"Business fixed investment and housing are two key areas where activity has been disappointing. They need to kick in more forcefully for the economy to grow at an above trend rate for a sustained period.Since the earliest days of QE and the long march of this unconventional monetary policy, we have never wavered about two issues, (1) the efficacy of an unknown policy mechanism that transmits this policy to the real economy, and (2) the problem of unwinding the balance sheet, about which fears were expressed by the President of the Minneapolis Fed, who has since recanted and who now sees the light.
With respect to capital spending, the recent trajectory has been very soft relative to the apparent strong underlying fundamentals. Corporate cash flows have been strong, profit margins are high, balance sheets are healthy and financing generally appears readily available at low interest rates. Moreover, the absolute level of capital outlays is low so that the capital stock is expanding only slowly. Despite these positive fundamentals, real business spending on equipment and software has risen only 3.2 percent over the past four quarters and contracted in the first quarter. This is a bit of a puzzle to me. But, I expect it to be resolved by a pickup in capital spending. Recent trends in durable goods orders and conversations I have had with businesses in my district suggest that such a pickup may finally be occurring."
Here too, the NY Fed President's remarks are instructive:
"Turning first to economic activity, the trajectory of economic growth continues to disappoint. Since the downturn ended in mid-2009, real GDP growth has averaged only 2.2 percent per year despite a very accommodative monetary policy."