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Minutes of the Federal Open Market Committee, April 30-May 1, 2013
Minutes of the Federal Open Market Committee, April 30-May 1, 2013
Source: Federal Reserve Board
The Federal Reserve Board and the Federal Open Market Committee on Wednesday released the attached minutes of the Committee meeting held on April 30-May 1, 2013.
The minutes for each regularly scheduled meeting of the Committee ordinarily are made available three weeks after the day of the policy decision and subsequently are published in the Board’s Annual Report. The descriptions of economic and financial conditions contained in these minutes are based solely on the information that was available to the Committee at the time of the meeting.
The Geography of Student Debt
Source: Federal Reserve Bank of New York
This morning, the New York Fed released its Quarterly Report on Household Debt and Credit for 2013 Q1. The report uses the FRBNY Consumer Credit Panel to show that outstanding household debt declined approximately $110 billion (about 1 percent) from the previous quarter. The drop was due in large part to a reduction in housing-related debt and credit card balances. Meanwhile, delinquency rates for each form of consumer debt declined, with the overall ninety-plus day delinquency rate dropping from 6.3 percent to 6.0 percent.
One of the unique aspects of the FRBNY Consumer Credit Panel, which is itself based on Equifax credit data, is the detail we obtain for each kind of household debt. This quarter, we have taken advantage of the geographic information available in the data set and are introducing a set of maps of our student loan data, which indicate regional variation in several dimensions of student debt. They depict:
- Student loan borrowers as a share of the population. The population with active student loan debts, or “SL borrowers,” as a share of the population with a credit record varies substantially over space. For example, in Hawaii, less than 12 percent of people with a credit report have student debt, while in the District of Columbia over 25 percent do.
- Student loan balances per SL borrower. Student indebtedness is significant for SL borrowers in virtually all states. Educational indebtedness per SL borrower ranges from a low of just under $21,000 in Wyoming to a high of over $28,000 in Maryland. Again, Washington, D.C., stands out: the average SL borrower there owes over $40,000. In general, we find SL-borrower debt levels are highest in California and along the Atlantic and Gulf coasts.
- Percent of balance ninety-plus days delinquent. Delinquency rates show a distinct regional pattern, with states in the south and southwest having generally higher rates than those in the north. The lowest delinquency rate is South Dakota, at just over 6.5 percent, while the highest is in West Virginia, at nearly 18 percent.
Student loan indebtedness and delinquency continue to generate intense interest and we look forward to sharing data and perspectives that help define the scope of this important issue.
New From the GAO
New GAO Reports and Testimonies
Source: Government Accountability Office
Reports
1. Bureau of the Public Debt: Areas for Improvement in Information Systems Controls. GAO-13-416R, May 9.
http://www.gao.gov/products/GAO-13-416R
2. Federal Reserve Banks: Areas for Improvement in Information Systems Controls. GAO-13-419R, May 9.
http://www.gao.gov/products/GAO-13-419R
3. Preliminary Results of Work on FAA Facility Conditions and Workplace Safety. GAO-13-509R, May 9.
http://www.gao.gov/products/GAO-13-509R
Testimonies
1. Transportation Worker Identification Credential: Card Reader Pilot Results Are Unreliable; Security Benefits Should Be Reassessed, by Stephen M. Lord, director, homeland security and justice, before the Subcommittee on Government Operations, House Committee on Oversight and Government Reform. GAO-13-610T, May 9.
http://www.gao.gov/products/GAO-13-610T
2. Federal Retirement Processing: OPM Is Pursuing Incremental Information Technology Improvements after Canceling a Modernization Plagued by Management Weaknesses, by Valerie C. Melvin, director, information management and technology resource issues. GAO-13-580T, May 9.
http://www.gao.gov/products/GAO-13-580T
Highlights – http://www.gao.gov/assets/660/654450.pdf
3. Missile Defense: Opportunity to Refocus on Strengthening Acquisition Management, by Cristina T. Chaplain, director, acquisition and sourcing management, before the Subcommittee on Strategic Forces, Senate Committee on Armed Services. GAO-13-604T, May 9.
