How will FOMC meeting september 12-13 2012, Will fed announce Q3 september 13 2012 : The Federal Reserve looks set to launch a third round of bond purchases this week to try to drive borrowing costs lower and breathe more life into an economy that is not growing fast enough to lower unemployment.
Despite political opposition and some internal dissent, economists said a weak report on jobs growth for August was likely enough to convince the U.S. central bank a looser monetary policy was needed.
Since the Jackson Hole Symposium, I've been thinking it is very likely that so-called "QE3" would be announced at the next FOMC meeting (Sept 12th and 13th). QE3 is shorthand for another Large Scale Asset Purchases (LSAP) program. "QE" is monetary policy, not fiscal policy (not spending).
The Fed will announce its decision at around 12:30 p.m. (1630 GMT) on Thursday.
The economy created just 96,000 jobs in August, well below expectations and less than what is needed to keep up with population growth, a government report showed on Friday.
While the jobless rate declined to 8.1 percent from 8.3 percent, that was only because Americans gave up the hunt for work in droves, further bolstering the case for more bond buying, or quantitative easing.
This is certainly a disappointing report and increases the odds for QE, which were already reasonably high.
In remarks late last month, Fed Chairman Ben Bernanke laid the groundwork for a third round of bond purchases, or QE3, by calling the stagnation in the labor market "a grave concern."
As part of any new bond buying, many economists think the Fed will return to the housing-related debt purchases it resorted to during the damaging 2007-2009 recession, perhaps buying a mix of mortgage-backed securities and U.S. Treasuries.
Some hope MBS purchases would drive mortgage rates lower and give an extra push to a housing sector that has shown some signs of life recently, boosting economic growth.
In response to the financial crisis and recession of 2007-2009, the Fed slashed interest rates to effectively zero and bought some $2.3 trillion in mortgage and government debt to push borrowing costs down and support growth.
With global growth slowing, central banks worldwide have been reviewing their options. The European Central Bank decided last week to wade into debt markets to push down borrowing rates for crisis-striken euro-zone nations, and Britain and China have also taken steps to open the monetary spigots.
Not everyone is certain the Fed is quite ready to commit to more bond buying, even though its policy panel will certainly consider such a move at its meeting on Wednesday and Thursday.
We expect the Federal Open Market Committee to launch another program of long-term securities purchases before the end of the year, focused primarily if not exclusively on mortgage-backed securities.
In a Reuters poll conducted after Friday's jobs numbers, economists gave a 60 percent chance to the Fed embarking on QE3 this week, up from 45 percent in a late August poll. Primary dealer banks, which do business directly with the Fed, saw an even stronger chance of asset purchases.
Many Fed watchers believe any new asset purchase program would be open-ended, unlike the past two cycles of quantitative easing. That would allow the central bank to review the size of its purchases on a frequent basis, perhaps meeting to meeting, and adjust the program as economic circumstances warrant.
Those who believe Bernanke still lacks a consensus for an additional aggressive monetary easing say officials might simply push into the future their guidance for the likely timing of an eventual interest rate hike. Since January, the Fed has said it was likely to hold rates near zero through at least late 2014.
While there have been some signs suggesting growth in the third quarter might be a touch stronger than in the second, economists widely agree the recovery is still too weak to do much to lower unemployment.
The Fed will release quarterly economic projections alongside its decision, and they could show officials taking a dimmer view of the future. Bernanke will also hold a news conference to explain any actions the central bank might take.
odds of QE3
The weak jobs report virtually guarantees the Federal Reserve will take some kind of action at its policy meeting next week, Jan Hatzius, Goldman Sachs’ chief economist, said on Friday.
The odds of QE3 at next week’s meeting are now above 50 percent, according to Goldman Sachs economist Jan Hatzius. But he conceded it won’t help improve the employment situation or do much to snap the economy out of its sluggish 2-percent trend growth
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Showing posts with label Fed Bernanke. Show all posts
Showing posts with label Fed Bernanke. Show all posts
Sunday, September 9, 2012
Saturday, September 8, 2012
How will FOMC Meeting september 12 2012
How will FOMC Meeting september 12 2012, Fed Meeting next week 9/12/2012, Fed Ben Bernanke sept 12 2012 : We will find out next week when Federal Reserve officials meet. They are widely expected to announce steps to prop up the ailing U.S. economy.
Any Fed action will come on the heels of Thursday's bold program from the European Central Bank, which said it would buy bonds from countries such as Italy and Spain to ease their financial pressures and buy time to reduce their debt and reform their economies.
Friday's tepid unemployment report provides the Fed with even more reason to act.
The Labor Department said employers added 96,000 jobs in August, fewer than experts had expected and the latest sign of weakness in the economy and poor prospects for the unemployed. Construction and manufacturing are also slowing.
Many now expect the Fed to unveil a new bond-buying program at its meeting next week. The goal would be to lower long-term interest rates and encourage borrowing and spending.
While that may set off another rally in the stock market, strategists and experts question how much of a long-term effect it would have on the economy since interest rates are already so low.
The Associated Press asked three experts Friday for their views on these issues and what they're buying and why. Here are edited excerpts of what they had to say:
WHAT WILL THE FED DO?
David Kotok, chairman and chief investment officer of Cumberland Advisors, believes that the very slow growth in the economy cannot be resolved by Fed action such as buying more bonds.
"Such a program will only send the 10-year Treasury note yield to 1.4 percent from 1.6 percent. Short-term interest rates are near zero and can't go any lower. Mortgage rates are at their lowest in a half century and it hasn't changed the pace of growth. In fact, the longer low interest rates persist, it will lead to a decline in interest earnings for the savers, which is a dangerous trend, because it leads to more economic slowdown," said Kotok.
Steven Ricchiuto, chief economist at Mizuho Securities, thinks the Fed is not likely to announce a new round of bond buying. Instead he thinks the Fed is almost certain — he gives it a 75 percent chance — of extending the period during which it will keep short-term interest rates near zero. Presently, the central bank says it expects to keep them there through late 2014. Ricchiuto says the Fed is likely to extend that through 2015. He says stock investors are likely to be "disappointed."
Hugh Johnson, chairman and chief investment officer of Hugh Johnson Advisors, also believes another Fed bond-buying program won't make a difference to the economy.
"What will do the trick? Nothing that the Federal Reserve can do. The answer is that companies and individuals need to feel more optimistic about prospects, and that gets to tax and spending. If there was something dramatic to come out of Washington, such as a very sharp decline in tax rates and an increase in government stimulus, that might excite optimism and lead to more borrowing or spending or investing. But they're not going to do something in Washington because they can't agree."
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Any Fed action will come on the heels of Thursday's bold program from the European Central Bank, which said it would buy bonds from countries such as Italy and Spain to ease their financial pressures and buy time to reduce their debt and reform their economies.
Friday's tepid unemployment report provides the Fed with even more reason to act.
The Labor Department said employers added 96,000 jobs in August, fewer than experts had expected and the latest sign of weakness in the economy and poor prospects for the unemployed. Construction and manufacturing are also slowing.
Many now expect the Fed to unveil a new bond-buying program at its meeting next week. The goal would be to lower long-term interest rates and encourage borrowing and spending.
While that may set off another rally in the stock market, strategists and experts question how much of a long-term effect it would have on the economy since interest rates are already so low.
The Associated Press asked three experts Friday for their views on these issues and what they're buying and why. Here are edited excerpts of what they had to say:
WHAT WILL THE FED DO?
David Kotok, chairman and chief investment officer of Cumberland Advisors, believes that the very slow growth in the economy cannot be resolved by Fed action such as buying more bonds.
"Such a program will only send the 10-year Treasury note yield to 1.4 percent from 1.6 percent. Short-term interest rates are near zero and can't go any lower. Mortgage rates are at their lowest in a half century and it hasn't changed the pace of growth. In fact, the longer low interest rates persist, it will lead to a decline in interest earnings for the savers, which is a dangerous trend, because it leads to more economic slowdown," said Kotok.
Steven Ricchiuto, chief economist at Mizuho Securities, thinks the Fed is not likely to announce a new round of bond buying. Instead he thinks the Fed is almost certain — he gives it a 75 percent chance — of extending the period during which it will keep short-term interest rates near zero. Presently, the central bank says it expects to keep them there through late 2014. Ricchiuto says the Fed is likely to extend that through 2015. He says stock investors are likely to be "disappointed."
Hugh Johnson, chairman and chief investment officer of Hugh Johnson Advisors, also believes another Fed bond-buying program won't make a difference to the economy.
"What will do the trick? Nothing that the Federal Reserve can do. The answer is that companies and individuals need to feel more optimistic about prospects, and that gets to tax and spending. If there was something dramatic to come out of Washington, such as a very sharp decline in tax rates and an increase in government stimulus, that might excite optimism and lead to more borrowing or spending or investing. But they're not going to do something in Washington because they can't agree."
For the latest updates on the stock market, PRESS CTR + D or visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
Friday, August 31, 2012
Transcript Fed Bernanke speech in jackson hole 8-31-2012
Transcript Fed Bernanke speech in jackson hole 8-31-2012 : Federal Reserve Chairman Ben Bernanke made his strongest case yet for more easing, during a high-profile speech in Jackson Hole, Wyo., Friday.
Bernanke staunchly defended the Federal Reserve's two previous rounds of large asset purchases, saying they drove stocks higher, improved financial markets and created more than 2 million jobs. He also refuted several potential risks associated with those policies and talked up their benefits.
"The Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability."
Bernanke added that the economy "is obviously far from satisfactory," pointing to 8.3% unemployment and the weak job market as a "grave concern" causing "enormous suffering and waste of human talent.
10:03am: Here is the full transcript of Bernanke's speech:
Monetary Policy since the Onset of the Crisis
When we convened in Jackson Hole in August 2007, the Federal Open Market Committee's (FOMC) target for the federal funds rate was 5-1/4 percent. Sixteen months later, with the financial crisis in full swing, the FOMC had lowered the target for the federal funds rate to nearly zero, thereby entering the unfamiliar territory of having to conduct monetary policy with the policy interest rate at its effective lower bound. The unusual severity of the recession and ongoing strains in financial markets made the challenges facing monetary policymakers all the greater.
Today I will review the evolution of U.S. monetary policy since late 2007. My focus will be the Federal Reserve's experience with nontraditional policy tools, notably those based on the management of the Federal Reserve's balance sheet and on its public communications. I'll discuss what we have learned about the efficacy and drawbacks of these less familiar forms of monetary policy, and I'll talk about the implications for the Federal Reserve's ongoing efforts to promote a return to maximum employment in a context of price stability.
Monetary Policy in 2007 and 2008
When significant financial stresses first emerged, in August 2007, the FOMC responded quickly, first through liquidity actions--cutting the discount rate and extending term loans to banks--and then, in September, by lowering the target for the federal funds rate by 50 basis points. 1 As further indications of economic weakness appeared over subsequent months, the Committee reduced its target for the federal funds rate by a cumulative 325 basis points, leaving the target at 2 percent by the spring of 2008.
The Committee held rates constant over the summer as it monitored economic and financial conditions. When the crisis intensified markedly in the fall, the Committee responded by cutting the target for the federal funds rate by 100 basis points in October, with half of this easing coming as part of an unprecedented coordinated interest rate cut by six major central banks. Then, in December 2008, as evidence of a dramatic slowdown mounted, the Committee reduced its target to a range of 0 to 25 basis points, effectively its lower bound. That target range remains in place today.
Despite the easing of monetary policy, dysfunction in credit markets continued to worsen. As you know, in the latter part of 2008 and early 2009, the Federal Reserve took extraordinary steps to provide liquidity and support credit market functioning, including the establishment of a number of emergency lending facilities and the creation or extension of currency swap agreements with 14 central banks around the world.2 In its role as banking regulator, the Federal Reserve also led stress tests of the largest U.S. bank holding companies, setting the stage for the companies to raise capital. These actions--along with a host of interventions by other policymakers in the United States and throughout the world--helped stabilize global financial markets, which in turn served to check the deterioration in the real economy and the emergence of deflationary pressures.
Unfortunately, although it is likely that even worse outcomes had been averted, the damage to the economy was severe. The unemployment rate in the United States rose from about 6 percent in September 2008 to nearly 9 percent by April 2009--it would peak at 10 percent in October--while inflation declined sharply. As the crisis crested, and with the federal funds rate at its effective lower bound, the FOMC turned to nontraditional policy approaches to support the recovery.
As the Committee embarked on this path, we were guided by some general principles and some insightful academic work but--with the important exception of the Japanese case--limited historical experience. As a result, central bankers in the United States, and those in other advanced economies facing similar problems, have been in the process of learning by doing. I will discuss some of what we have learned, beginning with our experience conducting policy using the Federal Reserve's balance sheet, then turn to our use of communications tools.
Balance Sheet Tools
In using the Federal Reserve's balance sheet as a tool for achieving its mandated objectives of maximum employment and price stability, the FOMC has focused on the acquisition of longer-term securities--specifically, Treasury and agency securities, which are the principal types of securities that the Federal Reserve is permitted to buy under the Federal Reserve Act.3 One mechanism through which such purchases are believed to affect the economy is the so-called portfolio balance channel, which is based on the ideas of a number of well-known monetary economists, including James Tobin, Milton Friedman, Franco Modigliani, Karl Brunner, and Allan Meltzer. The key premise underlying this channel is that, for a variety of reasons, different classes of financial assets are not perfect substitutes in investors' portfolios.4 For example, some institutional investors face regulatory restrictions on the types of securities they can hold, retail investors may be reluctant to hold certain types of assets because of high transactions or information costs, and some assets have risk characteristics that are difficult or costly to hedge.
Imperfect substitutability of assets implies that changes in the supplies of various assets available to private investors may affect the prices and yields of those assets. Thus, Federal Reserve purchases of mortgage-backed securities (MBS), for example, should raise the prices and lower the yields of those securities; moreover, as investors rebalance their portfolios by replacing the MBS sold to the Federal Reserve with other assets, the prices of the assets they buy should rise and their yields decline as well. Declining yields and rising asset prices ease overall financial conditions and stimulate economic activity through channels similar to those for conventional monetary policy. Following this logic, Tobin suggested that purchases of longer-term securities by the Federal Reserve during the Great Depression could have helped the U.S. economy recover despite the fact that short-term rates were close to zero, and Friedman argued for large-scale purchases of long-term bonds by the Bank of Japan to help overcome Japan's deflationary trap.5
Large-scale asset purchases can influence financial conditions and the broader economy through other channels as well. For instance, they can signal that the central bank intends to pursue a persistently more accommodative policy stance than previously thought, thereby lowering investors' expectations for the future path of the federal funds rate and putting additional downward pressure on long-term interest rates, particularly in real terms. Such signaling can also increase household and business confidence by helping to diminish concerns about "tail" risks such as deflation. During stressful periods, asset purchases may also improve the functioning of financial markets, thereby easing credit conditions in some sectors.
With the space for further cuts in the target for the federal funds rate increasingly limited, in late 2008 the Federal Reserve initiated a series of large-scale asset purchases (LSAPs). In November, the FOMC announced a program to purchase a total of $600 billion in agency MBS and agency debt.6 In March 2009, the FOMC expanded this purchase program substantially, announcing that it would purchase up to $1.25 trillion of agency MBS, up to $200 billion of agency debt, and up to $300 billion of longer-term Treasury debt.7 These purchases were completed, with minor adjustments, in early 2010.8 In November 2010, the FOMC announced that it would further expand the Federal Reserve's security holdings by purchasing an additional $600 billion of longer-term Treasury securities over a period ending in mid-2011.9
About a year ago, the FOMC introduced a variation on its earlier purchase programs, known as the maturity extension program (MEP), under which the Federal Reserve would purchase $400 billion of long-term Treasury securities and sell an equivalent amount of shorter-term Treasury securities over the period ending in June 2012.10 The FOMC subsequently extended the MEP through the end of this year.11 By reducing the average maturity of the securities held by the public, the MEP puts additional downward pressure on longer-term interest rates and further eases overall financial conditions.
