Chicago Fed National Activity Index Points to Slowing Economic Conditions
Latest Rumblings about Fed Action
The next Fed meeting is scheduled for November 2-3 just prior to the October employment report will be published. Given that the Fed policy statement and Bernanke's speech of August 25 have both raised the probability of Fed action if economic conditions weaken, financial markets are mulling over different options of the Fed to support economic growth. The Wall Street Journal reports (Fed Weighs New Tactics to Bolster Recovery - WSJ.com) that the Fed may consider purchases of Treasury securities of small quantities without tying itself down to a large target amount by a certain date. The Fed purchased $300 billion of Treasury securities and $1.425 trillion of mortgage-backed securities and GSE securities before these programs were closed by March 2010. Of late, it has been replacing it holdings of mortgage-backed instruments to maintain its holdings of mortgage securities. The Fed's balance sheet contains securities of around $2.05 trillion since April 2010 (see chart 2).
On the bullish side, bank credit has grown in July and August and the first three weeks of September. More importantly, loan extensions increased from a year in the two weeks ended September 15 after posting declines each week since July 15, 2009 (see chart 3). These data suggest tracking these numbers closely is necessary to determine the course of the economy and path of monetary policy. If bank credit gathers steam, the Fed could watch and wait for several more months.