http://www.gao.gov/products/GAO-13-604T
Highlights – http://www.gao.gov/assets/660/654457.pdf
Young Student Loan Borrowers Retreat from Housing and Auto Markets
Young Student Loan Borrowers Retreat from Housing and Auto Markets
Source: Federal Reserve Bank of New York
Student loans have soared in popularity over the past decade, with the aggregate student loan balance, as measured in the FRBNY Consumer Credit Panel, reaching $966 billion at the end of 2012. Student debt now exceeds aggregate auto loan, credit card, and home-equity debt balances—making student loans the second largest debt of U.S. households, following mortgages. Student loans provide critical access to schooling, given the challenge presented by increasing costs of higher education and rising returns to a degree. Nevertheless, some have questioned how taking on extensive debt early in life has affected young workers’ post-schooling economic activity.
To address this issue, we examine trends in homeownership, auto debt, and total borrowing at standard ages of entry into the housing and vehicle markets for U.S. workers.
As seen in the chart below, the share of twenty-five-year-olds with student debt has increased from just 25 percent in 2003 to 43 percent in 2012. Further, the average student loan balance among those twenty-five-year-olds with student debt grew by 91 percent over the period, from $10,649 in 2003 to $20,326 in 2012. Student loan delinquencies have also been growing…
Federal Reserve issues FOMC statement (March 20, 2013)
Federal Reserve issues FOMC statement
Source: Federal Reserve Board
Information received since the Federal Open Market Committee met in January suggests a return to moderate economic growth following a pause late last year. Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy has become somewhat more restrictive. Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee continues to see downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, 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. The Committee 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 and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
Monetary Policy Report to Congress
Monetary Policy Report to Congress
Source: Federal Reserve Board
The Federal Reserve Act requires the Federal Reserve Board to submit written reports to Congress containing discussions of "the conduct of monetary policy and economic developments and prospects for the future." This report–called the Monetart Policy Report to the Congress–is submitted semiannually to the Senate Committee on Banking, Housing, and Urban Affairs and to the House Committee on Banking and Financial Services, along with testimony from the Federal Reserve Board Chairman.
Beige Book – March 6, 2013
Beige Book – March 6, 2013
Source: Federal Reserve Board
Reports from the twelve Federal Reserve Districts indicated that economic activity generally expanded at a modest to moderate pace since the previous Beige Book. Five Districts reported that economic growth was moderate in January and early February, and five Districts reported that activity expanded at a modest pace. The Boston District said the economy continued to expand slowly, and the Chicago District reported that economic activity grew at a slow pace.
Most Districts reported expansion in consumer spending, although retail sales slowed in several Districts. Automobile sales were strong or solid most Districts, and tourism strengthened in a number of Districts. The demand for services was generally positive across Districts, most notably for technology and logistics firms. Transportation services activity was mixed among Districts, although the majority of contacts were optimistic about future activity. Manufacturing modestly improved in most regions, with several Districts reporting strong demand from the auto, food, and residential construction industries. Residential real estate markets strengthened in nearly all Districts and home prices rose amid falling inventories across much of the country. Commercial real estate activity was mixed or improved slightly in most Districts, and financing for commercial development remained widely available. Overall loan demand was stable or slightly higher across nearly all Districts, and several bankers noted stiff competition for qualified borrowers. Agricultural conditions varied across the country, with some areas continuing to suffer from drought while others reported considerable precipitation and improved soil moisture levels. Districts reporting on energy activity indicated modest expansions in crude oil and natural gas exploration, while mining activity slowed.
Price pressures remained modest, with the exception of increases in prices for certain raw materials and slightly higher retail prices in several Districts. Even with some input costs rising, most District contacts did not plan to increase selling prices. The majority of Districts reported modest improvements in labor market conditions, although hiring plans were limited in several Districts. Wage pressures were mostly limited, but some contacts reported upward pressure for skilled positions in certain industries due to worker shortages.
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Minutes of the Federal Open Market Committee, January 29-30, 2013 (released 2/20/13)
Minutes of the Federal Open Market Committee, January 29-30, 2013
Source: Federal Reserve Board
The Federal Reserve Board and the Federal Open Market Committee on Wednesday released the attached minutes of the Committee meeting held on January 29-30, 2013.
