Andrew Burton/Getty ImagesFederal Reserve Chair Janet Yellen at Yankee Stadium on Wednesday, where she delivered the commencement speech to graduates of New York University.
By MARTIN CRUTSINGERWASHINGTON -- The Federal Reserve has begun to discuss the tools it could use to finally pull back th! e extraordinary stimulus it's provided the U.S. economy since 2008. But Fed officials plan further discussions and have set no timetable for any increase in interest rates.
Minutes of the Fed's April 29-30 meeting released Wednesday show that officials discussed how to unwind the support they've given the economy once they decide to begin raising the Fed's key short-term rate. That rate has remained at a record low near zero since December 2008.
The minutes stressed that the discussion should not be viewed as a signal that an increase in short-term rates is imminent. Because the economy is still recovering, most analysts don't think the Fed will start boosting rates before the second half of 2015.
The Fed is moving into uncharted territory. Never before has it considered raising rates with its investment holdings of Treasury bonds and mortgage-backed securities at such high levels.
The Fed has conducted three rounds of bond purchases in the past five years, driving its balance sheet above $4 trillion, to try to keep long-term rates low to boost the economy. In December, it began scaling back its purchases. But officials have said that even when they stop buying bonds late this year, they don't plan to start selling their holdings.
The Fed's discussion on its exit strategy involved how it will manage its investment holdings during a period when it will be starting to raise short-term rates.
The Fed published an exit strategy in 2011. But officials have said that plan needs to be updated to take account of changing economic circumstances and the fact that the bond holdings have grown much larger. They're now four times their size before the financial crisis hit with force in the fall of 2008.
The minutes said no decisions on modifying the exit plan were made at the April meeting. Rather, Fed officials requested that the Fed staff further an! alyze the available options. The committee said it was time for the Fed to review its options for winding down its stimulus. It also said the Fed would need to communicate its plans clearly to the public.
"Participants generally agreed that starting to consider the options for normalization at this meeting was prudent as it would help the committee to make decisions about approaches to policy normalization and to communicate its plans to the public well before the first steps in normalizing policy become appropriate," the minutes said.
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The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
1. Gross Domestic Product -
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
2. Consumer Price Index -
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
3. Unemployment Rate -
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
4. Trade Deficit -
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
5 & 6. Personal Income and Personal Spending -
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
7. Consumer Confidence -
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
8. Housing Prices -
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
9. Leading Economic Index - More from DailyFinance:
Source : http://www.dailyfinance.com/2014/05/21/fomc-minutes-federal-reserve-interest-rate-rise/
