This week, Janet Yellen leads her first Federal Reserve meeting and holds her first news conference since becoming the central bank's new chair.
Monetary policy under Yellen is expected to virtually mimic that of predecessor Ben Bernanke, at least in the near-term. It's a bit like the classic rock hit "Won't Get Fooled Again" by The Who, specifically the lyrics, "Meet the new boss. Same as the old boss." That continuity should be welcom by the financial markets, which don't tend to digest change well.
A busy week
Here's what we have on the economic calendar this week:
- The Fed reports on February industrial production, Monday at 9:15 a.m. (all times Eastern).
- The Commerce Department reports on February housing starts, Tuesday at 8:30 a.m.
- The Labor Department reports on the February Consumer Price Index, Tuesday at 8:30 a.m.
- The Fed releases a statement after its policy meeting and Yellen holds a news conference, Wednesday afternoon.
- The National Association of Realtors releases February existing home sales, Thursday at 10 a.m.
- The Conference Board releases the index of leading economic indicators, Friday at 10 a.m.
The new Fed boss gets down to business
Janet Yellen's first policy meeting as Federal Reserve chief is likely to feature a lot of talk about the weather.
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Mark Hamrick: From Bankrate.com, this is "Your Money This Week."
We connect the dots between what's happening in the world and your wallet.
I'm Mark Hamrick reporting from Washington.
For the first time since becoming chair of the Federal Reserve, Janet Yellen is presiding over her first policy-setting meeting this week.
As we know, the central bank sets interest rates and has been doing what it can to nudge the U.S. economy out of the doldrums for years now. But what does it mean for the rest of us?
We'll talk with Hugh Johnson, of Hugh Johnson Advisors, about what to look for from the Fed, under Janet Yellen.
And as always we take a look back at this week in business history.
All of that and more coming up on "Your Money This Week."
Ben Bernanke chaired his last meeting as Fed chairman in January. In the first policy-setting meeting since then, Janet Yellen presides in the chair's seat this week.
Yes, she's the first woman to serve as the nation's central bank chief, but what does it mean for our personal finances? For a look at that and other questions, we spoke with Hugh Johnson, Chairman of Hugh Johnson Advisors, a money management firm based in Albany, N.Y.
To begin, I asked Hugh about Janet Yellen's comments that much of the recent soft patch in the U.S economy appears to be weather-related. So what does the Fed think about the economy's momentum right now?
Hugh Johnson: I think that she was fairly clear that she, first of all, noted that the economy in the first quarter -- when we look at most of the numbers including the employment numbers and including the employment numbers for February -- has shown some evidence that it is slowing down. When you try to look around for the reason, there might be other reasons but certainly weather jumps right out at you.
I think she is quite right in saying or concluding that the economy has slowed some in the months of certainly December, January and to some extent February, and that a lot of that is due to the weather, although she is going to study the issue a lot more closely to make sure that it is just weather and not something deeper or more fundamental. I think she took or handled that question, that real question, extremely well. She did as good a job as I think anybody could do in answering a very difficult question.
Mark Hamrick: And Hugh, here in the first quarter -- we are wrapping up the first quarter as March comes to an end, it is generally thought that growth or GDP is right around the 2 percent level. Different people have different estimates. Do you have a sense about how much that may have been reduced by Old Man Winter this time around?
Hugh Johnson: I think that Old Man Winter probably reduced GDP growth in the first quarter by at least 0.4 percent and maybe 0.5 percent. That does not sound like a lot, but that is a pretty stiff hit from Old Man Winter. I think if we are -- or we do end up around the 2 percent level, first of all it is positive which is in one sense pretty good. It is not a negative number, but it certainly, I think, is somewhat lower than we ordinarily would expect at this point in the cycle.
Hopefully the second quarter -- when we get, first of all hopefully better weather and secondly it will be reflected in the numbers that we see for the second quarter -- we should see some pick-up in employment, retail sales and hopefully we see some pick-up in the housing sector of the economy, which was particularly slow and sluggish during the first quarter. We will just wait and see, but I am looking forward to some better numbers in the second quarter. First-quarter numbers are just not going to make good reading.
Mark Hamrick: So the first quarter essentially gets a pass right? Then we go into the second quarter. How much economic activity do you think was simply, then, delayed, whether it is something like a new car purchase or purchase of a home, where people were essentially hibernating and that activity simply gets delayed until the second three months of the year?
Hugh Johnson: You do not know for sure, and we certainly cross our fingers that a lot of what would ordinarily have been done with transactions and consumer spending in particular in the first quarter got simply delayed or postponed to the second quarter. Whereas we will look at a number that is around 2 percent for the first quarter, and that is not particularly inspiring, for the second quarter we should see something closer to say, 3 percent, a rebound from the dismal first quarter. Again, I cross my fingers. You do not know for sure, but that is my expectation and I think generally the expectation of most economists. Again, I give that as a forecast but also with my fingers tightly crossed.