How effective are balance sheet policies? After nearly four years of experience with large-scale asset purchases, a substantial body of empirical work on their effects has emerged. Generally, this research finds that the Federal Reserve's large-scale purchases have significantly lowered long-term Treasury yields. For example, studies have found that the $1.7 trillion in purchases of Treasury and agency securities under the first LSAP program reduced the yield on 10-year Treasury securities by between 40 and 110 basis points. The $600 billion in Treasury purchases under the second LSAP program has been credited with lowering 10-year yields by an additional 15 to 45 basis points.12Three studies considering the cumulative influence of all the Federal Reserve's asset purchases, including those made under the MEP, found total effects between 80 and 120 basis points on the 10-year Treasury yield.13 These effects are economically meaningful.
Importantly, the effects of LSAPs do not appear to be confined to longer-term Treasury yields. Notably, LSAPs have been found to be associated with significant declines in the yields on both corporate bonds and MBS.14 The first purchase program, in particular, has been linked to substantial reductions in MBS yields and retail mortgage rates. LSAPs also appear to have boosted stock prices, presumably both by lowering discount rates and by improving the economic outlook; it is probably not a coincidence that the sustained recovery in U.S. equity prices began in March 2009, shortly after the FOMC's decision to greatly expand securities purchases. This effect is potentially important because stock values affect both consumption and investment decisions.
While there is substantial evidence that the Federal Reserve's asset purchases have lowered longer-term yields and eased broader financial conditions, obtaining precise estimates of the effects of these operations on the broader economy is inherently difficult, as the counterfactual--how the economy would have performed in the absence of the Federal Reserve's actions--cannot be directly observed. If we are willing to take as a working assumption that the effects of easier financial conditions on the economy are similar to those observed historically, then econometric models can be used to estimate the effects of LSAPs on the economy. Model simulations conducted at the Federal Reserve generally find that the securities purchase programs have provided significant help for the economy. For example, a study using the Board's FRB/US model of the economy found that, as of 2012, the first two rounds of LSAPs may have raised the level of output by almost 3 percent and increased private payroll employment by more than 2 million jobs, relative to what otherwise would have occurred.15 The Bank of England has used LSAPs in a manner similar to that of the Federal Reserve, so it is of interest that researchers have found the financial and macroeconomic effects of the British programs to be qualitatively similar to those in the United States.16
To be sure, these estimates of the macroeconomic effects of LSAPs should be treated with caution. It is likely that the crisis and the recession have attenuated some of the normal transmission channels of monetary policy relative to what is assumed in the models; for example, restrictive mortgage underwriting standards have reduced the effects of lower mortgage rates. Further, the estimated macroeconomic effects depend on uncertain estimates of the persistence of the effects of LSAPs on financial conditions.17 Overall, however, a balanced reading of the evidence supports the conclusion that central bank securities purchases have provided meaningful support to the economic recovery while mitigating deflationary risks.
Now I will turn to our use of communications tools.
Communication Tools
Clear communication is always important in central banking, but it can be especially important when economic conditions call for further policy stimulus but the policy rate is already at its effective lower bound. In particular, forward guidance that lowers private-sector expectations regarding future short-term rates should cause longer-term interest rates to decline, leading to more accommodative financial conditions.18
The Federal Reserve has made considerable use of forward guidance as a policy tool.19From March 2009 through June 2011, the FOMC's postmeeting statement noted that economic conditions "are likely to warrant exceptionally low levels of the federal funds rate for an extended period."20 At the August 2011 meeting, the Committee made its guidance more precise by stating that economic conditions would likely warrant that the federal funds rate remain exceptionally low "at least through mid-2013."21 At the beginning of this year, the FOMC extended the anticipated period of exceptionally low rates further, to "at least through late 2014," guidance that has been reaffirmed at subsequent meetings.22 As the language indicates, this guidance is not an unconditional promise; rather, it is a statement about the FOMC's collective judgment regarding the path of policy that is likely to prove appropriate, given the Committee's objectives and its outlook for the economy.
The views of Committee members regarding the likely timing of policy firming represent a balance of many factors, but the current forward guidance is broadly consistent with prescriptions coming from a range of standard benchmarks, including simple policy rules and optimal control methods.23 Some of the policy rules informing the forward guidance relate policy interest rates to familiar determinants, such as inflation and the output gap. But a number of considerations also argue for planning to keep rates low for a longer time than implied by policy rules developed during more normal periods. These considerations include the need to take out insurance against the realization of downside risks, which are particularly difficult to manage when rates are close to their effective lower bound; the possibility that, because of various unusual headwinds slowing the recovery, the economy needs more policy support than usual at this stage of the cycle; and the need to compensate for limits to policy accommodation resulting from the lower bound on rates.24
Has the forward guidance been effective? It is certainly true that, over time, both investors and private forecasters have pushed out considerably the date at which they expect the federal funds rate to begin to rise; moreover, current policy expectations appear to align well with the FOMC's forward guidance. To be sure, the changes over time in when the private sector expects the federal funds rate to begin firming resulted in part from the same deterioration of the economic outlook that led the FOMC to introduce and then extend its forward guidance. But the private sector's revised outlook for the policy rate also appears to reflect a growing appreciation of how forceful the FOMC intends to be in supporting a sustainable recovery. For example, since 2009, forecasters participating in the Blue Chip survey have repeatedly marked down their projections of the unemployment rate they expect to prevail at the time that the FOMC begins to lift the target for the federal funds rate away from zero. Thus, the Committee's forward guidance may have conveyed a greater willingness to maintain accommodation than private forecasters had previously believed.25 The behavior of financial market prices in periods around changes in the forward guidance is also consistent with the view that the guidance has affected policy expectations.26
Making Policy with Nontraditional Tools: A Cost-Benefit Framework
Making monetary policy with nontraditional tools is challenging. In particular, our experience with these tools remains limited. In this context, the FOMC carefully compares the expected benefits and costs of proposed policy actions.
The potential benefit of policy action, of course, is the possibility of better economic outcomes--outcomes more consistent with the FOMC's dual mandate. In light of the evidence I discussed, it appears reasonable to conclude that nontraditional policy tools have been and can continue to be effective in providing financial accommodation, though we are less certain about the magnitude and persistence of these effects than we are about those of more-traditional policies.
The possible benefits of an action, however, must be considered alongside its potential costs. I will focus now on the potential costs of LSAPs.
One possible cost of conducting additional LSAPs is that these operations could impair the functioning of securities markets. As I noted, the Federal Reserve is limited by law mainly to the purchase of Treasury and agency securities; the supply of those securities is large but finite, and not all of the supply is actively traded. Conceivably, if the Federal Reserve became too dominant a buyer in certain segments of these markets, trading among private agents could dry up, degrading liquidity and price discovery. As the global financial system depends on deep and liquid markets for U.S. Treasury securities, significant impairment of those markets would be costly, and, in particular, could impede the transmission of monetary policy. For example, market disruptions could lead to higher liquidity premiums on Treasury securities, which would run counter to the policy goal of reducing Treasury yields. However, although market capacity could ultimately become an issue, to this point we have seen few if any problems in the markets for Treasury or agency securities, private-sector holdings of securities remain large, and trading among private market participants remains robust.
A second potential cost of additional securities purchases is that substantial further expansions of the balance sheet could reduce public confidence in the Fed's ability to exit smoothly from its accommodative policies at the appropriate time. Even if unjustified, such a reduction in confidence might increase the risk of a costly unanchoring of inflation expectations, leading in turn to financial and economic instability. It is noteworthy, however, that the expansion of the balance sheet to date has not materially affected inflation expectations, likely in part because of the great emphasis the Federal Reserve has placed on developing tools to ensure that we can normalize monetary policy when appropriate, even if our securities holdings remain large. In particular, the FOMC will be able to put upward pressure on short-term interest rates by raising the interest rate it pays banks for reserves they hold at the Fed. Upward pressure on rates can also be achieved by using reserve-draining tools or by selling securities from the Federal Reserve's portfolio, thus reversing the effects achieved by LSAPs. The FOMC has spent considerable effort planning and testing our exit strategy and will act decisively to execute it at the appropriate time.
A third cost to be weighed is that of risks to financial stability. For example, some observers have raised concerns that, by driving longer-term yields lower, nontraditional policies could induce an imprudent reach for yield by some investors and thereby threaten financial stability. Of course, one objective of both traditional and nontraditional policy during recoveries is to promote a return to productive risk-taking; as always, the goal is to strike the appropriate balance. Moreover, a stronger recovery is itself clearly helpful for financial stability. In assessing this risk, it is important to note that the Federal Reserve, both on its own and in collaboration with other members of the Financial Stability Oversight Council, has substantially expanded its monitoring of the financial system and modified its supervisory approach to take a more systemic perspective. We have seen little evidence thus far of unsafe buildups of risk or leverage, but we will continue both our careful oversight and the implementation of financial regulatory reforms aimed at reducing systemic risk.
A fourth potential cost of balance sheet policies is the possibility that the Federal Reserve could incur financial losses should interest rates rise to an unexpected extent. Extensive analyses suggest that, from a purely fiscal perspective, the odds are strong that the Fed's asset purchases will make money for the taxpayers, reducing the federal deficit and debt.27 And, of course, to the extent that monetary policy helps strengthen the economy and raise incomes, the benefits for the U.S. fiscal position would be substantial. In any case, this purely fiscal perspective is too narrow: Because Americans are workers and consumers as well as taxpayers, monetary policy can achieve the most for the country by focusing generally on improving economic performance rather than narrowly on possible gains or losses on the Federal Reserve's balance sheet.
In sum, both the benefits and costs of nontraditional monetary policies are uncertain; in all likelihood, they will also vary over time, depending on factors such as the state of the economy and financial markets and the extent of prior Federal Reserve asset purchases. Moreover, nontraditional policies have potential costs that may be less relevant for traditional policies. For these reasons, the hurdle for using nontraditional policies should be higher than for traditional policies. At the same time, the costs of nontraditional policies, when considered carefully, appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant.
Economic Prospects
The accommodative monetary policies I have reviewed today, both traditional and nontraditional, have provided important support to the economic recovery while helping to maintain price stability. As of July, the unemployment rate had fallen to 8.3 percent from its cyclical peak of 10 percent and payrolls had risen by 4 million jobs from their low point. And despite periodic concerns about deflation risks, on the one hand, and repeated warnings that excessive policy accommodation would ignite inflation, on the other hand, inflation (except for temporary deviations caused primarily by swings in commodity prices) has remained near the Committee's 2 percent objective and inflation expectations have remained stable. Key sectors such as manufacturing, housing, and international trade have strengthened, firms' investment in equipment and software has rebounded, and conditions in financial and credit markets have improved.
Notwithstanding these positive signs, the economic situation is obviously far from satisfactory. The unemployment rate remains more than 2 percentage points above what most FOMC participants see as its longer-run normal value, and other indicators--such as the labor force participation rate and the number of people working part time for economic reasons--confirm that labor force utilization remains at very low levels. Further, the rate of improvement in the labor market has been painfully slow. I have noted on other occasions that the declines in unemployment we have seen would likely continue only if economic growth picked up to a rate above its longer-term trend.28 In fact, growth in recent quarters has been tepid, and so, not surprisingly, we have seen no net improvement in the unemployment rate since January. Unless the economy begins to grow more quickly than it has recently, the unemployment rate is likely to remain far above levels consistent with maximum employment for some time.
In light of the policy actions the FOMC has taken to date, as well as the economy's natural recovery mechanisms, we might have hoped for greater progress by now in returning to maximum employment. Some have taken the lack of progress as evidence that the financial crisis caused structural damage to the economy, rendering the current levels of unemployment impervious to additional monetary accommodation. The literature on this issue is extensive, and I cannot fully review it today.29 However, following every previous U.S. recession since World War II, the unemployment rate has returned close to its pre-recession level, and, although the recent recession was unusually deep, I see little evidence of substantial structural change in recent years.
Rather than attributing the slow recovery to longer-term structural factors, I see growth being held back currently by a number of headwinds. First, although the housing sector has shown signs of improvement, housing activity remains at low levels and is contributing much less to the recovery than would normally be expected at this stage of the cycle.
Second, fiscal policy, at both the federal and state and local levels, has become an important headwind for the pace of economic growth. Notwithstanding some recent improvement in tax revenues, state and local governments still face tight budget situations and continue to cut real spending and employment. Real purchases are also declining at the federal level. Uncertainties about fiscal policy, notably about the resolution of the so-called fiscal cliff and the lifting of the debt ceiling, are probably also restraining activity, although the magnitudes of these effects are hard to judge.30 It is critical that fiscal policymakers put in place a credible plan that sets the federal budget on a sustainable trajectory in the medium and longer runs. However, policymakers should take care to avoid a sharp near-term fiscal contraction that could endanger the recovery.
Third, stresses in credit and financial markets continue to restrain the economy. Earlier in the recovery, limited credit availability was an important factor holding back growth, and tight borrowing conditions for some potential homebuyers and small businesses remain a problem today. More recently, however, a major source of financial strains has been uncertainty about developments in Europe. These strains are most problematic for the Europeans, of course, but through global trade and financial linkages, the effects of the European situation on the U.S. economy are significant as well. Some recent policy proposals in Europe have been quite constructive, in my view, and I urge our European colleagues to press ahead with policy initiatives to resolve the crisis.
Conclusion
Early in my tenure as a member of the Board of Governors, I gave a speech that considered options for monetary policy when the short-term policy interest rate is close to its effective lower bound.31 I was reacting to common assertions at the time that monetary policymakers would be "out of ammunition" as the federal funds rate came closer to zero. I argued that, to the contrary, policy could still be effective near the lower bound. Now, with several years of experience with nontraditional policies both in the United States and in other advanced economies, we know more about how such policies work. It seems clear, based on this experience, that such policies can be effective, and that, in their absence, the 2007-09 recession would have been deeper and the current recovery would have been slower than has actually occurred.
As I have discussed today, it is also true that nontraditional policies are relatively more difficult to apply, at least given the present state of our knowledge. Estimates of the effects of nontraditional policies on economic activity and inflation are uncertain, and the use of nontraditional policies involves costs beyond those generally associated with more-standard policies. Consequently, the bar for the use of nontraditional policies is higher than for traditional policies. In addition, in the present context, nontraditional policies share the limitations of monetary policy more generally: Monetary policy cannot achieve by itself what a broader and more balanced set of economic policies might achieve; in particular, it cannot neutralize the fiscal and financial risks that the country faces. It certainly cannot fine-tune economic outcomes.
As we assess the benefits and costs of alternative policy approaches, though, we must not lose sight of the daunting economic challenges that confront our nation. The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years.
Over the past five years, the Federal Reserve has acted to support economic growth and foster job creation, and it is important to achieve further progress, particularly in the labor market. Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.
10:02am: Bernanke has just thrown cold water on those looking for any definitive direction from the Fed.
10:00am: Bernanke has opted not to outline any specific policy measures in this speech.
9:59am: The Chicago PMI printed at 53.0, slightly below expectations of 53.6.
9:56am: Jan Hantzius of Goldman Sachs lists six possible lessons from Bernanke's speech:
1. Financial crises and housing downturns have large negative effects on aggregate demand.
2. Some well-worn rules of thumb of macroeconomics don't apply when the economy is stuck at the zero bound.
3. The zero lower bound on nominal interest rates is a more serious obstacle to making monetary policy sufficiently accommodative than many economists--including Ben Bernanke--had thought prior to 2007.
4. Unconventional Fed balance sheet policies work mainly through the asset side (i.e. the so-called portfolio balance effects) rather than through the liability side (i.e. the amount of bank reserves in the system).
5. Sustained periods of high unemployment can result in "hysteresis"
6. Inflation expectations are even more "anchored" than economists thought before the crisis.
Aug. 31, 9:51am: Stocks have opened markedly higher ahead of Bernanke's remarks in Jackson Hole.
For the latest updates on the stock market, PRESS CTR + D or visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
Bernanke staunchly defended the Federal Reserve's two previous rounds of large asset purchases, saying they drove stocks higher, improved financial markets and created more than 2 million jobs. He also refuted several potential risks associated with those policies and talked up their benefits.
