The Post-FOMC Post Mortem: QE not so Mortem 2013 Gulf Power Economic Symposium Sandestin, FL September 30, 2013

… the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. FOMC statement; September Shock, if not awe.

“… our policy decision had two main elements. First, the Committee decided to continue purchasing additional agency mortgage-backed securities… and longer- term Treasury securities… Chairman Ben Bernanke March 20, 2013

“Second, the Committee kept the target for the federal funds rate at 0 to ¼ percent... we anticipate that this exceptionally low range for the funds rate will be appropriate at least as long as the unemployment rate remains above 6½ percent… Chairman Ben Bernanke March 20, 2013

“If the incoming data are broadly consistent with [our] forecast, the Committee anticipates that it would be appropriate to moderate the monthly pace of purchases later this year…” Chairman Ben Bernanke June 19, 2013

“We have a three-part baseline projection which involves increasing growth…, continuing gains in the labor market, and inflation moving back towards objective… we’ll be looking to see if the data confirm that basic outlook.” Chairman Ben Bernanke September 18, 2013

“We have a three-part baseline projection which involves increasing growth…, continuing gains in the labor market, and inflation moving back towards objective… we’ll be looking to see if the data confirm that basic outlook.” Chairman Ben Bernanke September 18, 2013

month average Monthly change Payroll Employment Changes seasonally adjusted, thousands of jobs Source: Bureau of Labor Statistics data through August While the longer-term average of monthly employment growth continued near its two-year trend….

Source: Bureau of Labor Statistics, author’s calculations data through August … job growth over the summer was a substantial step down from the pace earlier in the year. Increasing momentum Decreasing momentum

11 Additionally, the revisions to initial employment reports have been persistently negative.

“We have a three-part baseline projection which involves increasing growth…, continuing gains in the labor market, and inflation moving back towards objective… we’ll be looking to see if the data confirm that basic outlook.” Chairman Ben Bernanke September 18, 2013

13 Source: Bureau of Economic Analysis Real GDP 2013: H1 Q1 actualQ2 actual Annualized Real GDP Growth The U.S. economy grew by a bit less than 2% over the first half of this year.

14 Source: Bureau of Economic Analysis, Macroeconomic Advisers, FRB Atlanta 2013:H1 and 3 rd Quarter Tracking Forecasts (Sept. 27th) Real GDP Component Tracking Estimate and Forecast Q1 actualQ2 actual FRB Atlanta Tracking Model ForecastMA Forecast Annualized Real GDP Growth Recent tracking estimates for real GDP suggest the third quarter will look like the first half.

15 The FOMC Summary of Economic Projections: A downward revision

“We have a three-part baseline projection which involves increasing growth…, continuing gains in the labor market, and inflation moving back towards objective… we’ll be looking to see if the data confirm that basic outlook.” Chairman Ben Bernanke September 18, 2013

Sources: Bureau of Labor Statistics; Federal Reserve Bank of Dallas (annualized % change) Overall PCE Core PCE Trimmed -mean PCE August Past 3 months Past 6 months Past 12 months FOMC’s longer-term inflation objective Though the August price report was encouraging, inflation remains well short of 2%. 17

In summary, then: Inflation looks low relative to the objective. GDP growth has disappointed. Continued labor market improvement is a little shaky at the moment. Will QE go on forever?

“… the Committee tied its asset purchases to the outlook for the labor market… conditions in job market today are still far from what all of us would like to see. Nevertheless, meaningful progress has been made in the year since we announced the asset purchase program.” Chairman Ben Bernanke September 18, 2013

Meaningful progress: Missing the forecast in a good way. 20 Sources: Bureau of Labor Statistics; Blue Chip Economic Indicators, September 10, 2012 and August 10, 2013 actual data through Q2 2013; forecast data through Q4 2014

Source: Bloomberg 21 Index June FOMC May FOMC Is policy effective? A case can be made.

22 Payroll Vacancies (JOLTS)* Hires (JOLTS)* NFIB Hiring Plans Conference Board Job Availability Quits (JOLTS)* Unemployed Marginally attached workers Job finding rate Work part time for economic reasons Initial claims Difficult to fill (NFIB) Temporary help services employment Leading Indicators Employer Behavior Confidence Utilization *June 2013 – Aug 2013 value is May July 2013 Sources: U.S. Bureau of Labor Statistics, U.S. Department of Labor, National Federation of Independent Business, and The Conference Board Far from what we would like it to be? The Atlanta Fed spider chart.

23 Payroll Vacancies (JOLTS)* Hires (JOLTS)* NFIB Hiring Plans Conference Board Job Availability Quits (JOLTS)* Unemployed Marginally attached workers Job finding rate Work part time for economic reasons Initial claims Difficult to fill (NFIB) Temporary help services employment Leading Indicators Employer Behavior Confidence Utilization *June 2013 – Aug 2013 value is May July 2013 Sources: U.S. Bureau of Labor Statistics, U.S. Department of Labor, National Federation of Independent Business, and The Conference Board Far from what we would like it to be? The Atlanta Fed spider chart.

24 Payroll Vacancies (JOLTS)* Hires (JOLTS)* NFIB Hiring Plans Conference Board Job Availability Quits (JOLTS)* Unemployed Marginally attached workers Job finding rate Work part time for economic reasons Initial claims Difficult to fill (NFIB) Temporary help services employment Leading Indicators Employer Behavior Confidence Utilization *June 2013 – Aug 2013 value is May July 2013 Sources: U.S. Bureau of Labor Statistics, U.S. Department of Labor, National Federation of Independent Business, and The Conference Board 25% 50% 75% Far from what we would like it to be? The Atlanta Fed spider chart.

25 Payroll Vacancies (JOLTS)* Hires (JOLTS)* NFIB Hiring Plans Conference Board Job Availability Quits (JOLTS)* Unemployed Marginally attached workers Job finding rate Work part time for economic reasons Initial claims Difficult to fill (NFIB) Temporary help services employment Leading Indicators Employer Behavior Confidence Utilization *June 2013 – Aug 2013 value is May July 2013 Sources: U.S. Bureau of Labor Statistics, U.S. Department of Labor, National Federation of Independent Business, and The Conference Board Few labor market indicators have returned to pre-recession levels…

26 Payroll Vacancies (JOLTS)* Hires (JOLTS)* NFIB Hiring Plans Conference Board Job Availability Quits (JOLTS)* Unemployed Marginally attached workers Job finding rate Work part time for economic reasons Initial claims Difficult to fill (NFIB) Temporary help services employment Leading Indicators Employer Behavior Confidence Utilization *June 2013 – Aug 2013 value is May July 2013 Sources: U.S. Bureau of Labor Statistics, U.S. Department of Labor, National Federation of Independent Business, and The Conference Board … though in most cases things have improved since last summer.

The Post-FOMC Post Mortem: QE not so Mortem