The minutes for each regularly scheduled meeting of the Committee ordinarily are made available three weeks after the day of the policy decision and subsequently are published in the Board’s Annual Report. The descriptions of economic and financial conditions contained in these minutes are based solely on the information that was available to the Committee at the time of the meeting.
A Decade of Hard Times in Places that Rely on Manufacturing Employment
A Decade of Hard Times in Places that Rely on Manufacturing Employment
Source: Federal Reserve Bank of Cleveland
While the fraction of people employed in the manufacturing sector has declined greatly in the United States over time, manufacturing still makes up a large fraction of employment in some parts of the country. One way to see this is by looking at how the share of manufacturing employment is distributed across counties. The right tail of the distribution shows a set of counties where manufacturing makes up a much higher share of employment than the average for the country (which is 11 percent).
The U.S. Housing Market: Current Conditions and Policy Considerations
The U.S. Housing Market: Current Conditions and Policy Considerations (PDF)
Source: Federal Reserve Board
The ongoing problems in the U.S. housing market continue to impede the economic recovery. House prices have fallen an average of about 33 percent from their 2006 peak, resulting in about $7 trillion in household wealth losses and an associated ratcheting down of aggregate consumption. At the same time, an unprecedented number of households have lost, or are on the verge of losing, their homes. The extraordinary problems plaguing the housing market reflect in part the effect of weak demand due to high unemployment and heightened uncertainty. But the problems also reflect three key forces originating from within the housing market itself: a persistent excess supply of vacant homes on the market, many of which stem from foreclosures; a marked and potentially long-term downshift in the supply of mortgage credit; and the costs that an often unwieldy and inefficient foreclosure process imposes on homeowners, lenders, and communities.
Looking forward, continued weakness in the housing market poses a significant barrier to a more vigorous economic recovery. Of course, some of the weakness is related to poor labor market conditions, which will take time to be resolved. At the same time, there is scope for policymakers to take action along three dimensions that could ease some of the pressures afflicting the housing market. In particular, policies could be considered that would help moderate the inflow of properties into the large inventory of unsold homes, remove some of the obstacles preventing creditworthy borrowers from accessing mortgage credit, and limit the number of homeowners who find themselves pushed into an inefficient and overburdened foreclosure pipeline. Some steps already being taken or proposed in these areas will be discussed below.
Taking these issues in turn, the large inventory of foreclosed or surrendered properties is contributing to excess supply in the for-sale market, placing downward pressure on house prices and exacerbating the loss in aggregate housing wealth. At the same time, rental markets are strengthening in some areas of the country, reflecting in part a decline in the homeownership rate. Reducing some of the barriers to converting foreclosed properties to rental units will help redeploy the existing stock of houses in a more efficient way. Such conversions might also increase lenders’ eventual recoveries on foreclosed and surrendered properties.
Obstacles limiting access to mortgage credit even among creditworthy borrowers contribute to weakness in housing demand, and barriers to refinancing blunt the transmission of monetary policy to the household sector. Further attention to easing some of these obstacles could contribute to the gradual recovery in housing markets and thus help speed the overall economic recovery.
Finally, foreclosures inflict economic damage beyond the personal suffering and dislocation that accompany them. [note: 1] This paper does not address the important issues surrounding whether lenders and servicers have appropriately carried out their roles in foreclosures. In April 2011, the Federal Reserve, along with the other federal banking agencies, announced formal enforcement actions requiring many large banking organizations to address a pattern of misconduct and negligence related to deficient practices in residential mortgage loan servicing and foreclosure processing. These deficiencies represented significant and pervasive compliance failures and unsafe and unsound practices at these institutions.
Federal Reserve Board — Beige Book – January 16, 2013
Source: Federal Reserve Board
Reports from the twelve Federal Reserve Districts indicated that economic activity has expanded since the previous Beige Book report, with all twelve Districts characterizing the pace of growth as either modest or moderate. Since the previous Beige Book, activity in the New York and Philadelphia Districts rebounded from the immediate impacts of Hurricane Sandy. Growth in the Boston, Richmond, and Atlanta Districts appears to have increased slightly, while the St. Louis District reports some slowing.
