March 29, 2024

Fed Officials Try to Ease Concern of Stimulus End

The message, delivered in three separate but similar speeches, reflects the Fed’s frustration with a broad rise in interest rates that began in May and accelerated after remarks last week by the Fed’s chairman, Ben S. Bernanke.

“I don’t want to be too cute about a serious matter,” Dennis P. Lockhart, president of the Federal Reserve Bank of Atlanta, said in Marietta, Ga., “but to make an analogy, it seems to me the chairman said we’ll use the patch — and use it flexibly — and some in the markets reacted as if he said ‘cold turkey.’ ”

The speeches, including one by William C. Dudley, president of the Federal Reserve Bank of New York and one of Mr. Bernanke’s closest allies, appeared to make an impression, helped along by upbeat domestic economic data and an easing of concerns about Chinese financial conditions. Stocks rose modestly, ending up for the third day in a row, while interest rates ticked downward, inverting the recent pattern.

On Wall Street, the broad Standard Poor’s 500-stock index had risen for most of the first five months of the year, bringing it to a high of 1,669.16 on May 21. But the next day, after Mr. Bernanke first hinted at an impending change in Fed policy, stock prices began falling, and the S. P. 500 eventually dropped 5.7 percent to a low on June 24, a few days after the most recent Fed policy statement. Since then, as Fed officials have sought to clarify their goals, the index has risen 2.5 percent, including Thursday’s 0.6 percent increase.

On Thursday, the three officials emphasized that the Fed was increasingly optimistic about the durability of economic growth. And they reiterated that they expected to reduce the volume of the Fed’s monthly bond purchases later this year. But the Fed’s overall effort to reduce borrowing costs will continue as long as necessary, most likely for years to come.

Investors, they said, need to gently place interest rates back down on the floor.

“Market adjustments since May have been larger than would be justified by any reasonable reassessment of the path of policy,” said the Fed governor Jerome H. Powell.

Mr. Dudley, who is also the vice chairman of the Fed’s policy-making committee, was even more emphatic. Investors expecting an early exit are “quite out of sync” with the Fed, he said. “A rise in short-term rates is very likely to be a long way off.”

The Fed is struggling in a world of its own creation. The central bank, seeking new ways to stimulate the economy, has sought to manage investor expectations about the path of monetary policy. By convincing investors that it will keep interest rates low tomorrow, it can reduce borrowing costs today.

In essence, the Fed is asking investors to stake vast sums on the proposition that it will do what it says. And investors, unsurprisingly, have become increasingly fearful about any sign that the Fed may change its plans.

The mainstay of the Fed’s stimulus campaign is its stated intention to hold short-term interest rates near zero as long as the unemployment rate remains above 6.5 percent. It has put further pressure on longer-term rates by amassing more than $3 trillion in Treasury securities and mortgage-backed securities; since last December it has expanded those holdings by an additional $85 billion a month in a process known as quantitative easing, or Q.E.

Interest rates started rising in May after Mr. Bernanke suggested that the Fed might reduce the volume of its monthly purchases later this year. Rates rose much more quickly after he said last week that the Fed was planning to do exactly that.

Mr. Bernanke insisted that the Fed was not altering its plans for short-term rates. He said the Fed was not even altering its plans for asset purchases; it was just publicizing those plans for the first time. And he emphasized that the timetable would change if the economy grew more slowly than expected.

But investors “seem to believe that Fed officials must have become at least somewhat more willing to consider earlier hikes if they are sufficiently comfortable with the economic outlook to preannounce Q.E. tapering,” wrote Jan Hatzius, chief economist at Goldman Sachs.

Nathaniel Popper contributed reporting.