"The Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability."
Bernanke added that the economy "is obviously far from satisfactory," pointing to 8.3% unemployment and the weak job market as a "grave concern" causing "enormous suffering and waste of human talent.
10:03am: Here is the full transcript of Bernanke's speech:
Monetary Policy since the Onset of the Crisis
When we convened in Jackson Hole in August 2007, the Federal Open Market Committee's (FOMC) target for the federal funds rate was 5-1/4 percent. Sixteen months later, with the financial crisis in full swing, the FOMC had lowered the target for the federal funds rate to nearly zero, thereby entering the unfamiliar territory of having to conduct monetary policy with the policy interest rate at its effective lower bound. The unusual severity of the recession and ongoing strains in financial markets made the challenges facing monetary policymakers all the greater.
Today I will review the evolution of U.S. monetary policy since late 2007. My focus will be the Federal Reserve's experience with nontraditional policy tools, notably those based on the management of the Federal Reserve's balance sheet and on its public communications. I'll discuss what we have learned about the efficacy and drawbacks of these less familiar forms of monetary policy, and I'll talk about the implications for the Federal Reserve's ongoing efforts to promote a return to maximum employment in a context of price stability.
Monetary Policy in 2007 and 2008
When significant financial stresses first emerged, in August 2007, the FOMC responded quickly, first through liquidity actions--cutting the discount rate and extending term loans to banks--and then, in September, by lowering the target for the federal funds rate by 50 basis points. 1 As further indications of economic weakness appeared over subsequent months, the Committee reduced its target for the federal funds rate by a cumulative 325 basis points, leaving the target at 2 percent by the spring of 2008.
The Committee held rates constant over the summer as it monitored economic and financial conditions. When the crisis intensified markedly in the fall, the Committee responded by cutting the target for the federal funds rate by 100 basis points in October, with half of this easing coming as part of an unprecedented coordinated interest rate cut by six major central banks. Then, in December 2008, as evidence of a dramatic slowdown mounted, the Committee reduced its target to a range of 0 to 25 basis points, effectively its lower bound. That target range remains in place today.
Despite the easing of monetary policy, dysfunction in credit markets continued to worsen. As you know, in the latter part of 2008 and early 2009, the Federal Reserve took extraordinary steps to provide liquidity and support credit market functioning, including the establishment of a number of emergency lending facilities and the creation or extension of currency swap agreements with 14 central banks around the world.2 In its role as banking regulator, the Federal Reserve also led stress tests of the largest U.S. bank holding companies, setting the stage for the companies to raise capital. These actions--along with a host of interventions by other policymakers in the United States and throughout the world--helped stabilize global financial markets, which in turn served to check the deterioration in the real economy and the emergence of deflationary pressures.
Unfortunately, although it is likely that even worse outcomes had been averted, the damage to the economy was severe. The unemployment rate in the United States rose from about 6 percent in September 2008 to nearly 9 percent by April 2009--it would peak at 10 percent in October--while inflation declined sharply. As the crisis crested, and with the federal funds rate at its effective lower bound, the FOMC turned to nontraditional policy approaches to support the recovery.
As the Committee embarked on this path, we were guided by some general principles and some insightful academic work but--with the important exception of the Japanese case--limited historical experience. As a result, central bankers in the United States, and those in other advanced economies facing similar problems, have been in the process of learning by doing. I will discuss some of what we have learned, beginning with our experience conducting policy using the Federal Reserve's balance sheet, then turn to our use of communications tools.
Balance Sheet Tools
In using the Federal Reserve's balance sheet as a tool for achieving its mandated objectives of maximum employment and price stability, the FOMC has focused on the acquisition of longer-term securities--specifically, Treasury and agency securities, which are the principal types of securities that the Federal Reserve is permitted to buy under the Federal Reserve Act.3 One mechanism through which such purchases are believed to affect the economy is the so-called portfolio balance channel, which is based on the ideas of a number of well-known monetary economists, including James Tobin, Milton Friedman, Franco Modigliani, Karl Brunner, and Allan Meltzer. The key premise underlying this channel is that, for a variety of reasons, different classes of financial assets are not perfect substitutes in investors' portfolios.4 For example, some institutional investors face regulatory restrictions on the types of securities they can hold, retail investors may be reluctant to hold certain types of assets because of high transactions or information costs, and some assets have risk characteristics that are difficult or costly to hedge.
Imperfect substitutability of assets implies that changes in the supplies of various assets available to private investors may affect the prices and yields of those assets. Thus, Federal Reserve purchases of mortgage-backed securities (MBS), for example, should raise the prices and lower the yields of those securities; moreover, as investors rebalance their portfolios by replacing the MBS sold to the Federal Reserve with other assets, the prices of the assets they buy should rise and their yields decline as well. Declining yields and rising asset prices ease overall financial conditions and stimulate economic activity through channels similar to those for conventional monetary policy. Following this logic, Tobin suggested that purchases of longer-term securities by the Federal Reserve during the Great Depression could have helped the U.S. economy recover despite the fact that short-term rates were close to zero, and Friedman argued for large-scale purchases of long-term bonds by the Bank of Japan to help overcome Japan's deflationary trap.5
Large-scale asset purchases can influence financial conditions and the broader economy through other channels as well. For instance, they can signal that the central bank intends to pursue a persistently more accommodative policy stance than previously thought, thereby lowering investors' expectations for the future path of the federal funds rate and putting additional downward pressure on long-term interest rates, particularly in real terms. Such signaling can also increase household and business confidence by helping to diminish concerns about "tail" risks such as deflation. During stressful periods, asset purchases may also improve the functioning of financial markets, thereby easing credit conditions in some sectors.
With the space for further cuts in the target for the federal funds rate increasingly limited, in late 2008 the Federal Reserve initiated a series of large-scale asset purchases (LSAPs). In November, the FOMC announced a program to purchase a total of $600 billion in agency MBS and agency debt.6 In March 2009, the FOMC expanded this purchase program substantially, announcing that it would purchase up to $1.25 trillion of agency MBS, up to $200 billion of agency debt, and up to $300 billion of longer-term Treasury debt.7 These purchases were completed, with minor adjustments, in early 2010.8 In November 2010, the FOMC announced that it would further expand the Federal Reserve's security holdings by purchasing an additional $600 billion of longer-term Treasury securities over a period ending in mid-2011.9
About a year ago, the FOMC introduced a variation on its earlier purchase programs, known as the maturity extension program (MEP), under which the Federal Reserve would purchase $400 billion of long-term Treasury securities and sell an equivalent amount of shorter-term Treasury securities over the period ending in June 2012.10 The FOMC subsequently extended the MEP through the end of this year.11 By reducing the average maturity of the securities held by the public, the MEP puts additional downward pressure on longer-term interest rates and further eases overall financial conditions.
How effective are balance sheet policies? After nearly four years of experience with large-scale asset purchases, a substantial body of empirical work on their effects has emerged. Generally, this research finds that the Federal Reserve's large-scale purchases have significantly lowered long-term Treasury yields. For example, studies have found that the $1.7 trillion in purchases of Treasury and agency securities under the first LSAP program reduced the yield on 10-year Treasury securities by between 40 and 110 basis points. The $600 billion in Treasury purchases under the second LSAP program has been credited with lowering 10-year yields by an additional 15 to 45 basis points.12Three studies considering the cumulative influence of all the Federal Reserve's asset purchases, including those made under the MEP, found total effects between 80 and 120 basis points on the 10-year Treasury yield.13 These effects are economically meaningful.
Importantly, the effects of LSAPs do not appear to be confined to longer-term Treasury yields. Notably, LSAPs have been found to be associated with significant declines in the yields on both corporate bonds and MBS.14 The first purchase program, in particular, has been linked to substantial reductions in MBS yields and retail mortgage rates. LSAPs also appear to have boosted stock prices, presumably both by lowering discount rates and by improving the economic outlook; it is probably not a coincidence that the sustained recovery in U.S. equity prices began in March 2009, shortly after the FOMC's decision to greatly expand securities purchases. This effect is potentially important because stock values affect both consumption and investment decisions.
While there is substantial evidence that the Federal Reserve's asset purchases have lowered longer-term yields and eased broader financial conditions, obtaining precise estimates of the effects of these operations on the broader economy is inherently difficult, as the counterfactual--how the economy would have performed in the absence of the Federal Reserve's actions--cannot be directly observed. If we are willing to take as a working assumption that the effects of easier financial conditions on the economy are similar to those observed historically, then econometric models can be used to estimate the effects of LSAPs on the economy. Model simulations conducted at the Federal Reserve generally find that the securities purchase programs have provided significant help for the economy. For example, a study using the Board's FRB/US model of the economy found that, as of 2012, the first two rounds of LSAPs may have raised the level of output by almost 3 percent and increased private payroll employment by more than 2 million jobs, relative to what otherwise would have occurred.15 The Bank of England has used LSAPs in a manner similar to that of the Federal Reserve, so it is of interest that researchers have found the financial and macroeconomic effects of the British programs to be qualitatively similar to those in the United States.16
To be sure, these estimates of the macroeconomic effects of LSAPs should be treated with caution. It is likely that the crisis and the recession have attenuated some of the normal transmission channels of monetary policy relative to what is assumed in the models; for example, restrictive mortgage underwriting standards have reduced the effects of lower mortgage rates. Further, the estimated macroeconomic effects depend on uncertain estimates of the persistence of the effects of LSAPs on financial conditions.17 Overall, however, a balanced reading of the evidence supports the conclusion that central bank securities purchases have provided meaningful support to the economic recovery while mitigating deflationary risks.
Now I will turn to our use of communications tools.
Communication Tools
Clear communication is always important in central banking, but it can be especially important when economic conditions call for further policy stimulus but the policy rate is already at its effective lower bound. In particular, forward guidance that lowers private-sector expectations regarding future short-term rates should cause longer-term interest rates to decline, leading to more accommodative financial conditions.18
The Federal Reserve has made considerable use of forward guidance as a policy tool.19From March 2009 through June 2011, the FOMC's postmeeting statement noted that economic conditions "are likely to warrant exceptionally low levels of the federal funds rate for an extended period."20 At the August 2011 meeting, the Committee made its guidance more precise by stating that economic conditions would likely warrant that the federal funds rate remain exceptionally low "at least through mid-2013."21 At the beginning of this year, the FOMC extended the anticipated period of exceptionally low rates further, to "at least through late 2014," guidance that has been reaffirmed at subsequent meetings.22 As the language indicates, this guidance is not an unconditional promise; rather, it is a statement about the FOMC's collective judgment regarding the path of policy that is likely to prove appropriate, given the Committee's objectives and its outlook for the economy.
The views of Committee members regarding the likely timing of policy firming represent a balance of many factors, but the current forward guidance is broadly consistent with prescriptions coming from a range of standard benchmarks, including simple policy rules and optimal control methods.23 Some of the policy rules informing the forward guidance relate policy interest rates to familiar determinants, such as inflation and the output gap. But a number of considerations also argue for planning to keep rates low for a longer time than implied by policy rules developed during more normal periods. These considerations include the need to take out insurance against the realization of downside risks, which are particularly difficult to manage when rates are close to their effective lower bound; the possibility that, because of various unusual headwinds slowing the recovery, the economy needs more policy support than usual at this stage of the cycle; and the need to compensate for limits to policy accommodation resulting from the lower bound on rates.24
Has the forward guidance been effective? It is certainly true that, over time, both investors and private forecasters have pushed out considerably the date at which they expect the federal funds rate to begin to rise; moreover, current policy expectations appear to align well with the FOMC's forward guidance. To be sure, the changes over time in when the private sector expects the federal funds rate to begin firming resulted in part from the same deterioration of the economic outlook that led the FOMC to introduce and then extend its forward guidance. But the private sector's revised outlook for the policy rate also appears to reflect a growing appreciation of how forceful the FOMC intends to be in supporting a sustainable recovery. For example, since 2009, forecasters participating in the Blue Chip survey have repeatedly marked down their projections of the unemployment rate they expect to prevail at the time that the FOMC begins to lift the target for the federal funds rate away from zero. Thus, the Committee's forward guidance may have conveyed a greater willingness to maintain accommodation than private forecasters had previously believed.25 The behavior of financial market prices in periods around changes in the forward guidance is also consistent with the view that the guidance has affected policy expectations.26
Making Policy with Nontraditional Tools: A Cost-Benefit Framework
Making monetary policy with nontraditional tools is challenging. In particular, our experience with these tools remains limited. In this context, the FOMC carefully compares the expected benefits and costs of proposed policy actions.
The potential benefit of policy action, of course, is the possibility of better economic outcomes--outcomes more consistent with the FOMC's dual mandate. In light of the evidence I discussed, it appears reasonable to conclude that nontraditional policy tools have been and can continue to be effective in providing financial accommodation, though we are less certain about the magnitude and persistence of these effects than we are about those of more-traditional policies.
The possible benefits of an action, however, must be considered alongside its potential costs. I will focus now on the potential costs of LSAPs.
One possible cost of conducting additional LSAPs is that these operations could impair the functioning of securities markets. As I noted, the Federal Reserve is limited by law mainly to the purchase of Treasury and agency securities; the supply of those securities is large but finite, and not all of the supply is actively traded. Conceivably, if the Federal Reserve became too dominant a buyer in certain segments of these markets, trading among private agents could dry up, degrading liquidity and price discovery. As the global financial system depends on deep and liquid markets for U.S. Treasury securities, significant impairment of those markets would be costly, and, in particular, could impede the transmission of monetary policy. For example, market disruptions could lead to higher liquidity premiums on Treasury securities, which would run counter to the policy goal of reducing Treasury yields. However, although market capacity could ultimately become an issue, to this point we have seen few if any problems in the markets for Treasury or agency securities, private-sector holdings of securities remain large, and trading among private market participants remains robust.
A second potential cost of additional securities purchases is that substantial further expansions of the balance sheet could reduce public confidence in the Fed's ability to exit smoothly from its accommodative policies at the appropriate time. Even if unjustified, such a reduction in confidence might increase the risk of a costly unanchoring of inflation expectations, leading in turn to financial and economic instability. It is noteworthy, however, that the expansion of the balance sheet to date has not materially affected inflation expectations, likely in part because of the great emphasis the Federal Reserve has placed on developing tools to ensure that we can normalize monetary policy when appropriate, even if our securities holdings remain large. In particular, the FOMC will be able to put upward pressure on short-term interest rates by raising the interest rate it pays banks for reserves they hold at the Fed. Upward pressure on rates can also be achieved by using reserve-draining tools or by selling securities from the Federal Reserve's portfolio, thus reversing the effects achieved by LSAPs. The FOMC has spent considerable effort planning and testing our exit strategy and will act decisively to execute it at the appropriate time.
A third cost to be weighed is that of risks to financial stability. For example, some observers have raised concerns that, by driving longer-term yields lower, nontraditional policies could induce an imprudent reach for yield by some investors and thereby threaten financial stability. Of course, one objective of both traditional and nontraditional policy during recoveries is to promote a return to productive risk-taking; as always, the goal is to strike the appropriate balance. Moreover, a stronger recovery is itself clearly helpful for financial stability. In assessing this risk, it is important to note that the Federal Reserve, both on its own and in collaboration with other members of the Financial Stability Oversight Council, has substantially expanded its monitoring of the financial system and modified its supervisory approach to take a more systemic perspective. We have seen little evidence thus far of unsafe buildups of risk or leverage, but we will continue both our careful oversight and the implementation of financial regulatory reforms aimed at reducing systemic risk.
A fourth potential cost of balance sheet policies is the possibility that the Federal Reserve could incur financial losses should interest rates rise to an unexpected extent. Extensive analyses suggest that, from a purely fiscal perspective, the odds are strong that the Fed's asset purchases will make money for the taxpayers, reducing the federal deficit and debt.27 And, of course, to the extent that monetary policy helps strengthen the economy and raise incomes, the benefits for the U.S. fiscal position would be substantial. In any case, this purely fiscal perspective is too narrow: Because Americans are workers and consumers as well as taxpayers, monetary policy can achieve the most for the country by focusing generally on improving economic performance rather than narrowly on possible gains or losses on the Federal Reserve's balance sheet.
