Tuesday, Kansas City Federal Reserve Bank President Jeff Schmid spoke at the Southern Economic Development Council’s annual conference in Oklahoma City. In his remarks, he provided an outlook for the US economy and monetary policy.
A summary of his remarks IS provided here.
SCHMID OPTIMISTIC
Overall, he was optimistic when it came to the outlook for the US. The US has the strongest and most dynamic economy in the world weathering the pandemic shock better than any of its international peers.
Relative to the end of 2019, output – after taking into account inflation – has increased 13%, compared with the EU, which grew only 6% and the UK and Japan, which grew at an even smaller rate.
Looking ahead, technological change and increased labor productivity promise more growth.
The current economy shows strong momentum with output in the spring bouncing back from a wintertime dip. And consumption, the backbone of the economy, picked up.
Business contacts across the 10th Federal Reserve district showed increased optimism as some of the uncertainty and concern around trade policy recedes.
He expected the economy to continue growing with consumption benefitting from growing disposable income, supported by low unemployment and solid wage increases. Also, the average household net worth remains historically high.
MONETARY POLICY AND INTEREST RATES
To set monetary policy, the Federal Reserve is guided by its congressionally determined dual mandate of full employment and price stability. Under this umbrella, the Fed is as close to meeting its mandate as it has been in quite some time.
July’s unemployment rate was 4.2%, which is very close to what many economic forecasters estimate to be full employment. Payroll growth was weak over the summer, but a broader set of indicators suggest a balanced labor market. Unemployment remains low, wage growth remains solid, and the ratio of reported job vacancies to available unemployed people is about one to one.
However, inflation remains too high. Over the last 12 months ending in June, prices rose 2.6%, a pace higher than the Fed’s 2% objective, although far lower than the 7% rate seen during the pandemic.
Given that the economy still shows momentum with growing business optimism and inflation stuck above the 2% objective, he thought retaining a modestly restrictive monetary policy remained appropriate for now.
That opinion was based on two arguments. First, while monetary policy might be restrictive, it is not aggressively so. Second, with recent price pressures, a modestly restrictive stance is exactly where the Fed wants to be given recent inflation data.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $236.15 per cwt to $241.75, compared with last week’s range of $235.00 to $247.10 per cwt. FOB dressed steers and heifers went for $371.71 per cwt to $382.02, compared with $366.72 to $388.63.
The USDA choice cutout Wednesday was down $0.09 per cwt at $390.49 while select was up $2.32 at $367.96. The choice/select spread narrowed to $22.53 from $24.94 with 92 loads of fabricated product and 12 loads of trimmings and grinds sold into the spot market.
The USDA-listed the weighted average wholesale price for fresh 90% lean beef was $418.34 per cwt, and 50% beef was $177.69.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.30 to $1.45 a bushel over the Sep corn contract, which settled at $3.74, up $0.02 1/2.
No live cattle delivery intentions were posted.
The CME Feeder Cattle Index for the seven days ended Tuesday was $344.09 per cwt, up $1.40. This compares with Wednesday’s Aug contract settlement of $345.87, up $0.50.