Fed Governor Jerome Powell presented a short speech defending the FOMC today titled, “Communications Challenges and Quantitative Easing.” He noted that the labor market has improved significantly since QE3 was launched in September 2012. He admitted that it is “unclear” how much the program contributed to the progress in the labor market. However, he claimed that “there is evidence that it played a role, lowering long-term interest rates and raising equity prices and home prices, effects that have supported household and business spending.”
In other words, the Fed has succeeded in inflating asset prices, which somehow created more jobs. The market capitalization of the Wilshire 5000 is up $11.3 trillion, or 165%, to a record $18.4 trillion since March 9, 2009. The median existing single-family home price is up 37.3% through August since it bottomed during January 2012. It is just 8.1% below its record high during July 2006.
Housing starts are up from a low of 478,000 units during April 2009 to 891,000 units through August of this year. Yet residential construction jobs are up only 162,000 since they bottomed during January 2011, to 2.1 million in August. They are still 38% below the record high during the spring of 2006. So far, the so-called "wealth effect" hasn't created too many construction jobs.
Powell acknowledged that there has been a failure in communicating Fed policy recently, but mostly blamed it on trigger-happy fixed-income traders, who “began to lose touch with Committee intentions” since Bernanke first hinted at tapering in his May 22 congressional testimony. He said that his decision at the last meeting was a “close call” and that he would have been comfortable with a tiny taper, though he voted against it. He dismissed the notion that the meeting “damaged the Committee's communications strategy.” In his opinion, “market expectations are now better aligned with Committee assessments and intentions.”
In other words, the Fed has succeeded in inflating asset prices, which somehow created more jobs. The market capitalization of the Wilshire 5000 is up $11.3 trillion, or 165%, to a record $18.4 trillion since March 9, 2009. The median existing single-family home price is up 37.3% through August since it bottomed during January 2012. It is just 8.1% below its record high during July 2006.
Housing starts are up from a low of 478,000 units during April 2009 to 891,000 units through August of this year. Yet residential construction jobs are up only 162,000 since they bottomed during January 2011, to 2.1 million in August. They are still 38% below the record high during the spring of 2006. So far, the so-called "wealth effect" hasn't created too many construction jobs.
Powell acknowledged that there has been a failure in communicating Fed policy recently, but mostly blamed it on trigger-happy fixed-income traders, who “began to lose touch with Committee intentions” since Bernanke first hinted at tapering in his May 22 congressional testimony. He said that his decision at the last meeting was a “close call” and that he would have been comfortable with a tiny taper, though he voted against it. He dismissed the notion that the meeting “damaged the Committee's communications strategy.” In his opinion, “market expectations are now better aligned with Committee assessments and intentions.”
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