Mark Hamrick: Understood. I think there are a lot of people in the same condition with those crossed fingers, Hugh. And then, the Federal Reserve is in this process where it is beginning to wind down some of the extraordinary measures that it had taken during the financial crisis and after, and chief among those now is the winding down of asset purchases or slowing the growth of those monthly asset purchases. One of the things that the Fed seems to be very concerned about is unintended consequences of this expansion of the so-called balance sheet. Do you think that some volatility in financial markets -- in other words, we may see a lot of ups and downs in both the stock market and potentially even in interest rates and other prices -- could present themselves in the coming months?
Hugh Johnson: We could get some, but I do not think it is going to come so much from the so-called tapering or the reduction of quantitative easing, the buying of Treasuries and mortgage-backed securities. I think to a great extent last year, in the months of May and June in particular, most of that was really pretty much absorbed into or reflected in the performance of the bond market and performance of the stock market. It has been, as the word goes, pretty fully discounted. I think the real issue now is not so much tapering or quantitative easing, which should end in 2014. The real issue is: What is the Fed going to do about interest rates, and what is going to guide them on making decisions about interest rates? Those are the two questions which are really the most important questions, and I think they may, trying to answer those questions, create some volatility in the bond market and some volatility in the stock market. When will the Federal Reserve start to raise short-term interest rates in response to, first, employment conditions and, secondly, somewhat of an increase or a rise in the rate of inflation, both of which I think you are going to see probably improving, if that is the right expression, through 2014 and the first part of 2015, which might mean the Fed might have to start to raise short-term interest rates.
Mark Hamrick: And Hugh, obviously your job is essentially to manage a lot of money -- other peoples' money, institutions' money. As you look out in that kind of environment and, something that might be instructional for the rest of us, how should people be fine-tuning their own approach to the markets, whether it is that they have a 401(k) or they are anticipating some borrowing or they hold some bonds? How should people look at that environment differently in the future than they might have at the present or in the past?
Hugh Johnson: Well, the first thing I would tell everybody is: Do not try to time the market. Do not try to call short-term swings in the market and change your portfolio in response to what you think might happen over the short-term.
The second thing I would say is: What is the principal trend in the market? I think the trend is probably flat, maybe sideways in the bond market and a positive trend in the equity market. It is hard to say now that it is going to change in any significant way. It still looks like prospects to the economy are positive for 2014, positive for 2015, and that means we should get at least more of the same, which means a flat bond market, a positive stock market.
I would not make any real significant changes, and I certainly would not be surprised to see if the return from the stock market in 2014 and 2015, like 2013, is certainly better than the bond market. I would emphasize stocks, No. 1, de-emphasize bonds, No. 2, and wait until something significant happens, such as a real sharp increase in interest rates that changes the outlook for the economy. Right now, I think it is steady as she goes, and I think everybody should take that pretty seriously.
Mark Hamrick: Hugh, we can think back 15 or 20 years when individuals were tremendously enthusiastic about the stock market, and with the implosion of the dot-com bubble, they were, let's say, saddened by the performance of the market and obviously were licking their financial wounds. Is it your sense that the average individual is fully participating in the stock market, or were many of them scared off by what we saw in 2007 and 2008?
Hugh Johnson: I think many have been scared off by 2007 and 2008, and I think a lot of individual investors are finding their way back into the equity markets. Their confidence is starting to become rebuilt the further we get away from the experience we had in 2008. But, clearly, most investors have not found their way back into the equity markets, which is a source of future fuel, shall we say, for the equity markets to move higher.
I know everybody is very concerned that we will have a repeat of what we saw in the dot-com bubble. We see that in some of the social media stocks. We see it in Tesla, which is an automobile company which has gotten to price levels which a lot of us are a little bit worried about, and it seems to be a sign of speculation. Indeed, although there are pockets of speculation, I do not think there is widespread or broad speculation or widespread speculation of the sort that we saw in 1999. Again, although there is some speculation and that is worrisome, it is not so much worrisome that I say it is going to derail the current bull market and economic recovery. Once again, I go back to the same advice, which is hold on until we get more information that might say that this cycle is over, but I do not see it right now.
Mark Hamrick: It is not as Alan Greenspan described irrational exuberance right, Hugh?
Hugh Johnson: Well, let's just say there is some irrational exuberance but it is not widespread, so it is not widespread irrational exuberance.
Mark Hamrick: Very good. Hugh Johnson, it is always a pleasure. Thank you so much for your time.
