X hits on this document





4 / 7

Quarterly Report Q1 2014

Wells Fargo Advantage Intermediate Tax/AMT-Free Fund

The economy and monetary policy

The economic recovery continued but lagged previous cycles

  • The economic story continued with little change in its plot. Economic growth became more broad- based, with labor markets strengthening, fiscal restraint abating, and economic conditions outside the U.S. improving despite turbulence in some emerging financial markets. However, the pace of growth has lagged that of previous cycles.

  • The subplot—this recovery is weaker than past recoveries—also continued. For example, the capacity utilization rate, which measures the percent of potential output that our nation’s industrial firms are using, remained below 80%, suggesting that firms were below their maximum capacity and implying that demand was not surging and that inflation was not imminent.

Low inflation has worried the FOMC

  • The price index for personal consumption expenditures (PCE), the Federal Open Market Committee’s (FOMC’s) preferred measure of inflation, grew about 1% during the past several months. This is well below its longer-run objective of 2% inflation growth and clearly worries the FOMC members.

  • Expectations for inflation over the next 5 to 10 years, as measured by the Thomson Reuters/University of Michigan's consumer sentiment index, remained stable and moderate at just under a 3% annual rate.

  • The FOMC monitors longer-term inflation expectations because expectations may influence wage- and price-setting behavior, ultimately influencing inflation.

The federal funds rate has been ultralow for more than five years

  • U.S. monetary policy has been extremely accommodative, with the federal funds rate near zero since late 2008.

  • In its most recent statement, the FOMC said it anticipates maintaining the current federal funds target rate well past the time that the unemployment rate declines below 6.5%, especially if its near-term inflation projections remain below 2%.

  • Meanwhile, the FOMC expects to reduce the pace of its bond-buying program. As we noted last quarter, the issuance of Treasury debt and agency mortgage securities has been low, which is one reason long- term interest rates have remained modestly low on a historical basis.

Sources: U.S. Federal Reserve Bank and U.S. Bureau of Economic Analysis. Past performance is no guarantee of future results.


Wells Fargo Advantage Intermediate Tax/AMT-Free Fund

Document info
Document views54
Page views60
Page last viewedFri Sep 02 08:39:15 UTC 2016