Bullard: Fed could soon taper after all. This week in the economy.
Fed decision not to taper buoyed Wall Street, but James Bullard, head of the Federal Reserve Bank of St. Louis, says a cutback in bond-buying could come as early as next month, depending on the economy. Also this week, housing posts mostly strong numbers, JPMorgan agrees to nearly $1 billion settlement, and the owner of Olive Garden and Red Lobster cuts jobs.
Fed's “taper” move could come in October: If the economy picks up, the central bank could begin cutting back its bond purchases as early as October, James Bullard, president of the Federal Reserve Bank of St. Louis, told Bloomberg television Friday. Mr. Bullard, a voting member of the Fed committee that sets interest rates, said it was a "close decision" not to begin trimming back its $85-billion-a-month in purchases of Treasury and mortgage-backed securities.
The Fed's decision, announced Wednesday, sent the markets into a tizzy. The dollar tanked, stocks surged to record highs, and the price of gold went up. The housing market, too, could see benefits: the mortgage market had been bracing for a Fed taper since early summer, causing interest rates to rise over 100 basis points since May. Now, with no taper in sight, mortgage rates are falling again: According to the Mortgage Bankers Association, the rate for a 30-year fixed rate mortgage fell seven basis points since last week to 4.5 percent.
A good week for housing: Housing starts and existing home sales, both released this week, showed positive signs of growth. Housing starts edged up 0.9 percent in August, slightly under expectations, but single-family housing starts jumped by 7 percent. The single family report in particular was strong, but economists worry that August’s month-to-month gain may have been a blip rather than a trend. “The big question now is if single family starts are in the relatively early stages of a sustained move that will lift them to near the pace seen in the past when the homebuilder survey was registering readings similar to current ones,” MFR Inc. chief US economist Joshua Shapiro wrote via e-mailed analysis. “We do not believe that gains of this magnitude will occur given a massive supply overhang of existing homes that will present brutal competition to the new home market for the foreseeable future.”
Existing home sales, meanwhile, rose 1.7 percent in August to a 5.48 million annualized pace – their highest level since February 2007. The rise may have had less to do with actual demand and more to do with buyers being motivated by rising interest rates to close the deals on home purchases, argue IHS Global Insight economists Patrick Newport and Stephanie Karol.
Inventory also inched up from 2.24 million to 2.25 million homes, suggesting that higher prices are motivating sellers to put their homes on the market.
JPMorgan pays up for “London Whale”: JP Morgan Chase & Co. agreed to pay $920 million in penalties and admitted to violating securities regulations in what resulted in the disastrous $6.2 billion trading loss known as the “London Whale.” The fines were spread out among several US and UK-based agencies, including the Securities and Exchange Commission (SEC), the Federal Reserve, and the UK Financial Conduct Authority, among others.
Red Lobster, Olive Garden in trouble: Darden Restaurants, which owns the Olive Garden and Red Lobster restaurant chains, reported disappointing earnings despite efforts to revamp their menus and offer cheaper, healthier fare. Sales fell 4 percent and 5.2 percent at Olive Garden and Red Lobster restaurants, respectively. The company is reducing its workforce by 80 to 85 jobs, and president and chief operating officer Drew Masden is retiring and being replaced by Gene Lee.