Hugh Johnson: You're certainly welcome, Mark.
Mark Hamrick: Hugh Johnson, Chairman of Hugh Johnson Advisors. He spoke with us from just south of Charleston, S.C.
And for full coverage of the Federal Reserve, as well as just about everything else connected to personal finances, check out our free website, Bankrate.com.
One of the less-than-pleasant experiences that seem to coincide with just about any trip to an appliance or consumer electronics store involves one of the last steps of the transaction, where a salesperson tries to pressure us into buying an extended warranty. No secret that when people say yes, it helps to pad the retailer's profit.
But is it worth it?
Bankrate's Doug Whiteman takes a look.
Doug Whiteman: When you buy a big-ticket item, such as a computer or a major appliance, the salesperson will try to get you to spend a little more -- on an extended warranty. Should you ever say yes?
Sometimes an extended warranty is worth the money, sometimes it's not. Experts say it depends on several factors, including your willingness to tolerate the risk that something could go wrong once the item is out of warranty, and whether the product is new or likely to break down.
With computers, an extended warranty might make more sense for a laptop than a desktop, because notebook computers tend to have more small, proprietary parts.
An extended warranty on a smartphone might pay for repairs only after you pay an out-of-pocket deductible of up to $199.
Consumer Reports advises against extended warranties for appliances because they rarely fail during the coverage period.
For more on whether you should purchase an extended warranty, visit to Bankrate.com. I'm Doug Whiteman.
Mark Hamrick: Finally, our look at this week in business history....
The name is still around, Wells Fargo and Co., operating one of the largest banks in the country.
On March 18, 1852, Wells Fargo was founded and become synonymous with one of the leading forms of transportation, iconic in movies about the Old West...
(UP and under sound effects..)
...The stage coach. They could carry some combination of passengers and freight, including gold dust and business papers.
But in 1869, the completion of the transcontinental railroad was the beginning of the end for the stage coach business.
You've been listening to "Your Money This Week."
If you enjoyed the podcast please check us out on iTunes and rate and subscribe to our program.
We're hoping you can help us get the word out. Also check out our other podcast, "Special Report," featuring breaking news and special features.
For more on this and other personal finance issues, visit Bankrate.com. And you can follow us on Twitter @bankrate.
Thanks to producer Lucas Wysocki for his work in the studio and to Doug Whiteman.
I'm Mark Hamrick. From all of us here at Bankrate, here's hoping you have a great week.
On the Fed's agenda
The Federal Reserve's meeting is expected to result in another decision to reduce monthly asset purchases -- a wind-down that's widely become known as "tapering."
Specifically, the pace of bond-buying is expected to be cut by another $10 billion to $55 billion. The asset purchases are on track to end this year.
Many experts believe the Fed's first boost in short-term interest rates will come next year.
"From their perspective, I think they're going to try to keep in that mid-2015 (range). Right now, they don’t want to rock the apple cart," says Diane Swonk, chief economist with Mesirow Financial. But she thinks there's a chance the Fed might not be able to raise rates quite so soon, particularly if the recovery stumbles and inflation remains remarkably low.
With winter presumably on its last legs, the economy is expected to shake off its recent chill. There was a reassuring sign last week when the government reported a better-than-expected 0.3 percent increase in retail sales.
"The spring recovery is on the way," writes economist Scott Anderson with Bank of the West.
For many, the arrival of spring will be more welcome than usual. That's especially true for businesses that have been seeing diminished sales because of harsh winter weather.
Some economists think growth for the first quarter will come in below 2 percent. The prediction from Chris Christopher, director of consumer economics for IHS Global Insight, is for gross domestic product growth of just 1.4 percent in the first three months of the year.
"If we'd had regular winter weather, that would've been 1.6 percent," he says.
Housing, too, has been affected by the bad weather, among other negative factors. They include "tight credit, eroding affordability conditions and limited inventory," says Walter Molony, a spokesman for the National Association of Realtors.
As we move into the springtime, "we'll probably see a bounce-back," Molony says. For all of 2014, he looks for sales of previously owned homes to be flat to down 0.2 percent this year.
"Prices, on the other hand, are likely to grow 5 (percent) to 6 percent because of ongoing shortages," Molony notes.
Of course, local conditions vary, depending upon the market. There's that "location, location, location" thing.
This week in business history
On March 18, 1852, Wells Fargo was founded. It rapidly became synonymous with one of the leading forms of transportation: the stage coach. The name has become iconic from movies about the Old West.
Before the automobile, a stage coach could carry some combination of passengers and freight, including gold dust and business papers. In 1869, completion of the transcontinental railroad was the beginning of the end for the stage coach business. But Wells Fargo lives on as one of the nation's largest banks.
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