In sum, both the benefits and costs of nontraditional monetary policies are uncertain; in all likelihood, they will also vary over time, depending on factors such as the state of the economy and financial markets and the extent of prior Federal Reserve asset purchases. Moreover, nontraditional policies have potential costs that may be less relevant for traditional policies. For these reasons, the hurdle for using nontraditional policies should be higher than for traditional policies. At the same time, the costs of nontraditional policies, when considered carefully, appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant.
Economic Prospects
The accommodative monetary policies I have reviewed today, both traditional and nontraditional, have provided important support to the economic recovery while helping to maintain price stability. As of July, the unemployment rate had fallen to 8.3 percent from its cyclical peak of 10 percent and payrolls had risen by 4 million jobs from their low point. And despite periodic concerns about deflation risks, on the one hand, and repeated warnings that excessive policy accommodation would ignite inflation, on the other hand, inflation (except for temporary deviations caused primarily by swings in commodity prices) has remained near the Committee's 2 percent objective and inflation expectations have remained stable. Key sectors such as manufacturing, housing, and international trade have strengthened, firms' investment in equipment and software has rebounded, and conditions in financial and credit markets have improved.
Notwithstanding these positive signs, the economic situation is obviously far from satisfactory. The unemployment rate remains more than 2 percentage points above what most FOMC participants see as its longer-run normal value, and other indicators--such as the labor force participation rate and the number of people working part time for economic reasons--confirm that labor force utilization remains at very low levels. Further, the rate of improvement in the labor market has been painfully slow. I have noted on other occasions that the declines in unemployment we have seen would likely continue only if economic growth picked up to a rate above its longer-term trend.28 In fact, growth in recent quarters has been tepid, and so, not surprisingly, we have seen no net improvement in the unemployment rate since January. Unless the economy begins to grow more quickly than it has recently, the unemployment rate is likely to remain far above levels consistent with maximum employment for some time.
In light of the policy actions the FOMC has taken to date, as well as the economy's natural recovery mechanisms, we might have hoped for greater progress by now in returning to maximum employment. Some have taken the lack of progress as evidence that the financial crisis caused structural damage to the economy, rendering the current levels of unemployment impervious to additional monetary accommodation. The literature on this issue is extensive, and I cannot fully review it today.29 However, following every previous U.S. recession since World War II, the unemployment rate has returned close to its pre-recession level, and, although the recent recession was unusually deep, I see little evidence of substantial structural change in recent years.
Rather than attributing the slow recovery to longer-term structural factors, I see growth being held back currently by a number of headwinds. First, although the housing sector has shown signs of improvement, housing activity remains at low levels and is contributing much less to the recovery than would normally be expected at this stage of the cycle.
Second, fiscal policy, at both the federal and state and local levels, has become an important headwind for the pace of economic growth. Notwithstanding some recent improvement in tax revenues, state and local governments still face tight budget situations and continue to cut real spending and employment. Real purchases are also declining at the federal level. Uncertainties about fiscal policy, notably about the resolution of the so-called fiscal cliff and the lifting of the debt ceiling, are probably also restraining activity, although the magnitudes of these effects are hard to judge.30 It is critical that fiscal policymakers put in place a credible plan that sets the federal budget on a sustainable trajectory in the medium and longer runs. However, policymakers should take care to avoid a sharp near-term fiscal contraction that could endanger the recovery.
Third, stresses in credit and financial markets continue to restrain the economy. Earlier in the recovery, limited credit availability was an important factor holding back growth, and tight borrowing conditions for some potential homebuyers and small businesses remain a problem today. More recently, however, a major source of financial strains has been uncertainty about developments in Europe. These strains are most problematic for the Europeans, of course, but through global trade and financial linkages, the effects of the European situation on the U.S. economy are significant as well. Some recent policy proposals in Europe have been quite constructive, in my view, and I urge our European colleagues to press ahead with policy initiatives to resolve the crisis.
Conclusion
Early in my tenure as a member of the Board of Governors, I gave a speech that considered options for monetary policy when the short-term policy interest rate is close to its effective lower bound.31 I was reacting to common assertions at the time that monetary policymakers would be "out of ammunition" as the federal funds rate came closer to zero. I argued that, to the contrary, policy could still be effective near the lower bound. Now, with several years of experience with nontraditional policies both in the United States and in other advanced economies, we know more about how such policies work. It seems clear, based on this experience, that such policies can be effective, and that, in their absence, the 2007-09 recession would have been deeper and the current recovery would have been slower than has actually occurred.
As I have discussed today, it is also true that nontraditional policies are relatively more difficult to apply, at least given the present state of our knowledge. Estimates of the effects of nontraditional policies on economic activity and inflation are uncertain, and the use of nontraditional policies involves costs beyond those generally associated with more-standard policies. Consequently, the bar for the use of nontraditional policies is higher than for traditional policies. In addition, in the present context, nontraditional policies share the limitations of monetary policy more generally: Monetary policy cannot achieve by itself what a broader and more balanced set of economic policies might achieve; in particular, it cannot neutralize the fiscal and financial risks that the country faces. It certainly cannot fine-tune economic outcomes.
As we assess the benefits and costs of alternative policy approaches, though, we must not lose sight of the daunting economic challenges that confront our nation. The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years.
Over the past five years, the Federal Reserve has acted to support economic growth and foster job creation, and it is important to achieve further progress, particularly in the labor market. Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.
10:02am: Bernanke has just thrown cold water on those looking for any definitive direction from the Fed.
10:00am: Bernanke has opted not to outline any specific policy measures in this speech.
9:59am: The Chicago PMI printed at 53.0, slightly below expectations of 53.6.
9:56am: Jan Hantzius of Goldman Sachs lists six possible lessons from Bernanke's speech:
1. Financial crises and housing downturns have large negative effects on aggregate demand.
2. Some well-worn rules of thumb of macroeconomics don't apply when the economy is stuck at the zero bound.
3. The zero lower bound on nominal interest rates is a more serious obstacle to making monetary policy sufficiently accommodative than many economists--including Ben Bernanke--had thought prior to 2007.
4. Unconventional Fed balance sheet policies work mainly through the asset side (i.e. the so-called portfolio balance effects) rather than through the liability side (i.e. the amount of bank reserves in the system).
5. Sustained periods of high unemployment can result in "hysteresis"
6. Inflation expectations are even more "anchored" than economists thought before the crisis.
Aug. 31, 9:51am: Stocks have opened markedly higher ahead of Bernanke's remarks in Jackson Hole.
For the latest updates on the stock market, PRESS CTR + D or visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
Thursday, August 30, 2012
Ahead Fed Ben Bernanke speech in Jackson Hole today 8/31/2012
Ahead Fed Ben Bernanke speech in Jackson Hole today 8/31/2012 : The Fed chief will speak at the Kansas City Fed's Jackson Hole symposium later in the day - and traders are hoping that Bernanke will make comments indicating whether the central bank will engage in another round of quantitative easing.
Attention is now on a meeting of central bankers at Jackson Hole, Wyoming, where Bernanke is due to give a speech on Friday, with investors hoping he will outline plans for another round of monetary easing to kickstart the economy.
Mr. Bernanke is scheduled to speak at the central bank's annual economic symposium in Jackson Hole, Wyo., at 10 a.m. EDT. Investors have been awaiting the speech all week, speculating over whether the Fed chief will hint at further stimulus measures, which have boosted stocks in the past. Mr. Bernanke signaled a second round of the Fed's bond-buying program, known as "quantitative easing," two years ago in Jackson Hole.
Expectant eyes from around the world will be on Bernanke, looking for assurances that the US economy is solid or, if not, that the Fed is ready to invest more to stimulate growth.
Markets have been on edge for weeks over whether the Fed chairman will act on the sluggish economy, making his keynote speech the main event at the Fed’s annual international central banking symposium.
Bernanke used the Jackson Hole venue the past two years to let markets and policymakers know what is on his mind. In 2010, he moved the markets with his signal of “QE2” — a second $600 billion quantitative easing programme aimed at pushing down long-term interest rates.
For the latest updates on the stock market, PRESS CTR + D or visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
Attention is now on a meeting of central bankers at Jackson Hole, Wyoming, where Bernanke is due to give a speech on Friday, with investors hoping he will outline plans for another round of monetary easing to kickstart the economy.
Mr. Bernanke is scheduled to speak at the central bank's annual economic symposium in Jackson Hole, Wyo., at 10 a.m. EDT. Investors have been awaiting the speech all week, speculating over whether the Fed chief will hint at further stimulus measures, which have boosted stocks in the past. Mr. Bernanke signaled a second round of the Fed's bond-buying program, known as "quantitative easing," two years ago in Jackson Hole.
Expectant eyes from around the world will be on Bernanke, looking for assurances that the US economy is solid or, if not, that the Fed is ready to invest more to stimulate growth.
Markets have been on edge for weeks over whether the Fed chairman will act on the sluggish economy, making his keynote speech the main event at the Fed’s annual international central banking symposium.
Bernanke used the Jackson Hole venue the past two years to let markets and policymakers know what is on his mind. In 2010, he moved the markets with his signal of “QE2” — a second $600 billion quantitative easing programme aimed at pushing down long-term interest rates.
For the latest updates on the stock market, PRESS CTR + D or visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
How will Fed Ben Bernanke speech in jackson hole august 31 2012
How will Fed Ben Bernanke speech in jackson hole august 31 2012 : Investors are hoping Chairman Ben Bernanke will at least hint Friday that the Federal Reserve is ready to launch another round of bond purchases to try to lower long-term U.S. interest rates and spur more borrowing and spending.
He's unlikely to deliver.
Economists who monitor the Fed doubt Bernanke will say anything dramatic when he speaks at an annual economic conference in Jackson Hole, Wyo. Many think a slightly brighter economic outlook has lessened the urgency for the Fed to act soon.
"I don't expect him to give some significant clue as to what the Fed's next move is," says economist Timothy Duy at the University of Oregon.
At the end of every August, economists and central bankers convene in the Rocky Mountains at a symposium organized by the Federal Reserve Bank of Kansas City. They present papers and argue about economic issues. But mostly, they wait to see what the Fed chairman has to say.
In August 2010, Bernanke's remarks at Jackson Hole triggered a sustained stock-market rally. He hinted then that the Fed might begin a second round of bond purchases, a policy called quantitative easing, or QE2. The Fed did start buying bonds three months later.
The U.S. economy is again struggling to grow. It expanded at a tepid 1.7 percent annual rate in the April-June quarter, the government estimated Wednesday.
Hopes for further Fed action rose last week when the central bank released minutes of its July 31-Aug. 1 meeting. It showed that officials spoke with increased urgency about the need to provide more help for the U.S. economy.
The Fed's policy committee decided that action "would likely be warranted fairly soon" unless it saw evidence of "a substantial and sustainable strengthening" of the economy. The comment raised expectations that the Fed could announce a move as soon as its next meeting Sept. 12-13.
And in a letter to a House lawmaker last week, Bernanke wrote that "there is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery."
Still, Duy says, "it's not 2010."
Back then, Bernanke feared that the economy might slide into a deflationary spiral in which falling prices pull down business profits and send the economy back into recession.
This year, the economy appears in less danger. Job creation and retail sales last month proved stronger than expected. And in the latest sign of a recovery in housing, home prices rose in June from a year earlier, the first such increase since the summer of 2010. So there may be less pressure on the Fed to act.
"We've seen enough tentative improvement that it's got to give them a little pause," says Ethan Harris, co-head of global economic research at Bank of America Merrill Lynch.
The Fed chairman will likely want to see the government's Sept. 7 report on job growth and unemployment in August before committing to a change in policy.
And QE3 isn't the Fed's only option. It already plans to keep short-term interest rates near zero through late 2014 unless the economy improves. It could settle for extending that pledge into 2015.
Critics say Fed policy won't make much difference anyway. Interest rates are already near historic lows.
"Who cares what the Fed's going to do? It's not effective any more anyway," says Steve Quirk, senior vice president at TD Ameritrade. "What are you going to do — lower interest rates? To what, negative?"
For a while it looked as if Bernanke might be upstaged in Jackson Hole by Mario Draghi, president of the European Central Bank. But Draghi on Tuesday canceled plans to attend the conference and to speak on a panel Saturday morning.
Draghi faces more urgent problems and has more options to deal with them. Last month, Draghi vowed to do "whatever it takes" and "believe me it will be enough" to save Europe's single currency, the euro. Some members of the 17-country eurozone, including Italy and Spain, are struggling with high debts and weak economies that could force them to abandon the euro.
Markets rallied on Draghi's promise. Investors assumed the ECB would wade into the bond market and buy Italian and Spanish government debt. Its purchases could drive Italy and Spain's borrowing costs down to sustainable levels and ease the pressure on them.
But it's unclear how aggressive Draghi will be. A week after making his whatever-it-takes pledge, Draghi retreated somewhat. He suggested that the ECB would act in a big way only after European governments did more to improve their finances. Germany, Europe's most powerful economy, has often opposed aggressive action by the central bank.
On Wednesday, though, Draghi revived hopes for ECB action. He urged Germans to support his efforts to rescue the euro. He's expected to say more at an ECB meeting next week about plans for a bond-buying program to ease borrowing costs for debt-ridden governments, including Spain and Italy.
Investors are eager to hear about Draghi's plans as well as Bernanke's.
These days, says Thomas Lam, economist with the investment firm OSK-DMG in Singapore, "markets are equally sensitive to comments from Bernanke and Draghi."
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He's unlikely to deliver.
Economists who monitor the Fed doubt Bernanke will say anything dramatic when he speaks at an annual economic conference in Jackson Hole, Wyo. Many think a slightly brighter economic outlook has lessened the urgency for the Fed to act soon.
"I don't expect him to give some significant clue as to what the Fed's next move is," says economist Timothy Duy at the University of Oregon.
At the end of every August, economists and central bankers convene in the Rocky Mountains at a symposium organized by the Federal Reserve Bank of Kansas City. They present papers and argue about economic issues. But mostly, they wait to see what the Fed chairman has to say.
In August 2010, Bernanke's remarks at Jackson Hole triggered a sustained stock-market rally. He hinted then that the Fed might begin a second round of bond purchases, a policy called quantitative easing, or QE2. The Fed did start buying bonds three months later.
The U.S. economy is again struggling to grow. It expanded at a tepid 1.7 percent annual rate in the April-June quarter, the government estimated Wednesday.
Hopes for further Fed action rose last week when the central bank released minutes of its July 31-Aug. 1 meeting. It showed that officials spoke with increased urgency about the need to provide more help for the U.S. economy.
The Fed's policy committee decided that action "would likely be warranted fairly soon" unless it saw evidence of "a substantial and sustainable strengthening" of the economy. The comment raised expectations that the Fed could announce a move as soon as its next meeting Sept. 12-13.
And in a letter to a House lawmaker last week, Bernanke wrote that "there is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery."
Still, Duy says, "it's not 2010."
Back then, Bernanke feared that the economy might slide into a deflationary spiral in which falling prices pull down business profits and send the economy back into recession.
This year, the economy appears in less danger. Job creation and retail sales last month proved stronger than expected. And in the latest sign of a recovery in housing, home prices rose in June from a year earlier, the first such increase since the summer of 2010. So there may be less pressure on the Fed to act.
"We've seen enough tentative improvement that it's got to give them a little pause," says Ethan Harris, co-head of global economic research at Bank of America Merrill Lynch.
The Fed chairman will likely want to see the government's Sept. 7 report on job growth and unemployment in August before committing to a change in policy.
And QE3 isn't the Fed's only option. It already plans to keep short-term interest rates near zero through late 2014 unless the economy improves. It could settle for extending that pledge into 2015.
Critics say Fed policy won't make much difference anyway. Interest rates are already near historic lows.
"Who cares what the Fed's going to do? It's not effective any more anyway," says Steve Quirk, senior vice president at TD Ameritrade. "What are you going to do — lower interest rates? To what, negative?"
For a while it looked as if Bernanke might be upstaged in Jackson Hole by Mario Draghi, president of the European Central Bank. But Draghi on Tuesday canceled plans to attend the conference and to speak on a panel Saturday morning.
