On a day that saw the Dow Jones Industrial Average reach its highest close since June 5 (nearly three years/see chart) and yet the sector which is most responsible for the Great Recession—housing—continues to exhibit weakness, all the talk is on tomorrow’s first ever Fed Chairman press conference following the Federal Open Market’s Committee (FOMC) meeting.
The event is creating quite a stir but I am a little confused if people think that Fed Chief Ben Bernanke could be less opaque live than in a canned statement or in front of a Congressional hearing. Or more to the point, if what he says can tell us more about the direction of the economy than today’s S&P Case-Shiller Home Price Index, which showed prices in February for the 10-and 20-city composites are lower than a year ago and only slightly above their April 2009 bottom, or Thursday’s GDP report.
Case-Shiller’s 10- City Composite fell 2.6% and the 20-City Composite was down 3.3% from February 2010 levels.
David M. Blitzer, chairman of the index committee said, “There is very little, if any, good news about housing. Prices continue to weaken, trends in sales and construction are disappointing.”
The report goes on to note that, measured from their peaks in June/July 2006 through February 2011, the peak-to current decline for the 10-City Composite and 20-City Composite are -32.5% and -32.6%, respectively.
I guess that answers the question as to what part of the economy is declining to offset rising energy and food prices, which allows the Fed to claim inflation is not a problem. Unfortunately it doesn’t help homeowners that they are losing equity while shelling out more for everything they must purchase.
John Prestbo, editor and executive director of Dow Jones Indexes, talked about today’s market action in a statement while offering caution over tomorrow’s press conference. He wrote, “With today’s flurry of positive earnings reports, it’s no surprise that investors responded by pushing the Dow up to its highest levels in nearly three years. This wave of optimism could be challenged within the next 24 hours, however, as the market will undoubtedly be riveted to the Fed’s first-ever press conference tomorrow.”
The Wall Street Journal online offered a guide on keywords to listen to. Pardon me if I sound rude, but we are talking about parsing the words of a man who claimed their was little risk of a deepening credit crisis a few months before the worst economic crisis since the Great Depression and someone who has refused to acknowledge the inflation staring every consumer in the face. He also said there was little risk of moral hazard following the sweetheart deal the Fed put together for Bear Stearns and watched as Lehman Brothers wilted while expecting the same treatment.
In the past, bad economic news moved the markets in a positive direction because analysts assumed it would result in lower interest rates from the Fed, but with the zero interest rate policy now 28-months old and two rounds of quantitative easing nearly complete, would more easy monetary policy really be good news?
The press conference could give the media a chance to pin Bernanke down. Ernie Patrikis, a regulatory partner with law firm White & Case who is also a former general counsel of the New York Fed and former alternate member of the FOMC, sees it as a good thing but wants more. “Why isn’t there a press conference after each meeting?” he asks. He goes on to say in a White & Case release, “There are complaints about the loose monetary policy under Chairman Greenspan. I do not recall Congressmen criticizing him for that then. Might the press do a better job?”
I guess we will find out tomorrow but if Bernanke says anything that causes the markets to move off its lofty (nearly-three-year) highs, will anyone be demanding a repeat performance?