FOMC at Emergency Meeting Cut Funds Rate to 1.5%; Other Signs of Monetary Ease

At an emergency meeting, the U.S. Federal Open Market Committee lowered the federal funds rate by 50 basis points to 1.5%. The move was an action coordinated with the Central Banks of Europe and Japan. The Fed indicated that "the move was necessary because of the worsening crisis in global financial markets."

The decision was unanimous amongst FOMC members.

The action by the Fed brought the funds rate to its lowest level since mid-2004. The discount rate was also lowered by 50 basis points to 1.75%.

For the complete text of the Fed's latest press release please follow this link.

In another other sign of monetary easing, the Fed took steps this week that could make trillions of dollars available by lending directly to nonfinancial corporations.

The other tool which the Fed is using to inject liquidity into the market is reflected by the monetary aggregates. Growth in the monetary base has accelerated to 10.9% from 2.0%. M1 growth has risen to 8.3% from 2.3%; M2 growth rose to 7.4% from 5.6%.

Liquidity Crisis from the Federal Reserve Bank of Philadelphia can be found here.

German New Orders and retail sales rose unexpectedly in August. So the August rise in IP of 3.4% is less of a surprise than it other wise would be. There is a growing consensus that the timing of holidays has had a lot to do with the false strength being recorded in August. It is hard to find anyone who wants to take these signs of strength to heart.

Still IP trends do not yet look as weak as the dwindling (pre-August) trends in orders and in retailing (see the current orders trends in the table above). At 1.7% 12-month IP growth is firm. Over six months IP is off by 0.6%. But over three months it is up at a whopping 7.7% pace. Still, quarter-to-date IP is off at a 2.2% annual rate.

The patterns in IP also mark most of the major categories. A minor exception is for quarter-to-date growth. There, the negative growth in the quarter is all due to severe weakness in capital goods output. Consumer goods and intermediate goods output each still are advancing in the quarter but at a near crawl, a 0.5% annual rate for both.

The National Association of Realtors reported that during August pending sales of existing homes rose 7.4% and reversed the July decline of 2.7% which was revised slightly shallower from the initial report. The August rise compared to Consensus expectations for a 1.1% drop.

The level of sales during August was the highest since June of last year. The level also was 12.5% above the low hit this past March.

These figures are analogous to the new home sales data from the Commerce Department in that they measure existing home sales when the sales contract is signed, not at the time the sale is closed. The series dates back to 2001.

By region, a recovery in sales in the West led last month's increase with an 18.4% m/m gain bringing the level to the highest since early 2006. Sales in the Northeast also firmed and they rose 8.4%, a gain which recovered all of the prior month's drop. Sales in the Midwest rose 3.6% and they are up 14.0% from the March low. In the South sales rose 2.3%. They rose 13.2% from the March low.

The Realtors Association indicated in an earlier report that the number of homes on the market and available for sale fell a not seasonally adjusted 7.0% (-2.9% y/y). That was the first y/y decline since early 2005.

At the current sales rate there was a 10.4 months' supply of homes on the market versus an 8.9 months' average during all of last year, a 6.5 months' supply in 2006 and a 4.5 months' supply in 2005. The latest level was the lowest, however, since this past March. For single family homes the months' supply fell to 10.0, also the lowest since March but still well above the 8.7 average of last year.

The median sales price of an existing single family home fell 3.4% (-9.5% y/y) during August. Prices were down 11.3% from their peak during June of last year. For single family homes prices fell 3.4% (-9.7% y/y) and they were off 11.9% from last year's June peak.

The pending home sales data are available in Haver's PREALTOR database and the number of homes on the market and prices are in the REALTOR database.