Draghi faces more urgent problems and has more options to deal with them. Last month, Draghi vowed to do "whatever it takes" and "believe me it will be enough" to save Europe's single currency, the euro. Some members of the 17-country eurozone, including Italy and Spain, are struggling with high debts and weak economies that could force them to abandon the euro.
Markets rallied on Draghi's promise. Investors assumed the ECB would wade into the bond market and buy Italian and Spanish government debt. Its purchases could drive Italy and Spain's borrowing costs down to sustainable levels and ease the pressure on them.
But it's unclear how aggressive Draghi will be. A week after making his whatever-it-takes pledge, Draghi retreated somewhat. He suggested that the ECB would act in a big way only after European governments did more to improve their finances. Germany, Europe's most powerful economy, has often opposed aggressive action by the central bank.
On Wednesday, though, Draghi revived hopes for ECB action. He urged Germans to support his efforts to rescue the euro. He's expected to say more at an ECB meeting next week about plans for a bond-buying program to ease borrowing costs for debt-ridden governments, including Spain and Italy.
Investors are eager to hear about Draghi's plans as well as Bernanke's.
These days, says Thomas Lam, economist with the investment firm OSK-DMG in Singapore, "markets are equally sensitive to comments from Bernanke and Draghi."
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Wednesday, August 29, 2012
How economic issues Jackson Hole symposium September 1-2 2012
How economic issues Jackson Hole symposium September 1-2 2012 : Every year since 1978, central bankers from the world over come to Jackson Hole, Wyoming to talk about the current economic issues.
This weekend, on September 1 and September 2, hotshots in the financial world will once again gather for the symposium. Among a long list of topics to be discussed, investors will definitely be on their toes for the plans of two major central banks: the ECB and the Fed.
Bond buying from the ECB?
In recent weeks, there have been speculations that the ECB would intervene in bond markets by buying bonds of peripheral EZ countries to keep their borrowing costs from rising.
Market junkies were hoping to get more clues on the issue at this week's summit.
However, the ECB announced yesterday that head honcho Mario Draghi will not attend the meeting due to a heavy workload in the coming days. In fact, no one from the ECB executive board will make it to the conference!
Of course, the announcement only fueled speculations even further, as investors believe that the central bank is busy ironing out the details of another bond-buying program.
However, don't get too excited just yet. Some analysts warn that Draghi will not let us in on his plans before the German Constitutional Court passes its rule on the legality of the ESM on September 12. That said, I doubt we'll hear any details about bond buying and a yield cap this weekend.
Bernanke Comments on QE3
Back in 2010, our old buddy Big Ben Bernanke basically dropped a bomb at Jackson Hole - a liquidity bomb, that is!
With the U.S. economy down in the dumps, Bernanke announced that the Fed would be introducing another round of quantitative easing measures which infamously became known as QE2. Two years later, could history repeat itself?
Not so fast, my young padawan economists. As it turns out, many doubt that Bernanke will go so far as to use the symposium as a signaling event for the Fed's future monetary policy plans. With the August NFP figures not due until next week, it is unlikely that Bernanke will take a strong position on QE3.
Instead, we can probably expect the Fed Chairman to merely follow the same wait-and-see tone that the Fed has steadfastly stuck to the past few months.
How will the financial markets react?
Many traders may be getting caught up in the euphoria ahead of the meeting and may already be pricing in additional easing measures from both the ECB and Fed.
However, I've got a feeling that many market participants will be disappointed by the results of the symposium. If and when this happens, we could see the dollar rally as optimism for more liquidity dies down.
On the other hand, if there's even the slightest hint that the ECB will push through with putting a yield cap on bond yields, or if Bernanke signals that the Fed is ready to dump billions into the economy, we could see a strong risk rally take place.
In any case, make sure you tune in every now and then and see what's developing at the Jackson Hole Symposium! You never know when a game-changer may rock the markets!
For the latest updates on the stock market, PRESS CTR + D or visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
This weekend, on September 1 and September 2, hotshots in the financial world will once again gather for the symposium. Among a long list of topics to be discussed, investors will definitely be on their toes for the plans of two major central banks: the ECB and the Fed.
Bond buying from the ECB?
In recent weeks, there have been speculations that the ECB would intervene in bond markets by buying bonds of peripheral EZ countries to keep their borrowing costs from rising.
Market junkies were hoping to get more clues on the issue at this week's summit.
However, the ECB announced yesterday that head honcho Mario Draghi will not attend the meeting due to a heavy workload in the coming days. In fact, no one from the ECB executive board will make it to the conference!
Of course, the announcement only fueled speculations even further, as investors believe that the central bank is busy ironing out the details of another bond-buying program.
However, don't get too excited just yet. Some analysts warn that Draghi will not let us in on his plans before the German Constitutional Court passes its rule on the legality of the ESM on September 12. That said, I doubt we'll hear any details about bond buying and a yield cap this weekend.
Bernanke Comments on QE3
Back in 2010, our old buddy Big Ben Bernanke basically dropped a bomb at Jackson Hole - a liquidity bomb, that is!
With the U.S. economy down in the dumps, Bernanke announced that the Fed would be introducing another round of quantitative easing measures which infamously became known as QE2. Two years later, could history repeat itself?
Not so fast, my young padawan economists. As it turns out, many doubt that Bernanke will go so far as to use the symposium as a signaling event for the Fed's future monetary policy plans. With the August NFP figures not due until next week, it is unlikely that Bernanke will take a strong position on QE3.
Instead, we can probably expect the Fed Chairman to merely follow the same wait-and-see tone that the Fed has steadfastly stuck to the past few months.
How will the financial markets react?
Many traders may be getting caught up in the euphoria ahead of the meeting and may already be pricing in additional easing measures from both the ECB and Fed.
However, I've got a feeling that many market participants will be disappointed by the results of the symposium. If and when this happens, we could see the dollar rally as optimism for more liquidity dies down.
On the other hand, if there's even the slightest hint that the ECB will push through with putting a yield cap on bond yields, or if Bernanke signals that the Fed is ready to dump billions into the economy, we could see a strong risk rally take place.
In any case, make sure you tune in every now and then and see what's developing at the Jackson Hole Symposium! You never know when a game-changer may rock the markets!
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Monday, August 27, 2012
Fed Ben Bernanke speech in Jackson Hole 8/31/2012
Fed Ben Bernanke speech in Jackson Hole 8/31/2012 : Market participants were looking ahead to a speech by Fed Chairman Ben Bernanke at an annual symposium in Jackson Hole on Friday, amid ongoing speculation over how close the U.S. central bank is to implementing more stimulus measures.
Last Wednesday’s minutes of the U.S. central bank’s August meeting indicated that many policymakers may be leaning towards additional quantitative easing.
economic issues Jackson Hole symposium September 1-2 2012
This weekend, on September 1 and September 2, hotshots in the financial world will once again gather for the symposium. Among a long list of topics to be discussed, investors will definitely be on their toes for the plans of two major central banks: the ECB and the Fed. Read More..
Fed Ben Bernanke speech in Jackson Hole 8/31/2012
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Last Wednesday’s minutes of the U.S. central bank’s August meeting indicated that many policymakers may be leaning towards additional quantitative easing.
economic issues Jackson Hole symposium September 1-2 2012
This weekend, on September 1 and September 2, hotshots in the financial world will once again gather for the symposium. Among a long list of topics to be discussed, investors will definitely be on their toes for the plans of two major central banks: the ECB and the Fed. Read More..
Fed Ben Bernanke speech in Jackson Hole 8/31/2012
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Friday, August 24, 2012
Fed Ben Bernanke speech 8/24/2012
Fed Ben Bernanke speech 8/24/2012 : Federal Reserve Chairman Ben Bernanke makes clear in a letter to a House lawmaker that he thinks the Fed can do more to bolster the economic recovery and help reduce unemployment.
Bernanke also defends steps the Fed has already taken.
"There is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery," Bernanke says in the letter, which responds to questions posed by California Rep. Darrell Issa, a Republican.
Issa is chairman of the House Committee on Oversight and Government Reform.
Bernanke notes in the letter that with interest rates already at record lows, the Fed has had to deploy other means to strengthen the economy, such as buying bonds. The goal of the bond purchases has been to lower rates to encourage borrowing and spending.
The bond purchases "have helped to promote a stronger recovery than otherwise would have occurred," Bernanke wrote in the letter.
At its last policy meeting, the Fed had signaled a growing inclination to act further to help the economy.
Stocks reversed their losses Friday after the letter was reported by The Wall Street Journal.
The Fed already has completed two programs aimed at driving down interest rates to encourage more borrowing and spending. It bought more than $2 trillion in Treasurys and mortgage-backed securities, expanding its balance sheet above $2.8 trillion.
The central bank has been running a program for nearly a year in which it sells short-term Treasurys and buys longer-term Treasurys. The program, called Operation Twist, will run through the end of the year and shift $667 billion from short-term to longer-term Treasurys.
Asked by Issa about the impact of that program, Bernanke says its initial phase "is still working its way through the economic system."
Because it takes time for interest-rate policy actions to have an effect, Bernanke says the Fed's policies depend on the expected future performance of the economy.
He rejects suggestions that the Fed is subject to political pressure that would limit its ability to raise rates to tame inflation, should prices get out of control. Bernanke says that as an independent agency, the Fed "will be steadfast in its adherence to the task of promoting the dual mandate given by the Congress — to promote price stability and maximum sustainable employment."
Many analysts are looking to a speech by Bernanke next Friday at the annual Fed conference in Jackson Hole, Wyo., to provide further guidance on any new actions.
Even if the Fed launched a third round of bond purchases, few think that further lowering long-term rates would provide much benefit to the U.S. economy. Most businesses and consumers who aren't borrowing now aren't likely to change their minds if rates slipped a bit more.
One voting member of the Fed's policy committee told The Associated Press last week that the Fed's power to fix the U.S. economy is limited now. Jeffrey Lacker, head of the Federal Reserve Bank of Richmond, said the Fed can only do so much to lower the 8.3 percent unemployment rate. Lacker alone has dissented from the past five Fed statements that sketched out steps intended to bolster the economy.
The minutes of the Fed's most recent policy meeting, released this week, suggested that it might be ready to launch a new bond buying program as soon as the next meeting, Sept. 12-13 2012
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Bernanke also defends steps the Fed has already taken.
"There is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery," Bernanke says in the letter, which responds to questions posed by California Rep. Darrell Issa, a Republican.
Issa is chairman of the House Committee on Oversight and Government Reform.
Bernanke notes in the letter that with interest rates already at record lows, the Fed has had to deploy other means to strengthen the economy, such as buying bonds. The goal of the bond purchases has been to lower rates to encourage borrowing and spending.
The bond purchases "have helped to promote a stronger recovery than otherwise would have occurred," Bernanke wrote in the letter.
At its last policy meeting, the Fed had signaled a growing inclination to act further to help the economy.
Stocks reversed their losses Friday after the letter was reported by The Wall Street Journal.
The Fed already has completed two programs aimed at driving down interest rates to encourage more borrowing and spending. It bought more than $2 trillion in Treasurys and mortgage-backed securities, expanding its balance sheet above $2.8 trillion.
The central bank has been running a program for nearly a year in which it sells short-term Treasurys and buys longer-term Treasurys. The program, called Operation Twist, will run through the end of the year and shift $667 billion from short-term to longer-term Treasurys.
Asked by Issa about the impact of that program, Bernanke says its initial phase "is still working its way through the economic system."
Because it takes time for interest-rate policy actions to have an effect, Bernanke says the Fed's policies depend on the expected future performance of the economy.
He rejects suggestions that the Fed is subject to political pressure that would limit its ability to raise rates to tame inflation, should prices get out of control. Bernanke says that as an independent agency, the Fed "will be steadfast in its adherence to the task of promoting the dual mandate given by the Congress — to promote price stability and maximum sustainable employment."
Many analysts are looking to a speech by Bernanke next Friday at the annual Fed conference in Jackson Hole, Wyo., to provide further guidance on any new actions.
Even if the Fed launched a third round of bond purchases, few think that further lowering long-term rates would provide much benefit to the U.S. economy. Most businesses and consumers who aren't borrowing now aren't likely to change their minds if rates slipped a bit more.
One voting member of the Fed's policy committee told The Associated Press last week that the Fed's power to fix the U.S. economy is limited now. Jeffrey Lacker, head of the Federal Reserve Bank of Richmond, said the Fed can only do so much to lower the 8.3 percent unemployment rate. Lacker alone has dissented from the past five Fed statements that sketched out steps intended to bolster the economy.
The minutes of the Fed's most recent policy meeting, released this week, suggested that it might be ready to launch a new bond buying program as soon as the next meeting, Sept. 12-13 2012
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Wednesday, August 22, 2012
FOMC Meeting Minutes august 22, 2012
FOMC Meeting Minutes august 22, 2012, fed minutes 8/22/2012 : Investors will be looking for hints of the Federal Reserve's plans to fuel economic growth when it releases the minutes from its latest meeting. Given the lack of dramatic improvement or deceleration in the economy, some investors are giving up hope that the Fed will add economic stimulus or signal that the economy is strong enough to be self-sustaining.
The Fed will likely say what they have in the past because there's nothing that has moved the needle on the economy lately
The National Association of Realtors said Americans bought more homes in July than in June and prices rose, evidence of a recovering housing market. The 2.3 percent increase in sales from June was the first gain in three months. But the rate of home sales, at 4.47 million annually, was below the pace of April and May and well below the rate of roughly 5.5 million that economists consider healthy.
FOMC Meeting Minutes report today august 22, 2012
Federal Reserve officials signaled Wednesday that they may be ready to launch a new bond buying program when they next meet in September.
The goal would be to try to lower long-term interest rates to encourage more borrowing and spending.
Minutes of the July 31-Aug. 1 policy meeting released Wednesday don’t explicitly say what action the Fed would most likely take. But they hint that the central bank is preparing to begin more bond buying.
The minutes show that Fed officials spoke at the meeting with increased urgency about the need to provide more help for the still-weak U.S. economy. Many felt further support would be needed “fairly soon” unless the economy improved significantly.
The Fed has already sought to drive down long-term rates by buying more than $2 trillion in Treasury bonds and mortgage-backed securities in two previous rounds of bond purchases. The purchases are called “quantitative easing.”
Based on the minutes, David Jones, chief economist at DMJ Advisors, said he thought the likelihood of further quantitative easing had risen from evenly split to as high as a 70 percent chance that the Fed will make that move when it meets Sept. 12-13.
“I believe the Fed is signaling in very clear terms that a third round of bond purchases will be approved at the September meeting,” Jones said.
In the minutes, the Fed noted, “Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.”
Paul Ashworth, chief U.S. economist at Capital Economics, said that wording signaled that the Fed won’t be satisfied by the modest improvements the economy has made recently.
“Quantitative easing is still very much on the table,” Ashworth said.
The minutes also show many officials favor pushing the timetable for any increase in record-low short-term rates beyond the Fed’s current target of late 2014 at the earliest. Some economists think the target will be extended to mid-2015.
Reaction in the stock and bond markets was positive but muted. The Standard & Poor’s 500 stock index, down most of the day, finished essentially flat. The price of gold rose, as it sometimes does when investors think the Fed will pump more money into the economy. Gold hit $1,657 an ounce, its highest level since May.
The Fed releases minutes of its private discussions three weeks after each meeting. After it meets in September, Fed policymakers will also update their economic forecasts, and Chairman Ben Bernanke will hold a news conference.
Ashworth and some other economists said the minutes suggested that if the Fed does launch a new bond buying program, it won’t set a target amount, as it has in the past. Rather, the Fed could keep a new program open-ended so it could continue to buy bonds until it saw a significant decline in the unemployment rate, now at 8.3 percent.
An open-ended bond-buying program would represent a major shift in Fed policy, noted Michael Gapen, an economist at Barclays.
Even if the Fed announces another round of bond purchases, some economists have questioned how much it might help. They note that mortgage rates and other key borrowing rates are already near record lows.
