Here are are few of the positives mentioned by Vice Chairman Kohn during the speech today, along with our thoughts and commentary:"The level of business inventories does not appear worrisome at present." Interestingly enough, both Sam Zell and Jack Welch echoed similar thoughts earlier today on CNBC.
"International trade continued to be a solid source of support for the economy through the end of last year. The worsening financial conditions and slower growth in the United States have had some effect on the rest of the world, but the prospects for foreign growth remain favorable."
"Credit is still flowing from banks and other lenders." This was good to hear, because it seems that most headlines lately have focused on how tightening in lending standards have eliminated classes of borrowers from credit consideration.
"Lower rates should facilitate the refinancing of mortgage loans, and they will hold down the cost of capital to business." Perhaps this heralds a golden opportunity for credit unions, allowing us a chance to increase market share at a time when many banks beholden to secondary markets are pulling back.
"Inflation expectations generally have appeared reasonably well anchored, giving the FOMC room to focus on supporting economic growth." This is a comment many have hung their hat on to suggest that the Fed will keep rates low for the foreseeable future. If you look at other comments from the speech, it would appear that Fed concerns about growth would support a low-rate environment or a very slight tightening at worst (or is that best?). In particular, the above comment coupled with the statement below seem to suggest such a direction.
"The decisions of policymakers must take account of not only the most likely course of the economy, but also the possibility of very unfavorable developments. Doing so should reduce the odds on an especially adverse outcome not only by having policy a little easier than otherwise, but also by reassuring lenders and spenders that the central bank recognizes such a possibility in its policy deliberations. Whether the Federal Reserve has done enough in this regard is a question this policymaker will be weighing carefully over coming months."
"By midyear, economic activity should begin to benefit from several factors. One is the fiscal stimulus package that the Congress recently enacted. The rebates that households are scheduled to begin to receive in May should provide a temporary boost to consumption. Second, the decline in residential investment should begin to abate later this year as the overhang of unsold homes is worked off, reducing what has been a significant drag on economic growth over the past two years. Finally, the declines in interest rates that began last summer should be supporting activity over coming quarters, and their effects should show through more clearly to improvements in economic activity as the stress in financial markets dissipates."
To be sure, there are several risk factors mentioned in the speech that cannot be overlooked, but unlike some of the pessimistic viewpoints I read following the speech I believe that for my clients this is an economic environment that presents perhaps more opportunities than roadblocks.
