2: $30 billion MBS and $35 billion Treasuries
• Additional reductions in ongoing purchases, but “asset
purchases are not on a preset course”
The liabilities on the Fed’s balance sheet
include a large amount of excess reserves
Liabilities of the Federal Reserve
Billions of dollars
4,000
3,500
3,000
Treasury Balance
2,500
2,000
Deposits of Depository Institutions
1,500
1,000
Currency in Circulation
500
0
2007
2008
2009
2010
2011
2012
2013
The money supply (M2) is nearly 4 times
bigger than the monetary base
The Fed’s expansion of the monetary base
has allowed the money supply to continue rising,
compared with what took place during the 1930s
The FOMC forecasts that the unemployment rate
will approach the natural rate towards the end of 2016
Unemployment rate
percent
11
10
9
8
7
FOMC Central Tendency (December 2013)
2014
2015
2016
6.3 – 6.6
5.8 – 6.1
5.3 – 5.8
Longer run
5.2 – 5.8
FOMC
6
5
4
3
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16
The FOMC expects GDP to grow somewhat
above trend over the next three years
Real gross domestic product
percent change from a year earlier
6
5
4
3
2
1
0
-1
-2
-3
-4
-5
FOMC
FOMC Central Tendency (December 2013)
2014
2015
2016
2.8 – 3.2
3.0 – 3.4
2.5 – 3.2
Longer run
2.2 – 2.4
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16
The Federal Funds Rate is anticipated to remain
low over the forecast horizon
Target Federal Funds Rate
percent
9
8
7
6
5
4
3
2
FOMC
1
0
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16
Summary
•The outlook is for the U.S. economy to expand at a
pace somewhat above trend in 2014
•Employment is expected to rise moderately with the
unemployment rate edging lower
•Slackness in the economy will lead to a relatively
contained inflation rate
•Growth in manufacturing output should continue
•Housing has turned the corner, but still has far to go
•Agriculture has been healthy, but faces volatility
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