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Tags: Buffett | Economy | Flat | Housing

Buffett: Economy ‘Flat’ as Growth Slows but Housing Rebounds

Thursday, 12 July 2012 08:15 AM EDT

The broader economy is showing signs of cooling its growth while residential real estate is showing signs of improvement, says legendary investor Warren Buffett.

"For a couple of years everything except residential housing was improving at a moderate rate — not crawling but not galloping either and that residential housing was flat-lining," Buffett tells CNBC.

"In the last two months it has been just sort of the opposite. The general economy of the United States has been more or less flat, and growth has tempered down but residential housing, we are seeing a pick-up. It's noticeable, it's from a very low base and it doesn't amount to a whole lot yet, but it's getting better."

Editor's Note: The Truth About the Economy — Government Documents Lead to Eerie Conclusion

Unemployment rates have held steady at 8.2 percent, refusing to budge, while the broader economy has added consistently fewer jobs each month than forecast by experts.

Consumer sentiment, demand and manufacturing figures have disappointed as well, depicting an economy that may be cooling already tepid growth.

The U.S. gross domestic product grew 1.9 percent in the first quarter.

"The rest of the economy is slowing down. It's not headed downward but it's not growing at the rate that it was earlier."

The Federal Reserve, meanwhile, remains on standby to stimulate the economy via large-scale asset purchases from banks, a monetary policy tool known as quantitative easing.

The Fed has already rolled out two rounds of quantitative easing, injecting $2.3 trillion into the economy in the process on top of cutting benchmark interest rates to near zero.

Further action might not help much, Buffett says, as with little demand in the U.S. economy, banks will keep their money parked in Federal Reserve deposits earning 0.25 percent.

"You talk about more easing and that sort of thing, the banks are sitting with enormous amounts of money at the Fed. They don't want to be sitting with that money at the Fed. It's bringing them a quarter of a percent. You lose money from the bank's standpoint," Buffet says.

"They are not happy having that money at the Fed. They are not seeing that much demand for loans."

The Federal Reserve's rate-setting group, the Federal Open Market Committee (FOMC) remains officially on standby.

"A few members expressed the view that further policy stimulus likely would be necessary to promote satisfactory growth in employment and to ensure that the inflation rate would be at the Committee's goal," the Federal Reserve minutes read.

"Several others noted that additional policy action could be warranted if the economic recovery were to lose momentum, if the downside risks to the forecast became sufficiently pronounced, or if inflation seemed likely to run persistently below the Committee's longer-run objective" of 2 percent inflation rates.

Markets were hoping for more clarity.

"The release of the FOMC minutes last night disappointed the market insofar as it indicated that the majority of committee members were not yet on board with the notion that further QE should be employed," Rabobank analyst Jane Foley writes in a note to investors, according to the Associated Press.

Editor's Note: The Truth About the Economy — Government Documents Lead to Eerie Conclusion

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Thursday, 12 July 2012 08:15 AM
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