All twelve districts reported some growth in consumer spending. Overall, holiday sales were reported as being modestly higher than in 2011, though sales were below expectations for contacts in many of the Districts. Auto sales were reported as steady or stronger in ten Districts. Citing concerns that consumers will spend cautiously due to ongoing fiscal uncertainty, retail contacts and auto dealers reported a slightly dimmer, though positive, outlook for future sales. Tourism activity was reported to have increased across much of the nation due to strong business and international travel, early snowfall in some ski areas, and a rebound in areas disrupted by Hurricane Sandy.
Activity among nonfinancial service sectors improved overall. Firms within the six Districts reporting on transportation services generally noted increased volumes. Manufacturing was mixed overall since the previous Beige Book; six Districts reported an expansion of activity and three reported a decrease. Among Districts reporting on their firms’ near-term expectations, the manufacturing outlook remained generally optimistic; however, capital spending plans were less uniformly positive.
Since the previous Beige Book, real estate activity has expanded or held steady in eleven Districts for existing home sales and leasing; eight Districts for residential construction; eleven Districts for nonresidential sales and leasing; and nine Districts for nonresidential construction. Overall loan demand was steady in five Districts, rose in four, and fell in one. Credit standards were largely unchanged, except in two Districts where there were some signs of loosening. Six Districts reported improving credit quality and/or falling delinquency rates.
Although rain partially eased drought conditions for some agricultural regions in three Districts, reports of agricultural activity remained mixed. Districts reported that energy and mining sector activity was steady at high levels for most energy-related products but significantly weaker in coal production and coal-related investments.
Trends in wages, prices, and employment conditions were relatively unchanged in the Federal Reserve Districts. Input price pressures were reported to be steady overall with mixed reports for specific commodity prices in various Districts. Employment conditions were also little changed since the last report. However, hiring plans were more cautious for firms doing business in Europe or in the defense sector. Wage pressures were stable in all twelve Districts, though several Districts cited greater pressures for firms that reported difficulties finding qualified workers with specific skills.
Unemployment Insurance: Payments, Overpayments and Unclaimed Benefits
Unemployment Insurance: Payments, Overpayments and Unclaimed Benefits
Source: Federal Reserve Bank of St. Louis
Overpayments in the U.S. unemployment insurance system have received increasing attention of late. For example, CNN.com cited a recent study by the Department of Labor in reporting that 11 percent of all unemployment benefits were overpaid.1 Vice President Joe Biden, charged with leading the Campaign to Cut Waste, said: "Unemployment checks are going to people in prison. Unemployment checks are going to graveyards."
In this article, we examine the U.S. unemployment insurance system’s expenditures over a longer horizon. We begin by illustrating the benefits paid from 1989 to 2011. Next, we take a look at the overpayments. Finally, we discuss a fact that is less well-known: Not everyone who is eligible for unemployment benefits actually collects them. Over the longer horizon, these unclaimed benefits are much larger than the overpayments that have received recent attention.
Housing Wealth and Wage Bargaining
Housing Wealth and Wage Bargaining
Source: Federal Reserve Bank of Atlanta
We examine the relationship between housing equity and wage earnings. We first provide a simple model of wage bargaining where failure leads to both job loss and mortgage default. Moreover, foreclosure generates disutility beyond selling a home. We test this prediction using nine waves of the national American Housing Survey. Employing a rich set of time and place controls, individual fixed effects, and an instrumental variable strategy, we find that people with an underwater mortgage command a significantly lower wage than other homeowners. This finding survives a number of robustness checks. We also include other determinants of “house lock” such as a favorable mortgage interest rate relative to the current rate and a capped property tax assessment, but we do not find these factors lower earnings. We conclude that negative equity matters because default is unpleasant or costly, not because it precludes an out-of-state job search.
Beige Book – November 28, 2012
Beige Book – November 28, 2012
Source: Federal Reserve Board
Economic activity expanded at a measured pace in recent weeks, according to reports from contacts in the twelve Federal Reserve Districts. Cleveland, Richmond, Atlanta, Chicago, Kansas City, Dallas, and San Francisco grew at a modest pace, while St. Louis and Minneapolis indicated a somewhat stronger increase in activity. In contrast, Boston reported a slower rate of growth. Weaker conditions in New York were attributed to widespread disruptions at the end of October and into November caused by Hurricane Sandy. Philadelphia reported general weakness that was exacerbated by the hurricane. However, in the Boston and Richmond Districts, the storm’s effects were mostly limited. Contacts in a number of Districts expressed concern and uncertainty about the federal budget, especially the fiscal cliff.
