A week of frights ended with mortgages improved Friday, slightly under 5.75 percent for the lowest-fee packages.
The worst scare each month is the wait for the first-Friday-of-the-month payroll data. This month we need not have bothered: December payrolls gained only 157,000 jobs, plus a 25,000-job upward revision for November, still far short of the sustained 250,000-300,000 necessary to work down the unemployment rate and provide opportunity for the under-employed.
The watery part of thin gruel: hourly earnings grew by only point-one percent. The 2.7 percent year-over-year gain in wages is not terrible in a 2 percent inflation environment, but not much of a recovery, either.
December will turn out to have been a reasonable month for the economy (the purchasing managers’ indices are still running hot, and auto sales propped otherwise weak retail sales), but there is no sign of acceleration.
Worry and rising rates early last week followed the Fed’s release of the minutes of its December meeting. In the background lay the near-unanimous assumption that bond and mortgage rates will rise this year, often an eager expectation, as in some markets short positions outnumber longs 10:1. Never mind that the same assumption prevailed in January ’03 and ’04.
In deeper background is the three-decade debate about how open the Fed should be about its intentions and deliberations. In the old days the Fed chairman had one guide to communication: “Tell ’em nothin’.” It’s only in the last dozen years that the Fed has announced that it was raising or lowering its rate; through the 1980s markets we had to figure out the Fed’s degree of tightness or ease by studying its balance sheet and monetary aggregates in the banking system. Federal Reserve Chairman Alan Greenspan has grudgingly opened up a little by issuing post-meeting statements, and in a new charm offensive has begun now to release minutes of prior meetings quicker and in more detailed form.
For the first time only three weeks after its Dec. 14th meeting, the Fed on Tuesday posted on its Web site nine pages of central-bank chatter. In global-standard meeting-minute style, naming no names of speakers (especially not the name of the only speaker who matters), nor the number of advocates of specific observations (“…a number of participants indicated concern…”), this new effort at transparency was, well…awful.
Short traders seized on it as an aggressive warning of rate hikes to come, but I’ve read the damn thing a half-dozen times, and you can draw any conclusion from it you want.
There are two good reasons for the Fed to remain opaque. First, the Fed has to watch markets to gather information to form good policy (right now, T-bonds under 4.3 percent are telling the Fed to cool it, that there is no inflation threat out there, which supports PIMCO’s position that the Fed will soon stop its hikes). The Fed can’t learn anything from markets if they are trading on information given to them by the Fed.
Second, the Fed is constituted as an undemocratic star chamber, as we all know that the people and politicians can’t be trusted with money. Star chambers should never, ever let outsiders know that the insiders are fallible humans. These December minutes sound authentic: a group of economist/bankers, each in contact with a different body part of the economic elephant, kicking the monetary policy can down the road. Uninspiring and unsettling. Patients should never, ever listen to a group of surgeons talking shop over martinis.
PIMCO’s tiny-minority case for a Fed pause looks better to me all the time.
Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at firstname.lastname@example.org.
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