Weak Manufacturing, Payrolls Data Push Fed to Act
The Federal Reserve plans to buy an additional $40 billion a month of agency mortgage -backed securities and probably keep the federal funds target rate near zero “at least through mid-2015.” In a matter of weeks, the central bank learned the economy was on much thinner ice than it may have believed just a month earlier.
Bernanke & Co. clearly has come to the realization that it is the only stimulus game in town.
For starters, manufacturing, long an oasis of prosperity, is now rolling over. After expanding for about three years, the ISM’s PMI has returned to contractionary territory for three consecutive months. The Fed has always looked to the ISM as a key policy indicator.
Even with the ISM’s impressive performance over the last few years, manufacturers have added only 508,000 new workers since the labor market bottomed in February 2010, after furloughing more than 2.2 million in the two years leading up to that trough.