After its August meeting, the Fed announced no changes in its policies. But in a statement afterward, it appeared to signal a growing willingness to take further steps to boost the economy if it doesn’t improve. The Fed noted that growth had slowed in the first half of the year. In particular, it pointed to lackluster job growth and consumer spending.
The issue of whether the Fed will announce any major moves in September was thrown into some doubt by economic improvements since its last meeting. Gains have been made in such areas as hiring, housing and consumer spending.
Many analysts are looking to a speech by Bernanke on Aug. 31 at an annual Fed conference in Jackson Hole, Wyo., to provide further guidance on any new actions.
In the view of some analysts, the Fed might still want to put off any major new bond-purchase program so it would have something in reserve in case the economy goes off a “fiscal cliff” at the end of the year. That’s when tax increases and deep spending cuts will take effect unless Congress reaches a budget agreement.
On Wednesday, the Congressional Budget Office warned that if the fiscal crisis remained unresolved all next year, it would probably tip the U.S. economy into a recession. The CBO estimated that the economy would shrink 0.5 percent in 2013. Unemployment would rise to around 9 percent by late next year as a result of the spending cuts and tax increases, the CBO said.
The Fed still remains divided over the need for further policy action. In a speech this week, Dennis Lockhart, president of the Atlanta regional Fed bank and a voting member of the Fed’s policy committee, said “there was a risk to monetary policy being employed too aggressively and without effect.”
Still, the minutes seemed to indicate that those arguing for more support for the economy outnumber those arguing that the Fed has done enough.
The economy grew at a lackluster annual rate of 1.5 percent in the July-September — even slower than the 2 percent growth rate from January through March. Many economists think growth in the second half of this year will remain around 2 percent — too weak to lower the unemployment rate.
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The Fed will likely say what they have in the past because there's nothing that has moved the needle on the economy lately
The National Association of Realtors said Americans bought more homes in July than in June and prices rose, evidence of a recovering housing market. The 2.3 percent increase in sales from June was the first gain in three months. But the rate of home sales, at 4.47 million annually, was below the pace of April and May and well below the rate of roughly 5.5 million that economists consider healthy.
FOMC Meeting Minutes report today august 22, 2012
Federal Reserve officials signaled Wednesday that they may be ready to launch a new bond buying program when they next meet in September.
The goal would be to try to lower long-term interest rates to encourage more borrowing and spending.
Minutes of the July 31-Aug. 1 policy meeting released Wednesday don’t explicitly say what action the Fed would most likely take. But they hint that the central bank is preparing to begin more bond buying.
The minutes show that Fed officials spoke at the meeting with increased urgency about the need to provide more help for the still-weak U.S. economy. Many felt further support would be needed “fairly soon” unless the economy improved significantly.
The Fed has already sought to drive down long-term rates by buying more than $2 trillion in Treasury bonds and mortgage-backed securities in two previous rounds of bond purchases. The purchases are called “quantitative easing.”
Based on the minutes, David Jones, chief economist at DMJ Advisors, said he thought the likelihood of further quantitative easing had risen from evenly split to as high as a 70 percent chance that the Fed will make that move when it meets Sept. 12-13.
“I believe the Fed is signaling in very clear terms that a third round of bond purchases will be approved at the September meeting,” Jones said.
In the minutes, the Fed noted, “Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.”
Paul Ashworth, chief U.S. economist at Capital Economics, said that wording signaled that the Fed won’t be satisfied by the modest improvements the economy has made recently.
“Quantitative easing is still very much on the table,” Ashworth said.
The minutes also show many officials favor pushing the timetable for any increase in record-low short-term rates beyond the Fed’s current target of late 2014 at the earliest. Some economists think the target will be extended to mid-2015.
Reaction in the stock and bond markets was positive but muted. The Standard & Poor’s 500 stock index, down most of the day, finished essentially flat. The price of gold rose, as it sometimes does when investors think the Fed will pump more money into the economy. Gold hit $1,657 an ounce, its highest level since May.
The Fed releases minutes of its private discussions three weeks after each meeting. After it meets in September, Fed policymakers will also update their economic forecasts, and Chairman Ben Bernanke will hold a news conference.
Ashworth and some other economists said the minutes suggested that if the Fed does launch a new bond buying program, it won’t set a target amount, as it has in the past. Rather, the Fed could keep a new program open-ended so it could continue to buy bonds until it saw a significant decline in the unemployment rate, now at 8.3 percent.
An open-ended bond-buying program would represent a major shift in Fed policy, noted Michael Gapen, an economist at Barclays.
Even if the Fed announces another round of bond purchases, some economists have questioned how much it might help. They note that mortgage rates and other key borrowing rates are already near record lows.
After its August meeting, the Fed announced no changes in its policies. But in a statement afterward, it appeared to signal a growing willingness to take further steps to boost the economy if it doesn’t improve. The Fed noted that growth had slowed in the first half of the year. In particular, it pointed to lackluster job growth and consumer spending.
The issue of whether the Fed will announce any major moves in September was thrown into some doubt by economic improvements since its last meeting. Gains have been made in such areas as hiring, housing and consumer spending.
Many analysts are looking to a speech by Bernanke on Aug. 31 at an annual Fed conference in Jackson Hole, Wyo., to provide further guidance on any new actions.
In the view of some analysts, the Fed might still want to put off any major new bond-purchase program so it would have something in reserve in case the economy goes off a “fiscal cliff” at the end of the year. That’s when tax increases and deep spending cuts will take effect unless Congress reaches a budget agreement.
On Wednesday, the Congressional Budget Office warned that if the fiscal crisis remained unresolved all next year, it would probably tip the U.S. economy into a recession. The CBO estimated that the economy would shrink 0.5 percent in 2013. Unemployment would rise to around 9 percent by late next year as a result of the spending cuts and tax increases, the CBO said.
The Fed still remains divided over the need for further policy action. In a speech this week, Dennis Lockhart, president of the Atlanta regional Fed bank and a voting member of the Fed’s policy committee, said “there was a risk to monetary policy being employed too aggressively and without effect.”
Still, the minutes seemed to indicate that those arguing for more support for the economy outnumber those arguing that the Fed has done enough.
The economy grew at a lackluster annual rate of 1.5 percent in the July-September — even slower than the 2 percent growth rate from January through March. Many economists think growth in the second half of this year will remain around 2 percent — too weak to lower the unemployment rate.
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Tuesday, August 21, 2012
Mitt Romney would not reappoint Bernanke beyond 2014
why Mitt Romney would not reappoint Bernanke beyond 2014 : Ben Bernanke received an unlikely defense of his work at the U.S. Federal Reserve by a top Mitt Romney adviser, who said on Tuesday that he should be considered for a third term as chairman.
Glenn Hubbard, economic adviser to the Republican presidential candidate, said he would advise a possible President Romney that Bernanke should "get every consideration" to stay on beyond January 2014, when the chairman's current term expires.
The comments may come as a surprise given Romney has said he would not reappoint Bernanke beyond 2014. Further, many top Republicans have blasted the Fed's aggressive policies since the Great Recession as overreaching and reckless.
"Ben is a model technocrat. He gets paid nothing for getting kicked around all the time. I think they ought to pat him on the back," Hubbard said in an interview, adding he has known Bernanke since they were "practically kids" and regularly speaks to him.
"I may or may not agree with him, but that's very different from saying I question his motives. I wish politicians would stop doing that," Hubbard told Reuters TV. (Reuters TV interview: reut.rs/SPSy4f )
The comments from Hubbard - who himself was considered for the Fed chairmanship under former President George W. Bush, who ultimately picked Bernanke - suggests there is at least some support for the head of the U.S. central bank within the Romney camp as it battles to unseat President Barack Obama.
Hubbard was quick to note his opposition to some Fed policies, including the large-scale bond buying programs known as quantitative easing, or QE. He said a third round of buying (QE3) is unlikely to happen and would have little effect on either the economy or the bruising election campaign.
QE3 would probably only slightly lower Treasury yields, which are already very low, Hubbard said. "I don't think that's what the doctor ordered for the recovery," he said at the Columbia Business School in New York, where he is dean.
Yet with U.S. economic growth stalling and unemployment stubbornly high at 8.3 percent, some economists expect the Fed to launch QE3 as soon as its next policy meeting on September 12-13. Bernanke could set the stage for a new purchase program at a speech in Jackson Hole, Wyoming, on August 31.
But on the eve of the November 6 presidential election, such a controversial move to boost the economy would almost certainly draw criticism from conservatives who already feel the central bank is an overly powerful agency that lacks transparency.
Paul Ryan, Romney's vice presidential running mate and a harsh critic of the Fed's ultra loose monetary policy, backs exposing those policy decisions to a congressional audit, and he supported legislation that would strip the Fed of its mission to seek maximum employment.
Romney has said QE3 would not do much economic good, and he too backed an audit of the Fed, though it is unclear whether he would want to extend that to monetary policy - as Ryan does - which could be seen as undermining the central bank's independence.
Hubbard, who was chairman of the White House Council of Economic Advisers under Bush, said Congress is right to consider forcing the Fed to explain policy decisions. But "the idea of putting them more under the microscope of literally auditing decisions - I don't think so," he said.
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Glenn Hubbard, economic adviser to the Republican presidential candidate, said he would advise a possible President Romney that Bernanke should "get every consideration" to stay on beyond January 2014, when the chairman's current term expires.
The comments may come as a surprise given Romney has said he would not reappoint Bernanke beyond 2014. Further, many top Republicans have blasted the Fed's aggressive policies since the Great Recession as overreaching and reckless.
"Ben is a model technocrat. He gets paid nothing for getting kicked around all the time. I think they ought to pat him on the back," Hubbard said in an interview, adding he has known Bernanke since they were "practically kids" and regularly speaks to him.
"I may or may not agree with him, but that's very different from saying I question his motives. I wish politicians would stop doing that," Hubbard told Reuters TV. (Reuters TV interview: reut.rs/SPSy4f )
The comments from Hubbard - who himself was considered for the Fed chairmanship under former President George W. Bush, who ultimately picked Bernanke - suggests there is at least some support for the head of the U.S. central bank within the Romney camp as it battles to unseat President Barack Obama.
Hubbard was quick to note his opposition to some Fed policies, including the large-scale bond buying programs known as quantitative easing, or QE. He said a third round of buying (QE3) is unlikely to happen and would have little effect on either the economy or the bruising election campaign.
QE3 would probably only slightly lower Treasury yields, which are already very low, Hubbard said. "I don't think that's what the doctor ordered for the recovery," he said at the Columbia Business School in New York, where he is dean.
Yet with U.S. economic growth stalling and unemployment stubbornly high at 8.3 percent, some economists expect the Fed to launch QE3 as soon as its next policy meeting on September 12-13. Bernanke could set the stage for a new purchase program at a speech in Jackson Hole, Wyoming, on August 31.
But on the eve of the November 6 presidential election, such a controversial move to boost the economy would almost certainly draw criticism from conservatives who already feel the central bank is an overly powerful agency that lacks transparency.
Paul Ryan, Romney's vice presidential running mate and a harsh critic of the Fed's ultra loose monetary policy, backs exposing those policy decisions to a congressional audit, and he supported legislation that would strip the Fed of its mission to seek maximum employment.
Romney has said QE3 would not do much economic good, and he too backed an audit of the Fed, though it is unclear whether he would want to extend that to monetary policy - as Ryan does - which could be seen as undermining the central bank's independence.
Hubbard, who was chairman of the White House Council of Economic Advisers under Bush, said Congress is right to consider forcing the Fed to explain policy decisions. But "the idea of putting them more under the microscope of literally auditing decisions - I don't think so," he said.
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Monday, August 20, 2012
FOMC Minutes will released August 22, 2012
FOMC Minutes will released August 22, 2012, fed bernanke will speech 8/22/2012 : investors sold and jumped to the sidelines ahead of Wednesday's release of the minutes from the Federal Reserve's August monetary policy meeting.
A string of solid economic indicators in the U.S. has lowered expectations for the U.S. central bank to roll out a new round of stimulus measures, which would weaken the dollar to spur recovery.
Consumer sentiment figures have surprised on the upside as have retail sales numbers, industrial production figures and other indicators, Investors will remain focused on Wednesday, when the Federal Reserve releases the minutes of its most recent monetary policy meeting.
The National Association of Realtors said Americans bought more homes in July than in June and prices rose, evidence of a recovering housing market. The 2.3 percent increase in sales from June was the first gain in three months.
Investors will be looking for hints of the Federal Reserve's plans to fuel economic growth when it releases the minutes from its latest meeting.
Given the lack of dramatic improvement or deceleration in the economy, some investors are giving up hope that the Fed will add economic stimulus or signal that the economy is strong enough to be self-sustaining.
The Fed will likely say what they have in the past because there's nothing that has moved the needle on the economy lately
But the rate of home sales, at 4.47 million annually, was below the pace of April and May and well below the rate of roughly 5.5 million that economists consider healthy.
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A string of solid economic indicators in the U.S. has lowered expectations for the U.S. central bank to roll out a new round of stimulus measures, which would weaken the dollar to spur recovery.
Consumer sentiment figures have surprised on the upside as have retail sales numbers, industrial production figures and other indicators, Investors will remain focused on Wednesday, when the Federal Reserve releases the minutes of its most recent monetary policy meeting.
The National Association of Realtors said Americans bought more homes in July than in June and prices rose, evidence of a recovering housing market. The 2.3 percent increase in sales from June was the first gain in three months.
Investors will be looking for hints of the Federal Reserve's plans to fuel economic growth when it releases the minutes from its latest meeting.
Given the lack of dramatic improvement or deceleration in the economy, some investors are giving up hope that the Fed will add economic stimulus or signal that the economy is strong enough to be self-sustaining.
The Fed will likely say what they have in the past because there's nothing that has moved the needle on the economy lately
But the rate of home sales, at 4.47 million annually, was below the pace of April and May and well below the rate of roughly 5.5 million that economists consider healthy.
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Wednesday, August 1, 2012
Fed statement FOMC meeting august 1 2012
FOMC meeting august 1 2012 : Fed Bernanke speech august 1 2012 : The Federal Reserve announced no new steps on Wednesday to deal with the sluggish economy.
It reiterated a June statement that it intends to keep interest rates low through 2014, but declined to take major actions to ease credit such as a new round of purchases of securities. The Fed will continue to monitor the situation ahead of its next meeting in September.
On the economy, the Fed said "economic activity decelerated somewhat over the first half of this year."
This is roughly consistent with its June 20 statement, where the Fed said the economy “has been expanding moderately this year” but added that “growth in employment has slowed in recent months, and the unemployment rate remains elevated.”
As in June, the Fed said that the sluggish growth warranted "exceptionally low levels for the federal funds rate at least through late 2014."
The statement came at the end of a two-day monthly meeting of the Federal Open Market Committee (FOMC). The Fed governors will meet again in September where it could take further action.
The announcement could be bad news for President Obama, who is hoping for an upturn in stock markets and the economy before the election.
In the wake of the 2008 financial crisis, the Fed instituted two rounds of quantitative easing (QE), a form of unconventional monetary stimulus. With interest rates already at historic lows, QE allows the Fed to ease credit further, in the hope of provoking business investment, spending and growth
The Fed in November 2010 announced its second round of QE, buying $600 billion in Treasury bonds over eight months in a bid to boost the sluggish recovery by expanding the money supply.
This June, the Fed announced a six-month extension of "Operation Twist," a less ambitious way to reduce borrowing rates and boost the economy. It committed to selling $267 billion of shorter-term securities and buying the same amount of longer-term debt to do so.
At that time, Bernanke said a third round of quantitative easing remained an option for the central bank. “I don't think they should be launched lightly,” he said, however.
The Fed announcement comes just two days before the July jobs report. As it stands, there was just a 1.5 percent rise in gross domestic product in the second quarter — and the unemployment rate stuck above 8 percent.
Private-sector employers added 163,000 jobs in July, a slightly slower pace than June but a sign that the labor market is showing signs of life, ADP Employer Services reported on Wednesday.
Democrats this month had been pushing the Fed to do more to help the economy—the biggest millstone around the neck of the Obama reelection campaign.