Article source: http://www.nytimes.com/2013/06/28/business/economy/fed-has-not-changed-commitments-official-says.html?partner=rss&emc=rss

Common Sense: H.P.’s Transition Anything but Seamless

Just a year ago, Mark Hurd, H.P.’s chief executive, was forced to resign in the midst of allegations of sexual harassment and expense account irregularities, many details of which remain shrouded in secrecy. (The board concluded the sexual harassment claim was unfounded, but that Mr. Hurd’s lack of candor had cost him its confidence.) The vote to demand his resignation was unanimous, although the board was sharply divided, especially over how to handle his departure and seek a new C.E.O. But H.P. was so big, so dominant in most of its markets, and so profitable that Mr. Hurd was dispensable, according to people familiar with the board’s reasoning. “We don’t need you,” one board member bluntly told Mr. Hurd, or words to that effect.

So how has Hewlett-Packard fared under new leadership?

On Aug. 18, H.P. announced simultaneously that it was exploring “strategic alternatives” and might sell its dominant personal computer business, which accounts for roughly a third of the company’s revenue; that it was scrapping its new, much ballyhooed TouchPad tablet computer; and that it was acquiring a British software concern, Autonomy, for $10.3 billion, a steep 11 times revenue. The stock plunged 20 percent to $23.60 a share. When Mr. Hurd resigned, it was just under $46, so the one-year decline amounted to 49 percent. (The Standard Poor’s 500-stock index gained about 3 percent over the same period.)

“I didn’t know there was such a thing as corporate suicide, but now we know that there is,” a former H.P. director, the venture capitalist Tom Perkins, told me this week. “It’s just astonishing.”

“H.P. was the epicenter of Silicon Valley, geographically, culturally and historically,” an executive at another technology concern said. “Is there any analogy for an institution so respected that has fallen so far so fast? I can’t think of one.”

No one claims that Mr. Hurd, now president of Oracle, is another Steve Jobs. His critics have portrayed him as a glorified chief operating officer who ruthlessly cut costs and starved innovation. Still, there’s no denying the results during the six years he led H.P.: pro forma earnings leaped 242 percent on a 57 percent gain in revenue (to $120.4 billion); H.P.’s stock price rose 130 percent, to over $45 a share; free cash flow surged 138 percent and operating margins doubled. Forbes magazine put him on its cover in April 2010 with the headline: “He Wants It All.”

To replace Mr. Hurd, H.P.’s board hired Léo Apotheker, the former chief executive of the German software giant SAP, even though SAP had declined to renew Mr. Apotheker’s contract after just seven months in the top position and he was linked to a software theft scandal that cost SAP a $1.3 billion damages award (he has denied any direct involvement). Nor, as a software executive, did he have much experience with hardware, especially the printers and servers at the core of H.P.’s franchise.

On Jan. 20 this year, H.P. announced the resignations of four directors, two of whom had initially supported Mr. Hurd during board deliberations and resisted his immediate ouster, according to people with knowledge of the decision. Mr. Apotheker served on a committee that proposed the five new directors to replace them, prompting sharp criticism from the shareholder watchdog Institutional Shareholder Services, which said H.P. had violated its own rules in allowing its chief executive to play a role in choosing board members who are supposed to be independent. (H.P.’s chairman, Ray Lane, denied any violation of rules, and told Bloomberg News that the new board members “aren’t buddies of Apotheker,” adding that “because Léo and I know the industry, it would be hard to pick any name we don’t know.” An H.P. spokeswoman said that the company drew praise from many corporate governance experts for shaking up the board.)

After taking time to study H.P.’s operations, Mr. Apotheker hosted a three-day conference, “HP Summit 2011,” beginning March 14 at the Yerba Buena Center for the Arts in San Francisco, a venue long associated with dazzling new product announcements from Apple. His presentation emphasized cloud computing and software, including WebOS, the highly regarded operating system H.P. gained when it acquired Palm Inc. under Mr. Hurd. Mr. Apotheker revealed that WebOS would be the future operating system in all the company’s computers and said that H.P. would be shipping 100 million devices using it. He said curiously little about H.P.’s vaunted printer or server divisions, which accounted for the bulk of the company’s profits.

Article source: http://feeds.nytimes.com/click.phdo?i=8f46f50701765635389e2f210aa18211