Commission on Government Forecasting and Accountability
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Jil Tracy, Co-Chair
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Michael Frerichs, Co-Chair
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September 2014 Monthly Briefing
ECONOMY: CUTTING THE APRON STRINGS
Edward H. Boss Jr., Chief Economist

Attention has centered on the Federal Reserve Board whose fate the economy rests. While many market observers expected that its stated course of action would be altered, that did not occur, rather it repeated.... "that it likely will be appropriate to maintain its current target range for the federal funds rate for a considerable time after the asset purchase program ends...".

The latest Fed minutes continued to unwind its program of easing by further reducing its purchases of mortgage-backed securities to $5 billion per month from $10 billion and its purchases of Treasury securities to $10 billion per month from $15 billion. It also stated that if incoming information supports improvement in labor market conditions and inflation, it will end its current program at the next meeting, thus cutting the apron strings of its program of Quantitative Easing. Two members voted no.

Some feel that based on the historical lag of monetary policy actions on the economy, to continue the current level of credit accommodation risks inflation down the road. Most felt, however, that despite surpassing the Fed's initial unemployment rate and inflation rate targets, there remains significant underutilization of labor resources with the lowest labor force participation rate since the late 1970s, a slowdown in the housing recovery, and a myriad of exogenous factors that have surfaced, which increase uncertainty. Thus to tighten credit now risks the economic improvement recently seen. Only time will tell whether the gradual unwinding of credit accommodation is successful or if the Fed waited too long, requiring corrective action with possible deleterious results in the future.

REVENUE: SEPTEMBER REVENUES MIXED AS WEAKER FEDERAL SOURCES OFFSET GAINS ELSEWHERE
Jim Muschinske, Revenue Manager

Overall base revenues declined $95 million in September. Another extremely weak month for federal source reimbursements was the root cause even as the majority of the revenue sources posted gains. September had one extra receipting day as compared with the same month one year prior.
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Through the first quarter of the fiscal year, overall base revenues are down $374 million. However, much of that decline was expected and is due to the scheduled lower Refund Fund transfer into GRF. In addition, weaker federal sources to begin the year have significantly contributed to the fall off. The economically related sources are mixed as both personal income taxes and sales have performed well while corporate income taxes have weakened.
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