In a July 17 hearing, Sen. Charles Schumer (D-N.Y.) urged Federal Reserve Chairman Ben Bernanke to act because Congress is too deadlocked to stimulate the economy.
“Given the political realities ... I’m afraid the Fed is the only game in town, and I would urge you to take whatever actions you think will be most helpful,” he said. “Get to work, Mr. Chairman.”
Bernanke vowed not to play politics.
“We will act in an apolitical, nonpartisan manner to do what’s necessary for the economy,” he said.
Republicans have warned the Fed against a QE3.
Opponents of the Fed’s easy money policies argue that the Fed is tempting price inflation, while punishing savers to help debtors and speculators. The Fed action makes refinancing mortgages more attractive and tends to boost stock values, while leaving rates on safer investments like certificates of deposits extremely low.
The rates also fuels government spending by allowing the government to borrow money more cheaply to finance what many conservative denounce as waste.
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It reiterated a June statement that it intends to keep interest rates low through 2014, but declined to take major actions to ease credit such as a new round of purchases of securities. The Fed will continue to monitor the situation ahead of its next meeting in September.
On the economy, the Fed said "economic activity decelerated somewhat over the first half of this year."
This is roughly consistent with its June 20 statement, where the Fed said the economy “has been expanding moderately this year” but added that “growth in employment has slowed in recent months, and the unemployment rate remains elevated.”
As in June, the Fed said that the sluggish growth warranted "exceptionally low levels for the federal funds rate at least through late 2014."
The statement came at the end of a two-day monthly meeting of the Federal Open Market Committee (FOMC). The Fed governors will meet again in September where it could take further action.
The announcement could be bad news for President Obama, who is hoping for an upturn in stock markets and the economy before the election.
In the wake of the 2008 financial crisis, the Fed instituted two rounds of quantitative easing (QE), a form of unconventional monetary stimulus. With interest rates already at historic lows, QE allows the Fed to ease credit further, in the hope of provoking business investment, spending and growth
The Fed in November 2010 announced its second round of QE, buying $600 billion in Treasury bonds over eight months in a bid to boost the sluggish recovery by expanding the money supply.
This June, the Fed announced a six-month extension of "Operation Twist," a less ambitious way to reduce borrowing rates and boost the economy. It committed to selling $267 billion of shorter-term securities and buying the same amount of longer-term debt to do so.
At that time, Bernanke said a third round of quantitative easing remained an option for the central bank. “I don't think they should be launched lightly,” he said, however.
The Fed announcement comes just two days before the July jobs report. As it stands, there was just a 1.5 percent rise in gross domestic product in the second quarter — and the unemployment rate stuck above 8 percent.
Private-sector employers added 163,000 jobs in July, a slightly slower pace than June but a sign that the labor market is showing signs of life, ADP Employer Services reported on Wednesday.
Democrats this month had been pushing the Fed to do more to help the economy—the biggest millstone around the neck of the Obama reelection campaign.
In a July 17 hearing, Sen. Charles Schumer (D-N.Y.) urged Federal Reserve Chairman Ben Bernanke to act because Congress is too deadlocked to stimulate the economy.
“Given the political realities ... I’m afraid the Fed is the only game in town, and I would urge you to take whatever actions you think will be most helpful,” he said. “Get to work, Mr. Chairman.”
Bernanke vowed not to play politics.
“We will act in an apolitical, nonpartisan manner to do what’s necessary for the economy,” he said.
Republicans have warned the Fed against a QE3.
Opponents of the Fed’s easy money policies argue that the Fed is tempting price inflation, while punishing savers to help debtors and speculators. The Fed action makes refinancing mortgages more attractive and tends to boost stock values, while leaving rates on safer investments like certificates of deposits extremely low.
The rates also fuels government spending by allowing the government to borrow money more cheaply to finance what many conservative denounce as waste.
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Tuesday, July 17, 2012
Will Fed Bernanke speech july 17 2012
The stakes for US financial regulators have risen since The Federal Reserve Bank of New York released documents last Friday showing it learned of manipulation by the banks nearly five years ago. And some US local authorities are now considering suing banks accused of manipulating interest rates.
The Fed chairman begins the first leg of a two-day testimony to U.S. lawmakers later on Tuesday and is expected to be pressed on whether the central bank is close to launching a third round of large-scale asset purchases (QE3), and what kind of other tools it might consider using.
The Fed's decision last month to buy an additional $267 billion in long-term bonds with proceeds from short-term debt, a measure known as Operation Twist, has already put the U.S. central bank on a policy easing footing.
But since then central banks in Europe, the UK, China and Brazil have announced looser monetary policies while a string of weak domestic U.S. economic data has raised hopes of new steps.
Data due out later on U.S. inflation and industrial output could add to pressure on the Fed to act.
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Wednesday, June 20, 2012
Fed Bernanke Press Conference june 20 2012
Fed Bernanke Press Conference june 20 2012 : U.S. stocks opened lower as investors weighed positive developments in Europe against uncertainty over whether the Federal Reserve would announce further stimulus measures after wrapping up its latest meeting on Wednesday.
The gyrations came ahead of the Fed's monetary-policy statement, due at 12:30 p.m. EDT. Fed Chairman Ben Bernanke will follow with a press conference at 2 p.m., amid speculation that the central bank will disclose the extension of its stimulus measure known as "Operation Twist," in which the Fed sells short-term Treasurys and buys longer-dated ones in an effort to keep long-term borrowing costs down.
The Federal Reserve will probably decide today to expand Operation Twist beyond $400 billion to spur growth and buy protection against a deeper crisis in Europe, according to a Bloomberg News survey of economists.
Fifty-eight percent of respondents in a June 18 poll said the Fed will prolong the program, which seeks to lower borrowing costs by extending the average maturity of the securities in the central bank’s portfolio. The current program ends this month.
Policy makers led by Chairman Ben S. Bernanke may conclude that growth is too feeble to reduce unemployment much further after payroll growth came close to stalling in May. At the same time, with inflation close to their 2 percent goal and the Greek election reducing the risk of a euro breakup, they may decide an additional round of quantitative easing isn’t needed for now, economists said.
“Extending Operation Twist is the path of least resistance,” said Josh Feinman, the New York-based global chief economist for DB Advisors, the Deutsche Bank AG asset management unit that oversees $232.1 billion. “It would be an extension of something we have in place, so it would be more seamless, and it doesn’t complicate exit strategies as much because it’s not expanding the balance sheet,” said Feinman, a former senior economist for the Fed Board in Washington.
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The gyrations came ahead of the Fed's monetary-policy statement, due at 12:30 p.m. EDT. Fed Chairman Ben Bernanke will follow with a press conference at 2 p.m., amid speculation that the central bank will disclose the extension of its stimulus measure known as "Operation Twist," in which the Fed sells short-term Treasurys and buys longer-dated ones in an effort to keep long-term borrowing costs down.
The Federal Reserve will probably decide today to expand Operation Twist beyond $400 billion to spur growth and buy protection against a deeper crisis in Europe, according to a Bloomberg News survey of economists.
Fifty-eight percent of respondents in a June 18 poll said the Fed will prolong the program, which seeks to lower borrowing costs by extending the average maturity of the securities in the central bank’s portfolio. The current program ends this month.
Policy makers led by Chairman Ben S. Bernanke may conclude that growth is too feeble to reduce unemployment much further after payroll growth came close to stalling in May. At the same time, with inflation close to their 2 percent goal and the Greek election reducing the risk of a euro breakup, they may decide an additional round of quantitative easing isn’t needed for now, economists said.
“Extending Operation Twist is the path of least resistance,” said Josh Feinman, the New York-based global chief economist for DB Advisors, the Deutsche Bank AG asset management unit that oversees $232.1 billion. “It would be an extension of something we have in place, so it would be more seamless, and it doesn’t complicate exit strategies as much because it’s not expanding the balance sheet,” said Feinman, a former senior economist for the Fed Board in Washington.
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Thursday, June 7, 2012
Gold prices down after Ben Bernanke comments june 7 2012
Gold prices down after Ben Bernanke comments june 7 2012 : Spot gold fell more than 1.5 percent on Thursday as investors sold the metal heavily after Federal Reserve Chairman Ben Bernanke once again offered few hints that the U.S. central bank would introduce new stimulus to boost the economy.
Spot bullion was down 1.8 percent at $1,587.59 an ounce by 11:16 a.m. EDT (1516 GMT), about $40 below its session high at $1,628.80 an ounce. For the latest updates on the stock market, PRESS CTR + D or visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
Spot bullion was down 1.8 percent at $1,587.59 an ounce by 11:16 a.m. EDT (1516 GMT), about $40 below its session high at $1,628.80 an ounce. For the latest updates on the stock market, PRESS CTR + D or visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
Fed Ben bernanke press conference june 7 2012
Fed Ben bernanke press conference june 7 2012 : Federal Reserve Chairman Ben Bernanke said on Thursday the US central bank was ready to shield the economy if financial troubles mount, but offered few hints that further monetary stimulus was imminent.
Bernanke told Congress the Fed was monitoring “significant risks” to the US recovery from Europe's debt and banking crisis closely.
But for financial markets hungry for clues about the prospect for a third round of Fed bond buys, Bernanke's testimony disappointed. Many economists at prominent banks have been expecting the Fed to take some new policy steps at its June 19-20 meeting.
“The Federal Reserve remains prepared to take action as needed to protect the US economy in the event that financial stresses escalate,” Bernanke told the Joint Economic Committee.
Stocks pared gains on Bernanke's remarks, but remained in positive territory following a steep rally on Wednesday.
Weak US employment data last week and an escalation in the euro zone's crisis has raised speculation the Fed will again have to step in to support a fragile recovery.
Yet Bernanke's tone was far from crisis mode. Indeed, he sounded somewhat sanguine about the outlook. “Despite economic difficulties in Europe, the demand for US exports has held up well,” he said.
His comments stood in sharp contrast to those of Fed Vice Chair Janet Yellen, who late on Wednesday made the case for further monetary stimulus to insure against the risk of a downturn.
Bernanke made no such suggestions, but he did tell legislators tighter US fiscal policies set to kick in early next year barring congressional action “would, if allowed to occur, pose a significant threat to the recovery.”
Fabian Eliasson, vice president of currency sales at Mizuho Corporate Bank in New York, said Bernanke stopped far short of indicating a third round of quantitative easing was a done deal.
“I don't think he is definitely saying that QE3 is on the way. He's saying what he has said before, reassuring people that they will act if things deteriorate further,” said Eliasson.
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Bernanke told Congress the Fed was monitoring “significant risks” to the US recovery from Europe's debt and banking crisis closely.
But for financial markets hungry for clues about the prospect for a third round of Fed bond buys, Bernanke's testimony disappointed. Many economists at prominent banks have been expecting the Fed to take some new policy steps at its June 19-20 meeting.
“The Federal Reserve remains prepared to take action as needed to protect the US economy in the event that financial stresses escalate,” Bernanke told the Joint Economic Committee.
Stocks pared gains on Bernanke's remarks, but remained in positive territory following a steep rally on Wednesday.
Weak US employment data last week and an escalation in the euro zone's crisis has raised speculation the Fed will again have to step in to support a fragile recovery.
Yet Bernanke's tone was far from crisis mode. Indeed, he sounded somewhat sanguine about the outlook. “Despite economic difficulties in Europe, the demand for US exports has held up well,” he said.
His comments stood in sharp contrast to those of Fed Vice Chair Janet Yellen, who late on Wednesday made the case for further monetary stimulus to insure against the risk of a downturn.
Bernanke made no such suggestions, but he did tell legislators tighter US fiscal policies set to kick in early next year barring congressional action “would, if allowed to occur, pose a significant threat to the recovery.”
Fabian Eliasson, vice president of currency sales at Mizuho Corporate Bank in New York, said Bernanke stopped far short of indicating a third round of quantitative easing was a done deal.
“I don't think he is definitely saying that QE3 is on the way. He's saying what he has said before, reassuring people that they will act if things deteriorate further,” said Eliasson.
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Wednesday, June 6, 2012
U.S. economy grew Fed survey released june 6 2012
U.S. economy grew Fed survey released june 6 2012 ; The U.S. economy grew moderately in most regions of the country this spring and companies kept hiring, according to a Federal Reserve survey released Wednesday
The mostly upbeat survey offered a hopeful sign after last week's more dismal data on hiring and manufacturing. Those reports sketched a picture of an economy that is slumping after a promising winter.
The positive survey, which is anecdotal, also makes it less likely that Fed policymakers will take further action in the coming months to lift the economy. The survey doesn't suggest the economy is in dire need of help, many economists said.
"This report was more upbeat than probably anyone expected," said Jennifer Lee, an economist at BMO Capital Markets. That suggests that "some of the soft reports on payrolls, auto sales, and manufacturing may be temporary."
The Fed survey shows growth in each of its 12 bank districts from April 3 through May 25. Growth picked up in 10 districts. It was steady in the Boston district and slowed in the Philadelphia region.
Hiring was steady or rose modestly, according to the Fed's report, known as the "Beige Book." That's in stark contrast to the government's jobs report last week, which said employers added the fewest jobs in a year in May and the unemployment rate ticked up to 8.2 percent from 8.1 percent in April.
"We are encouraged by the overall tone ... because it suggests that business contacts are not experiencing a sharp drop-off in activity amid the heightened economic uncertainty of late," Joseph LaVorgna, an economist at Deutsche Bank, said in a note to clients.
Fed Chairman Ben Bernanke is expected to update his views on the economy and the Fed's policies during a Congressional hearing Thursday.
It was the second positive reading on the economy this week. On Tuesday, a private survey found that the service sector expanded at a slightly faster pace than the previous month. The industries surveyed cover about 90 percent of the economy and include health care, retail, construction and financial services.
The Dow Jones industrial average was up more than 270 points in afternoon trading, extending its first two-day winning streak since late April. The last time the Dow gained more than 200 points was March 13.
Broader indexes also rose sharply.
The survey was mostly positive. Manufacturing and home sales improved in most districts, as did residential and commercial construction. Auto sales were strong in most areas. And businesses sought more loans, which could signal expansion plans. Small and medium-sized banks in the New York district reported the most broad-based increase in loan demand since the mid-1990s.
But the survey also pointed to some weakness in the economy. Consumer spending was flat or increased only slightly in almost all districts. That could restrain growth because consumer spending drives 70 percent of economic activity.
Americans received little in the way of pay raises. Weak wage growth could also dampen consumer spending in the coming months.
Manufacturing firms in many districts said Europe's financial crisis and uncertainty over future U.S. tax and budget policies could weigh on upcoming business decisions.
Still, gas prices have dropped sharply since peaking on April 6. That could allow consumers and businesses latitude to spend more freely.
The Beige Book is released eight times a year and is based on surveys by the Fed's 12 regional banks. There are no numbers in the report. But its findings, which are released two weeks before the Fed's policy meeting, help influence the discussions.
Those discussions may be especially contentious when the Fed's board meets June 19-20. Last week's disappointing jobs report has heightened pressure on the central bank to take steps to accelerate growth and hiring.
Some Fed policymakers, who believe inflation is largely in check, may favor new stimulus measures. But other Fed officials fear that low interest rates and the central bank's previous bond-buying programs could soon push up inflation. They will likely resist any new steps.
Fed policy makers slightly upgraded their forecasts in April. They projected growth at about 2.7 percent this year, up from 2.5 percent in January. They also nudged down their unemployment rate forecasts.
Wall Street economists, however, have since moved in the other direction. Many now expect the economy to expand by only about 2 percent this year, down from earlier estimates of 2.5 percent.
In addition to the slowdown in hiring in May and April, reports last week showed that manufacturing activity grew more slowly last month, consumer confidence tumbled and a gauge of future home sales fell.
And the government said the economy expanded at a tepid 1.9 percent annual rate in the first three months of 2012. That's down from 3 percent in the fourth quarter.
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The mostly upbeat survey offered a hopeful sign after last week's more dismal data on hiring and manufacturing. Those reports sketched a picture of an economy that is slumping after a promising winter.
