The Cleveland Fed has released the January edition of EconoTrends, with some interesting notes, first on inflation:
The CPI fell further than expected, posting a record decrease of −18.4 percent (annualized rate) in November. As you may have guessed, rapidly falling energy prices (down 89.3 percent at an annualized rate), accounted for a large part of the decrease. Outside of energy prices, there was a rather curious uptick in owners’ equivalent rent (OER)—it increased 3.4 percent in November. OER is basically the implicit rent that the home–owner would pay to rent his or her home. Given the recent economic environment and the outlook for housing services, it seems unlikely that OER would continue to increase that rapidly. Excluding food and energy prices (core CPI), the index was virtually unchanged, ticking up a slight 0.3 percent in November. Over the past three months, the core CPI is only up 0.4 percent. The median CPI actually rose 2.6 percent in November, up from 1.8 percent in October, while the 16 percent trimmed mean was unchanged during the month.
…and quantitative easing…
It is apparent from the explosion of the excess reserves component that the surge in total bank reserves has not been associated with a commensurate surge in bank loans.
Rather than lending the additional reserves, many banks have held on to them in an effort to improve their balance sheets. The additional reserves have been associated with some positive signs for liquidity. A key indicator of liquidity is the spread between the London Interbank Borrowing Rate (Libor) on a term loan and the interest rate paid on an Overnight Index Swap (OIS) for a comparable maturity. The Libor–OIS spreads on both one-month and three-month maturities jumped to record levels in September, but have receded substantially as the monetary base has expanded.
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