The Monetary Report to Congress of July 2007: Part One
Every year the Federal Reserve is required to submit a two part report to Congress. The first part consists of the Monetary Policy and the Economic Outlook. The second part is the Economic and Financial Developments of the year. The annual report for this year was released on July 18th. Here are some important details from the first part of the report for 2007.
Monetary Policy and the Economic Outlook
According to the published report, the United States economy did well for the first half of the year. Overall inflation remained at 4.5 %, but overall inflation rose greatly due to energy and food costs.
Homebuilding contracted due to stock imbalances stemming from the fourth quarter last year. There is still a high number of unsold new homes. The sub-prime mortgage sector is having problems. It seems to me that the time to buy a home is in this season, if your credit is in order. With the pressure on the market, some sellers are lowering prices. At the same time, if you have a sub-prime credit score or weak financial history, times will be harder for you to get low rate mortgages, or any mortgage at all.
The residential real estate market is slowly folding. With all the foreclosures lower local property values, investments in this area is looking pretty bleak.
Service-producing industries experienced increases and therefore assisted job growth. On the goods and manufacturing side, however, employment slowed.
Financial market conditions are fairly stable and economic expansion is still a strong possibility. Expectations are that the economy will experience some expansion for the second half of 2007 and first half of 2008. Even so, the value of the dollar in the foreign exchange market has slightly decreased.
Major variables of concern for the economic outlook are resource utilization and its affect on inflation as well as the decrease in housing construction. One positive variable is consumer spending increases and the continued export demand in the foreign market.
Changes in monetary policy are dependant upon the projections of inflation and economic growth over the next year and a half. As of this time, the current policy will remain in place.
Inflation projections say that a 2% rise is likely over the next two quarters, and then a 1 3/4 % drop in 2008. Unemployment is predicted to increase by ¼% by the fourth quarter. Wages should increase over the next year and a half.
Nonresidential building investments look are expected to expand, despite the decline in the residential property market.
I will later get into the Economic and Financial Developments section of the report to Congress.
