Recent indications made by the Federal Open Market Committee (FOMC) have indicated economic slow down.  Federal Reserve Board chairman Ben S. Bernanke in a recent testimony on the economic outlook gave vague ideas about where the economy is headed, leaning towards a message of economic uncertainty.  Governor Randall S. Kroszner offered a more insightful speech on risk management and the economic outlook, but it wasn’t all positive.

Based on the minutes from the October FOMC meeting and the aforementioned words of members on the Federal Reserve Board of Governors, things are expected to get worse before they get better.  All of the major concerns, the rising price of oil, the falling value of the dollar, and the plummeting mortgage market have all gotten worse already.  Don’t things always get worse before they get better?

The price of oil is up nearly at $100 per barrel.  There is such a high demand, and while global resources aren’t lacking, but a shortage of workers and foreign relations on the most oil rich lands (ie. Iran) that are less than friendly don’t help the matter.  Prediction are not only that the price of oil may continue to rise, but that in a few short years, supply will no longer be sufficient for our 100 million barrel a day demand.  This means we won’t only be dealing with inflation troubles, but an energy shortage.

Data on housing value indicated a 1.7 percent dip in the third quarter.  The housing recession, expected to hit next year, will show decreases in property value totaling $1.2 trillion.  California’s housing market has suffered the most, and will be expected to lose a total of over $600 billion in property value.

The coming year’s economy does not look too pretty from this angle.  Governor Kroszner did warn in his speech that we will have a “rough patch during next year.”  He also said that certain areas of the economy should normalize after a time.

Perhaps things won’t get as awful as it looks like they may get.  If our economy does hit rock bottom next year, the good thing is that we can only go up from there.

Retailers everywhere put on sales and discounts for the traditional Black Friday shoppers.  Consumers were lined up as early as late Thursday evening to be the first few in line to get the best deals on computers and flat screen televisions.  While foot traffic in stores was up 4.8% from last year, spending was down by 3.5%.

Is it inflation?  Sales may not have looked as enticing to many penny pinching consumers out there.  Discounts offered by electronic stores and department stores did not seem to be as unbelievable as they may have been in previous years.  The first people in lines at many of these places may have gotten a good deal on one particular item, but everyone else was stuck with not so generous price reductions.  With energy prices up, could it be that even the retailers couldn’t afford to give away too much on sale?

Minutes from the most recent FOMC meeting suggested that consumer spending had been solid for August and September.  Turmoil in the financial markets, however have placed a strain on consumer confidence.  With many consumers struggling with mortgage payments and others undergoing or on the brink of foreclosure, Christmas shopping is a tightly budgeted event.  Credit is tight, and so is disposable income.

Perhaps there will be more online spending this year.  The increase in foot traffic in store indicated that more people are looking to buy things at a cheaper price than before.  According to the National Retail Federation, “Cyber Monday” is the new name for the Monday after Thanksgiving, where the online shopping begins.  Online retailers are offering online only sales as well as free shipping for the day.  Perhaps more people will find good deals online, and the economy won’t do so bad for the fourth quarter.

Concerns about the economy may have made many shoppers hesitant to spend as much on gifts this year.  Inflation isn’t totally out of control, but energy prices have remained high.  Thus far its effect on core inflation has not been devastating, but it might be putting a strain on overall household spending.  The season isn’t over yet, and there is still more shopping to do for the holidays.

We’ll see what the spending reports say for the fourth quarter early next year.  Maybe if we see better sales, we will shop some more.

The minutes of the last FOMC meeting, when the Fed decided to again reduce interest rates, were released yesterday.  Expectations were that both rate cuts would be sufficient to sustain the economy, at least for the short term.  Economic difficulties have risen from the continued faltering of the housing market, ever tightening credit conditions and rising energy prices.  Looking forward, the Federal Reserve Board anticipates sluggish growth for the economy and an increase in unemployment.

Inflation continues to be a matter of concern for the Fed, and there is much uncertainty surrounding the matter.  Energy prices may continue to rise.  Core inflation has only been affected slightly, but it may be another year before we see improvement in energy costs.  Core inflation is expected to lessen in a few years.

Sub-prime mortgage troubles and high inventory of unsold homes may contribute to the increase of unemployment.  Other problems stemming from the housing market conditions include the major credit crunch, which is making it more difficult and expensive for borrowers to obtain funds (individuals and businesses alike).  Tighter credit conditions could also lead to a weakening in household and business spending.

There is a possibility that financial market turbulence could have “a larger-than anticipated adverse” effect on household and business spending as well.

Should the housing sector experience further collapse, general economic growth would certainly experience a drag in pace.  The committee expressed hopes that the economy will pull through.  The minutes from the last meeting said “the U.S. economy had proved quite resilient to episodes of financial distress, suggesting that the adverse affects of financial developments on economic activity outside the housing sector could prove to be more modest than anticipated.”

Even with that said there is still plenty of uncertainty.  Additional rate cuts are unlikely for December, based on the confident tone of the Fed that the two recent cuts are sufficient enough to sustain the economy at least or the short term. 

Chairman Ben S. Bernanke and Fed Board Governor Randall S. Kroszner have already alluded to the possibility of economic slow down.  We will simply need to brace ourselves for the coming difficult days.  Things are expected to get just a little worse than they are now before they get better.  With the uncertainty surrounding energy costs and just how much more the problems in the housing sector will dampen our economic performance make it hard to predict what will happen next.

The Federal Reserve plan to make monetary policy making and economic outlook projects more frequent and more available to the public, according to a press release last Wednesday.  Perhaps with these efforts we can all get a clearer picture of the future.