Among key sectors, consumer spending grew at a moderate pace in most Districts, while manufacturing weakened, on balance. Seven of the twelve Districts reported either slowing or outright contraction in manufacturing, and two others gave mixed reports. In some cases, such as high-tech equipment and steel production, an industry slowed in one District while strengthening in another. Several Districts reported slight gains in residential and commercial real estate. Travel and tourism varied by District; for example, Minneapolis contacts marked levels of activity above a year ago, and tourism fell in the Kansas City District. Non-financial services also differed among Districts, with Philadelphia businesses indicating softer demand, while firms in other Districts reported pockets of robust demand for professional, scientific, and technical services. In transportation, reports were, again, mixed. In addition, hurricane disruptions slowed freight shipments in some Districts, while simultaneously boosting demand for shipments of emergency supplies. In banking and financial services, higher demand for home mortgage loans and auto loans increased consumer lending in some Districts, although small business loan demand was generally described as weaker to only moderately higher. Credit quality improved on net.
Speech — Chairman Ben S. Bernanke At the New York Economic Club, New York, New York (11/20/12)
Speech — Chairman Ben S. Bernanke At the New York Economic Club, New York, New York
Source: Federal Reserve Board
The economy has continued to recover from the financial crisis and recession, but the pace of recovery has been slower than FOMC participants and many others had hoped or anticipated when I spoke here about three years ago. Indeed, since the recession trough in mid-2009, growth in real gross domestic product (GDP) has averaged only a little more than 2 percent per year.
Similarly, the job market has improved over the past three years, but at a slow pace. The unemployment rate, which peaked at 10 percent in the fall of 2009, has since come down 2 percentage points to just below 8 percent. This decline is obviously welcome, but it has taken a long time to achieve that progress, and the unemployment rate is still well above both its level prior to the onset of the recession and the level that my colleagues and I think can be sustained once a full recovery has been achieved. Moreover, many other features of the jobs market, including the historically high level of long-term unemployment, the large number of people working part time because they have not been able to find full-time jobs, and the decline in labor force participation, reinforce the conclusion that we have some way to go before the labor market can be deemed healthy again.
EconSouth Looks Back at Evolution of Economic Indicators
EconSouth Looks Back at Evolution of Economic Indicators
Source: Federal Reserve Bank of Atlanta
Economic policymakers today have massive amounts of data at their disposal. Their circumstances are drastically different from those faced by their counterparts during the Great Depression. Indeed, armed with little more than stock indices, freight car loadings, and industrial production figures, policymakers struggled to monitor the economy’s pulse during the worst economic contraction in modern history.
The lack of data spawned a push for more and better data collection on the U.S. economy, explains staff writer Lela Somoza in “Part Chart, Part Science: The Evolution of Economic Indicators.” As a matter of fact, gross domestic product (GDP), one of the most closely followed indicators, has its roots in the Great Depression. Over time, however, it and other indicators have evolved to keep pace with the changing U.S. economy, which has grown in size and complexity.
Just as indicators have evolved over time to reflect the increasingly complex U.S. economy, their relative importance has waxed and waned also, Somoza notes, pointing to monetary aggregates as a prominent example.
To read more about the evolution of economic indicators since the Great Depression, see the full article in the third-quarter issue of EconSouth. The article also includes a survey of some of the more offbeat indicators economists and others turn to for a more nuanced view of the U.S. economy.
Job-to-Job Flows and the Consequences of Job Separations
Job-to-Job Flows and the Consequences of Job Separations
Source: Federal Reserve Board
This paper extends the literature on the earnings losses of displaced workers to provide a more comprehensive picture of the earnings and employment outcomes for workers who separate. First, we compare workers who separate from distressed employers (presumably displaced workers) and those who separate from stable or growing employers. Second, we distinguish between workers who do and do not experience a spell of joblessness. Third, we examine the full distribution of earnings outcomes from separations – not the impact on only the average worker. We find that earnings outcomes depend much less on whether a job separation is associated with a distressed employer than on whether the separator experienced a jobless spell after the separation. Moreover, we find that workers separating from distressed firms are faster to find jobs at new employers than are other separators.
