Analysis Of The Fomc On Economic Conditions And Monetary Policy

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Report to the FOMC on Economic Conditions and Monetary Policy
April 2015

4/30/2015
B7251 - Group 3

Samar Al Sayyed
Nicholas Blake-Knox
Nisrin Hala
Damian Rozo Munoz
Raluca Tintoiu
Jassen Trenkow (Chair)
Mimi Vavilala

Table of Contents
Part 1: Summary of Current Economic and Financial Conditions 3
Labor Market 4
Inflation/CPI 7
Output/GDP 8
Housing Market 9
Consumer Confidence and Retail Sales 10
Consumer Credit 11
ISM 12
PPI 13
Durable Goods Orders 13
Industrial Production 14
Trade Balance 15
Equity Markets and Mutual Fund Flows 16
Economic Forecasts 17
a. GDP growth 17
b. Unemployment rate 18
c. Inflation rate 18
Part 2: Monetary Policy Alternatives 19

Part 1:
Summary of Current Economic and Financial Conditions
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In these sectors, the economy added an average of 54k, 44k, 27k, and 26k jobs per month over the last 12 months, respectively. Retail added ~350,000 jobs over the last 12 months, with most retail industries contributing to the increase, a key indicator of economic activity improvement.
On the other hand, mining, construction, and manufacturing have recently seen a sharp decline; in Q1 2015, the mining sector 73% of the jobs it created in all of 2014, and construction saw the sharpest retreat.
Figure 5: Net Changes in Fastest Growing And Declining Sectors

Average hourly earnings continued to improve, however, average weekly hours saw a small drop of 10 basis points.
Figure 6: Average Hourly Earnings and Average Weekly Hours Inflation/CPI

The Consumer Price Index (CPI) has dropped notably over the last 6 months, albeit we saw a marginal increase in March, primarily driven falling food energy prices. The strong decline resulted in inflation for all components of the CPI turning negative for the first time since 2009, increasing the risk of a deflationary period, and creating additional challenges for potential tightening of monetary policy. Core CPI remains flat at 1.75%, below the Fed’s preferred level.

Crude oil volatility has contributed to the drop in CPI, with WTI losing >50% in 2014, before a marginal gain in recent weeks.

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