The Federal Reserve released its annual monetary policy report to Congress today.

It’s good reminder of the year-that-was and provides some modest new insights into the Fed’s plan for the coming years. Here are the highlights:

1. The wealth catch. The Fed reiterated in its annual report that “households’ desire to rebuild wealth” will probably be one of the headwinds to the recovery. And wealth rebuilding – at least in the form of a higher savings rate, has yet to start in earnest. While personal savings as a per cent of disposable income are off their lows (see the graph from the BEA) they’re well below their pre-bubble levels (and trillions in wealth have been lost since then). On the upside at the end of the third quarter, the ratio of debt service payments to disposable income had fallen back to their 2001 levels (See graph from Fed’s report). It’s a positive sign, no doubt, but the figures don’t break out how much debt service people aren’t paying because they’ve lost their houses to foreclosure, and how much represents genuinely lower payments.

2. The report said that ABS backed by private student loans was almost entirely dependent on Talf financing. At first blush, this might seem obvious – you can’t repossess someone’s college degree, so the loans have no practical collateral. But it’s extremely difficult to avoid paying your student loan debt in the US – even in bankruptcy, a former student typically can’t be relieved of their loans. But a quick glance of Sallie Mae’s quarterly report shows that – though people may remain saddled with the debt, many still aren’t paying – some 12.2 per cent of loans through private education loan trusts were expected to default from settlement to maturity.

3. It ain’t over til it’s over. Read more