Just Released: Beige Book – October 10, 2012
Source: Federal Reserve Board
Reports from the twelve Federal Reserve Districts indicated that economic activity generally expanded modestly since the last report. The New York District noted a leveling off in economic activity, and Kansas City indicated some slowing in the pace of growth. In general, other Districts reported that growth continued at a modest pace.
Consumer spending was generally reported to be flat to up slightly since the last report. A number of Districts characterized retail sales as expanding at a modest pace, while reports from New York, Chicago, and Kansas City indicated flat or softening sales. Vehicle sales were also generally characterized as stable but up from a year earlier and generally at favorable levels. Used car sales were mixed. Most Districts described tourism as fairly robust, though Kansas City noted some general softening, while New York and Dallas indicated some scattered signs of weakening.
Residential real estate conditions improved since the last report. Most Districts reported strengthening in existing home sales, while prices were described as steady to increasing, with declining inventories noted in the Boston, Atlanta, Minneapolis, Dallas, and San Francisco Districts. Residential construction was also described as rising in most Districts. Commercial real estate markets were mixed since the last report. Office markets showed signs of softening in the northeastern Districts–Boston, New York, and Philadelphia–while most other Districts reported stable or mixed market conditions. Industrial markets showed some strength in the New York, Philadelphia, Cleveland, and Atlanta Districts, while softer conditions were noted in Richmond.
Conditions in the manufacturing sector were mixed but, on balance, somewhat improved since the last report. The Boston, Richmond, Atlanta, St. Louis, Kansas City, and San Francisco Districts reported some expansion in activity, whereas New York, Chicago, and Minneapolis reported some weakening in activity. The nonfinancial services sector showed modest improvement in the latest reporting period. Richmond, Minneapolis, Dallas, and San Francisco reported some expansion in activity, while New York and Philadelphia indicated steady or mixed conditions.
Overall loan demand was steady to stronger in most Districts. Credit standards were little changed since the last report, and a number of Districts noted improvements in loan quality or steady to declining delinquency rates. Agricultural conditions were mixed, with drought conditions continuing to adversely affect much of the mid-section of the nation. Activity in the energy sector remained robust.
Districts mostly reported little change in prices of both finished goods and inputs. Prices for agricultural commodities and petroleum-based products were generally reported to be higher, while natural gas prices were said to be low or declining. Employment conditions were little changed since the last report. Several Districts continued to report shortages of highly skilled workers, but otherwise wage pressures remained modest. Philadelphia, Cleveland, and Chicago noted increases in the costs of employee medical benefits.
Federal Reserve issues FOMC statement (September 13, 2012)
Federal Reserve issues FOMC statement (September 13, 2012)
Source: Federal Reserve Board
Information received since the Federal Open Market Committee met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment appears to have slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level. Inflation has been subdued, although the prices of some key commodities have increased recently. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, 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, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
Foreclosure Externalities: Some New Evidence
Foreclosure Externalities: Some New Evidence
Source: Federal Reserve Bank of Atlanta
In a recent set of influential papers, researchers have argued that residential mortgage foreclosures reduce the sale prices of nearby properties. We revisit this issue using a more robust identification strategy combined with new data that contain information on the location of properties secured by seriously delinquent mortgages and information on the condition of foreclosed properties. We find that while properties in virtually all stages of distress have statistically significant, negative effects on nearby home values, the magnitudes are economically small, peak before the distressed properties complete the foreclosure process, and go to zero about a year after the bank sells the property to a new homeowner. The estimates are very sensitive to the condition of the distressed property, with a positive correlation existing between house price growth and foreclosed properties identified as being in "above average" condition. We argue that the most plausible explanation for these results is an externality resulting from reduced investment by owners of distressed property. Our analysis shows that policies that slow the transition from delinquency to foreclosure likely exacerbate the negative effect of mortgage distress on house prices.