The positive survey, which is anecdotal, also makes it less likely that Fed policymakers will take further action in the coming months to lift the economy. The survey doesn't suggest the economy is in dire need of help, many economists said.
"This report was more upbeat than probably anyone expected," said Jennifer Lee, an economist at BMO Capital Markets. That suggests that "some of the soft reports on payrolls, auto sales, and manufacturing may be temporary."
The Fed survey shows growth in each of its 12 bank districts from April 3 through May 25. Growth picked up in 10 districts. It was steady in the Boston district and slowed in the Philadelphia region.
Hiring was steady or rose modestly, according to the Fed's report, known as the "Beige Book." That's in stark contrast to the government's jobs report last week, which said employers added the fewest jobs in a year in May and the unemployment rate ticked up to 8.2 percent from 8.1 percent in April.
"We are encouraged by the overall tone ... because it suggests that business contacts are not experiencing a sharp drop-off in activity amid the heightened economic uncertainty of late," Joseph LaVorgna, an economist at Deutsche Bank, said in a note to clients.
Fed Chairman Ben Bernanke is expected to update his views on the economy and the Fed's policies during a Congressional hearing Thursday.
It was the second positive reading on the economy this week. On Tuesday, a private survey found that the service sector expanded at a slightly faster pace than the previous month. The industries surveyed cover about 90 percent of the economy and include health care, retail, construction and financial services.
The Dow Jones industrial average was up more than 270 points in afternoon trading, extending its first two-day winning streak since late April. The last time the Dow gained more than 200 points was March 13.
Broader indexes also rose sharply.
The survey was mostly positive. Manufacturing and home sales improved in most districts, as did residential and commercial construction. Auto sales were strong in most areas. And businesses sought more loans, which could signal expansion plans. Small and medium-sized banks in the New York district reported the most broad-based increase in loan demand since the mid-1990s.
But the survey also pointed to some weakness in the economy. Consumer spending was flat or increased only slightly in almost all districts. That could restrain growth because consumer spending drives 70 percent of economic activity.
Americans received little in the way of pay raises. Weak wage growth could also dampen consumer spending in the coming months.
Manufacturing firms in many districts said Europe's financial crisis and uncertainty over future U.S. tax and budget policies could weigh on upcoming business decisions.
Still, gas prices have dropped sharply since peaking on April 6. That could allow consumers and businesses latitude to spend more freely.
The Beige Book is released eight times a year and is based on surveys by the Fed's 12 regional banks. There are no numbers in the report. But its findings, which are released two weeks before the Fed's policy meeting, help influence the discussions.
Those discussions may be especially contentious when the Fed's board meets June 19-20. Last week's disappointing jobs report has heightened pressure on the central bank to take steps to accelerate growth and hiring.
Some Fed policymakers, who believe inflation is largely in check, may favor new stimulus measures. But other Fed officials fear that low interest rates and the central bank's previous bond-buying programs could soon push up inflation. They will likely resist any new steps.
Fed policy makers slightly upgraded their forecasts in April. They projected growth at about 2.7 percent this year, up from 2.5 percent in January. They also nudged down their unemployment rate forecasts.
Wall Street economists, however, have since moved in the other direction. Many now expect the economy to expand by only about 2 percent this year, down from earlier estimates of 2.5 percent.
In addition to the slowdown in hiring in May and April, reports last week showed that manufacturing activity grew more slowly last month, consumer confidence tumbled and a gauge of future home sales fell.
And the government said the economy expanded at a tepid 1.9 percent annual rate in the first three months of 2012. That's down from 3 percent in the fourth quarter.
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Fed Ben Bernanke expected speech june 7 2012
Fed Ben Bernanke speech june 7 2012, Ben Bernanke press conference june 7 2012 ; U.S. Federal Reserve Chairman Ben Bernanke will testify before Congress on Thursday, a day after two influential officials in the central bank said they were prepared to take even more policy action to boost the erratic economic recovery. When Federal Reserve Chairman Ben Bernanke visits Capitol Hill today, the most insistent question he may face is: What’s going on with the economy?
Analysts will be listening to Bernanke closely for any hints that more bond buys are in store, especially after the lack of immediate aid for the troubled euro zone from the European Central Bank, which put the onus firmly on European policymakers to resolve the debt crisis. Expectations that the ECB would take action had helped bullion rise on Wednesday.
People have become more bullish after last Friday's employment figures. The market may be entering a new phase on the expectation that there will probably be some sort of easing, Gold has held around $1,620 level since surging more than 4 percent last Friday after disappointing U.S. employment data shook investors' confidence in the economic recovery and fuelled hopes for more easing.
In its most recent economic forecasts in late April, the Fed upgraded its outlook for 2012. It predicted more growth and lower unemployment than it had three months earlier. Since then, job growth has slumped. Stock prices have dropped. Europe’s debt crisis has deepened.
Now, members of the Joint Economic Committee will want to know whether Bernanke and the Fed have turned gloomier — and, if so, whether they’re likely to act further to aid the economy.
The Fed has made two rounds of bond purchases to try to lower long-term interest rates and encourage borrowing and spending. After those purchases ended, the Fed began a program dubbed Operation Twist: It sells shorter-term securities and buys longer-term bonds to keep their rates down. Operation Twist is set to end at the end of this month.
Bernanke has said that more bond purchases, or other steps by the Fed, are still an option if the economy weakens. But many analysts don’t expect further moves at the Fed’s next policy meeting June 19-20. They note that long-term rates have already touched record lows. And few think further Fed action would lower them much more.
Many economists think Bernanke will discuss the possibility of further Fed efforts at a news conference after the June meeting but won’t announce anything. Some say he would help shore up confidence by reiterating that more action remains an option should the economy weaken.
A bleaker view of the economy has taken hold in recent weeks, especially as hiring has weakened. U.S. employers added just 69,000 jobs in May, the fewest in a year. Since averaging a robust 252,000 a month from December through February, job growth has slowed to a lackluster 96,000 a month.
And the U.S. economy grew at a tepid annual rate of 1.9 percent in the first three months of 2012.
Fears are also growing that a collapse of Europe’s euro currency union could trigger a panic and perhaps cause a global recession.
On Thursday, lawmakers will likely want to know how concerned Bernanke and other Fed officials are.
Do they think the U.S. hiring slump is partly a temporary setback because a warm winter caused some hiring to occur earlier in the year than usual?
Does the Fed still think the U.S. economy will grow between 2.4 percent and 2.9 percent this year? And that unemployment, now at 8.2 percent, will be between 7.8 percent and 8 percent at year’s end?
Is further Fed action likelier than it was at the Fed’s previous meeting in April?
The Fed’s policy committee has been split between those who favor doing everything possible to strengthen the economy and reduce unemployment and those more concerned about inflation risks.
Richard Fisher, president of the Dallas Federal Reserve Bank, said in a speech Tuesday that he would oppose further Fed efforts to bolster the economy.
“Were we to go down the path to further accommodation at this juncture, we would not simply be pushing on a string but would be viewed as an accomplice to the mischief that has become synonymous with Washington,” Fisher said.
Fisher isn’t a voting member of the policy-making Federal Open Market Committee this year. But all Fed officials on the 19-member panel get to participate in the discussions.
Dennis Lockhart, who is a committee voting member, said in a speech Wednesday that should the economy deteriorate, “further monetary actions to support the recovery will certainly need to be considered.”
Lockhart did not specify what measures he thinks should be considered.
Richmond Federal Reserve Bank President Jeffrey Lacker has cast a lone dissenting vote at each of the Fed’s three meetings this year because he opposes its plan to keep short-term rates at record lows until at least late 2014.
Vincent Reinhart, chief U.S. economist at Morgan Stanley and formerly the Fed’s top staffer on interest-rate policy, is among a minority who think the Fed will take action this month. He also thinks the Fed will scale back its economic forecasts.
“Slower employment growth, worsening strains in European markets ... makes it likely that the Fed will mark down its already tepid forecast,” Reinhart said in a note to clients.
With long-term U.S. interest rates at record lows, further Fed bond purchases might have little effect. But some economists think a Fed move would help keep rates down should investors decide to stop pouring so much money into U.S. Treasurys. Many investors have sought the safety of Treasurys as Europe’s crisis has flared. That money has helped drive down long-term U.S. rates.
Some economists say they think most Fed policymakers recognize that an economy facing such threats as slowing job growth and a European debt crisis needs rates to stay as low as possible.
“When you have an economy that is recovering as slowly as this one, it is really vulnerable to downside shocks,” said David Jones, chief economist at DMJ Advisors. “I think more monetary stimulus is not only on the table but likely to be used.”
Read Fed Ben bernanke press conference june 7 2012
For the latest updates on the stock market, PRESS CTR + D or visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
Analysts will be listening to Bernanke closely for any hints that more bond buys are in store, especially after the lack of immediate aid for the troubled euro zone from the European Central Bank, which put the onus firmly on European policymakers to resolve the debt crisis. Expectations that the ECB would take action had helped bullion rise on Wednesday.
People have become more bullish after last Friday's employment figures. The market may be entering a new phase on the expectation that there will probably be some sort of easing, Gold has held around $1,620 level since surging more than 4 percent last Friday after disappointing U.S. employment data shook investors' confidence in the economic recovery and fuelled hopes for more easing.
In its most recent economic forecasts in late April, the Fed upgraded its outlook for 2012. It predicted more growth and lower unemployment than it had three months earlier. Since then, job growth has slumped. Stock prices have dropped. Europe’s debt crisis has deepened.
Now, members of the Joint Economic Committee will want to know whether Bernanke and the Fed have turned gloomier — and, if so, whether they’re likely to act further to aid the economy.
The Fed has made two rounds of bond purchases to try to lower long-term interest rates and encourage borrowing and spending. After those purchases ended, the Fed began a program dubbed Operation Twist: It sells shorter-term securities and buys longer-term bonds to keep their rates down. Operation Twist is set to end at the end of this month.
Bernanke has said that more bond purchases, or other steps by the Fed, are still an option if the economy weakens. But many analysts don’t expect further moves at the Fed’s next policy meeting June 19-20. They note that long-term rates have already touched record lows. And few think further Fed action would lower them much more.
Many economists think Bernanke will discuss the possibility of further Fed efforts at a news conference after the June meeting but won’t announce anything. Some say he would help shore up confidence by reiterating that more action remains an option should the economy weaken.
A bleaker view of the economy has taken hold in recent weeks, especially as hiring has weakened. U.S. employers added just 69,000 jobs in May, the fewest in a year. Since averaging a robust 252,000 a month from December through February, job growth has slowed to a lackluster 96,000 a month.
And the U.S. economy grew at a tepid annual rate of 1.9 percent in the first three months of 2012.
Fears are also growing that a collapse of Europe’s euro currency union could trigger a panic and perhaps cause a global recession.
On Thursday, lawmakers will likely want to know how concerned Bernanke and other Fed officials are.
Do they think the U.S. hiring slump is partly a temporary setback because a warm winter caused some hiring to occur earlier in the year than usual?
Does the Fed still think the U.S. economy will grow between 2.4 percent and 2.9 percent this year? And that unemployment, now at 8.2 percent, will be between 7.8 percent and 8 percent at year’s end?
Is further Fed action likelier than it was at the Fed’s previous meeting in April?
The Fed’s policy committee has been split between those who favor doing everything possible to strengthen the economy and reduce unemployment and those more concerned about inflation risks.
Richard Fisher, president of the Dallas Federal Reserve Bank, said in a speech Tuesday that he would oppose further Fed efforts to bolster the economy.
“Were we to go down the path to further accommodation at this juncture, we would not simply be pushing on a string but would be viewed as an accomplice to the mischief that has become synonymous with Washington,” Fisher said.
Fisher isn’t a voting member of the policy-making Federal Open Market Committee this year. But all Fed officials on the 19-member panel get to participate in the discussions.
Dennis Lockhart, who is a committee voting member, said in a speech Wednesday that should the economy deteriorate, “further monetary actions to support the recovery will certainly need to be considered.”
Lockhart did not specify what measures he thinks should be considered.
Richmond Federal Reserve Bank President Jeffrey Lacker has cast a lone dissenting vote at each of the Fed’s three meetings this year because he opposes its plan to keep short-term rates at record lows until at least late 2014.
Vincent Reinhart, chief U.S. economist at Morgan Stanley and formerly the Fed’s top staffer on interest-rate policy, is among a minority who think the Fed will take action this month. He also thinks the Fed will scale back its economic forecasts.
“Slower employment growth, worsening strains in European markets ... makes it likely that the Fed will mark down its already tepid forecast,” Reinhart said in a note to clients.
With long-term U.S. interest rates at record lows, further Fed bond purchases might have little effect. But some economists think a Fed move would help keep rates down should investors decide to stop pouring so much money into U.S. Treasurys. Many investors have sought the safety of Treasurys as Europe’s crisis has flared. That money has helped drive down long-term U.S. rates.
Some economists say they think most Fed policymakers recognize that an economy facing such threats as slowing job growth and a European debt crisis needs rates to stay as low as possible.
“When you have an economy that is recovering as slowly as this one, it is really vulnerable to downside shocks,” said David Jones, chief economist at DMJ Advisors. “I think more monetary stimulus is not only on the table but likely to be used.”
Read Fed Ben bernanke press conference june 7 2012
For the latest updates on the stock market, PRESS CTR + D or visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
Saturday, May 12, 2012
Minutes of FOMC meeting outlook may 16 2012
Minutes of FOMC meeting outlook may 16 2012 : Wall Street will scrutinize the minutes from the FOMC’s late April meeting, which the Fed will release on Wednesday at around 2 p.m. Eastern time.
The entire financial world will be paying attention to the meeting minutes from the last FOMC meeting where the Federal Reserve decided to keep rates unchanged with no new stimuli announced.
At that April 24-25 meeting, the FOMC repeated its expectation that interest rates would not rise until late 2014 at the earliest, and it took no action on monetary policy. But Federal Reserve Chairman Ben Bernanke spurred stock market gains when he told reporters on April 25 that “we remain entirely prepared to take additional balance-sheet actions as necessary to achieve our objectives. Those tools remained very much on the table and we would not hesitate to use them, should the economy require that additional support.”
Information received since the Federal Open Market Committee met in March suggests that the economy has been expanding moderately. Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated. Household spending and business fixed investment have continued to advance. Despite some signs of improvement, the housing sector remains depressed. Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable.
For the latest updates on the stock market, PRESS CTR + D or visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
The entire financial world will be paying attention to the meeting minutes from the last FOMC meeting where the Federal Reserve decided to keep rates unchanged with no new stimuli announced.
At that April 24-25 meeting, the FOMC repeated its expectation that interest rates would not rise until late 2014 at the earliest, and it took no action on monetary policy. But Federal Reserve Chairman Ben Bernanke spurred stock market gains when he told reporters on April 25 that “we remain entirely prepared to take additional balance-sheet actions as necessary to achieve our objectives. Those tools remained very much on the table and we would not hesitate to use them, should the economy require that additional support.”
Information received since the Federal Open Market Committee met in March suggests that the economy has been expanding moderately. Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated. Household spending and business fixed investment have continued to advance. Despite some signs of improvement, the housing sector remains depressed. Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable.
For the latest updates on the stock market, PRESS CTR + D or visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
Tuesday, April 24, 2012
Fed Ben Bernanke press conference april 25 2012
Fed Ben Bernanke press conference april 25 2012, what time is april 25 2012 fomc statement, what time is fomc april 2012, At the end of a two-day meeting, the Federal Open Market Committee will put out a policy statement at 12:30 EDT (1630 GMT) and its forecasts at 1400 EDT/l800 GMT. Fed Chairman Ben Bernanke's news conference starts at 1415 EDT/1815 GMT. The Fed is due to release a statement outlining its views on policy and the economy at about 1630 GMT, followed by a news conference by Fed Chairman Ben Bernanke, who is likely to be peppered with questions on the chances of more easing
market investors will look at the Federal Reserve's statement, forecasts and Fed Chairman Ben Bernanke's news conference on Wednesday to assess the prospects for a third round of quantitative easing, particularly one that would involve reverse repos that could boost supply of short-term stock market instruments.
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