A weak housing market weighed on the US economy, while the fear of Ebola put some brief pressure on the stock markets, according to the newly released minutes of the last Federal Reserve meeting in October.
The Federal Reserve customarily releases the minutes of its meetings, where the board of governors and staff discuss the major forces at work in the US economy, including employment, housing, borrowing and inflation.
The Fed took a positive view of overall economic progress, noting a low unemployment rate, low inflation and, generally, “a continued improvement in labor market conditions”.
While the minutes provide a big-picture view of the economy, there are some specific – and strange – worries that make it into the Fed’s discussions. “Worries about a possible spread of Ebola also appeared to weigh on market sentiment somewhat at times,” the Fed said. The Fed’s meeting was shortly after the first American Ebola patients were being admitted to hospitals.
Elsewhere in the economy, the Fed acknowledged that the housing market had slowed. After new home prices hit record highs in 2013, prices have been drifting downward as homeowners still struggle to get mortgages.
“Housing market conditions seemed to be improving only slowly,” the central bank said, noting that new home sales were flat in September after moving up in August, and sales of existing single-family homes had not showed much progress and “moved essentially sideways” over the past several months.
Banks also loosened the reins and started extending more credit to consumers, particularly through credit cards and auto loans, which some have suggested may be a bubble.
“Auto loans continued to be widely available,” the Fed wrote, suggesting that demand had increased in the third quarter along with credit cards, because “a few large banks reported having eased lending policies on such loans”.
To some, that may be a warning sign. Consumer debt – including auto loans, credit card debt and student loans – is now at an all-time high of $3.2tn, according to Federal Reserve data. Such debt tends to be risky in part because credit card debt and auto loans usually go towards buying things that only depreciate in value. Unlike with houses or college educations, it’s hard for borrowers to build equity in cars or things bought on credit.
Earlier this year, Fed research suggested that Americans had the highest net worth in history, although that was largely based on paper measures like stock holdings and house values, and disproportionately favored those who were already affluent.
The Fed staff also worried about a strong dollar combined with “a deterioration in global growth prospects, and a decline in [stock] prices”, which caused the central bank to revise down its projection for real GDP growth a little.
The US economy is at some risk of trouble from Europe, the Fed suggested, with several economists worrying that US economic growth may slow “if the foreign economic or financial situation deteriorated significantly”. Both Europe and Japan, influential economies, are struggling with another dip into recession.
The danger from a European recession has been a theme of comments from the Federal Reserve governor, Daniel Tarullo, who has also raised the alarm that the US has not shored up its weak infrastructure and about the destructive effective income inequality.
This article was written by Heidi Moore, for theguardian.com on Wednesday 19th November 2014 20.57 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010