December 14, 2017

Wall Street Slips Amid Fed Policy Jitters

Stocks on Wall Street slipped on Monday as upbeat economic data from Germany and China was countered by a Federal Reserve official’s remarks that the Fed could begin to scale back its stimulus measures this year.

In late morning trading, the Standard Poor’s 500-stock index was down 0.7 percent, while the Dow Jones industrial average fell 0.4 percent and the Nasdaq composite was off 0.7 percent.

Germany’s private sector grew in September at its fastest rate since January, and a survey showed Chinese manufacturing activity accelerated to a six-month high in September, giving equities relative support.

Referring to the timeline that the Fed chairman, Ben S. Bernanke, articulated in June, William C. Dudley, the president of the Federal Reserve Bank of New York, said the framework is “still very much intact.”

Investors were surprised last week when the Fed decided not to reduce the asset purchases from the current $85 billion monthly pace after many expected a change in policy would come in September.

Other Fed officials will be on the speakers’ circuit on Monday. Investors will be paying close attention after James B. Bullard, chief of the St. Louis Fed, said on Friday that policy makers could still decide to start trimming the central bank’s stimulus in October if inflation and unemployment data warrant it.

“We had some good news out of China and Europe and the elections in Germany are favorable for the euro zone, but focus remains on the Fed,” said Peter Cardillo, chief market economist at Rockwell Global Capital in New York. “Fed speakers are going to keep this market on edge, will continue to keep it guessing when they will begin to taper.”

The S. P. 500 and Dow industrials hit record highs last week after the Fed ignored investor expectations by postponing the start of the wind down of its massive monetary stimulus, saying it wanted to wait for more evidence of solid economic growth.

The prospect of a government shutdown or even a default in the coming weeks could keep markets jittery even as Wall Street analysts sense the current drama is likely to feature more bluster than bravado.

Apple shares gained 4.1 percent, building on momentum from last week, after it said it sold nine million iPhone 5s and iPhone 5c models over the weekend since their launch on Friday.

Citigroup led the S. P.’s financial sector lower a day after The Financial Times reported that Citi had a significant drop in trading revenue during the third quarter, which could hurt the bank’s earnings. Shares in Citigroup fell 3 percent.

United States-traded shares of BlackBerry fell 5.8 percent after the Canadian smartphone maker announced on Friday a change in focus away from the consumer in favor of businesses and governments. The move has fueled fears about BlackBerry’s long-term viability.

German shares closed lower though they remained near last week’s record high a day after Chancellor Angela Merkel won a landslide victory in the general election. Her conservatives may need center-left rivals to form a coalition government.

European stocks hit a five-year high last week, and Nick Beecroft, chairman and senior market analyst for Saxo Bank capital markets, said Ms. Merkel’s election win was “a ringing endorsement” to ensure the euro survives.

Ms. Merkel’s victory gave the euro only the briefest of lifts, however, because she still needs a new coalition partner to rule.

Having initially gained a quarter of an American cent, to $1.3555, the euro faded to $1.3492.

In Asia, shares in Shanghai gained 1 percent while Hong Kong’s Hang Seng index slipped 0.6 percent. Australian shares were down 0.5 percent, and Japanese markets were closed for a holiday.

Benchmark crude oil continued its slide, reflecting increasing confidence over supplies, down $1.43 a barrel, at $103.32.

Article source: http://www.nytimes.com/2013/09/24/business/daily-stock-market-activity.html?partner=rss&emc=rss

No Clarity From Fed on Stimulus, Upsetting Wall Street

The confusion over exactly when the Federal Reserve will begin scaling back its huge economic stimulus efforts only deepened Wednesday, with the release of a summary of the deliberations at the central bank’s last meeting in late July.

There were hints that some members of the divided committee are comfortable with beginning to ease the Fed’s program of buying $85 billion a month in government bonds and mortgage securities as soon as their next meeting in mid-September. But there were also indications that another camp within the policy-setting group favors waiting until December, or even later.

The only thing that was clear is that the Fed intends to keep Wall Street — and the rest of the world — guessing.

For one thing, a number of participants at the Federal Open Market Committee raised concerns that economic growth in the second half of the year would prove disappointing, which would tend to encourage them to delay any changes in their current policy,

In June, the Fed’s chairman, Ben S. Bernanke, indicated the stimulus program could be scaled back this year if economic data continued to be relatively positive. But he avoided setting any target dates to begin what many investors refer to as the Fed’s coming “taper.”

The minutes of the meeting did little to clarify the issue. While “a few members emphasized the importance of being patient and evaluating additional information before deciding on any changes to the pace of asset purchases,” a few others “suggested that it might soon be time to slow somewhat the pace of purchases,” the summary of the July 30-31 meeting said.

As a result, longtime Fed watchers came up with analyses so different from one another that it seemed as if they might be reading different documents.

In a report issued shortly before the stock market closed, IHS Global Insight concluded that “the Fed is unlikely to taper at the mid-September meeting,” and predicted a move in December instead.

One minute later, experts at Barclays offered their view that the minutes of the July meeting “do not alter our outlook for a tapering of purchases in September.”

Other institutions, like Goldman Sachs, hedged their bets. “Over all, we think this information is consistent with September tapering, but this is by no means certain,” the firm said.

With Mr. Bernanke all but certain to step down as Fed chairman early next year, most analysts expect the Fed to initiate the tapering process before he leaves office, and to do so at one of the meetings remaining this year — either September or December — where Mr. Bernanke is scheduled to conduct a news conference after the session. The committee will also meet in October, but Mr. Bernanke is not scheduled to address the media then.

On Wall Street, investors were just as uncertain as economists. After selling off immediately after the minutes were released at 2 p.m., stocks briefly rallied, only to fall back more deeply into negative territory by the end of the trading day. The most widely followed measure of the stock market among professionals, the Standard Poor’s 500-stock index, fell 9.55 points, or 0.58 percent, to 1,642.80. The Dow Jones industrial average lost 105.44 points, or 0.7 percent, to 14,897.55. The Nasdaq composite index declined 13.80 points, or 0.38 percent, to 3,599.79.

Bond prices also dropped after the release of the Fed’s minutes, sending interest rates higher. The price of the Treasury’s 10-year note fell 20/32, to 96 20/32, while its yield rose to 2.89 percent, its highest level since July 2011. It was at 2.82 percent late Tuesday. While the difference between a start to the tapering on bond purchases in September vs. December might not seem very significant to most people, the Fed’s decision-making is already affecting such things as the value of 401(k) retirement accounts, mortgage rates for home buyers and currency values in many emerging markets of the world.

By pumping $85 billion a month into the economy through the bond purchases, the Fed has helped push up prices for many kinds of assets, especially stocks. The indications that the infusions might soon come to an end has generated increased volatility both on Wall Street and in stock exchanges around the world.

Article source: http://www.nytimes.com/2013/08/22/business/economy/fed-closer-to-easing-back-stimulus-but-still-no-consensus-on-timing.html?partner=rss&emc=rss

Fed Meeting Ends With No Sign of New Direction

The Fed acknowledged the weak pace of growth during the first half of the year, describing the rate as “modest” rather than “moderate,” but maintained its forecast that “economic growth will pick up from its recent pace,” according to a statement published after the committee’s two-day meeting.

The Fed also noted the sluggish pace of inflation, which has dropped to the lowest pace on record, but said that it continued to expect a rebound.

As usual, the Fed maintained its flexibility, noting that it was ready to increase or decrease its stimulus campaign as warranted by economic conditions.

The decision was supported by 11 of the 12 members of the Federal Open Market Committee. The sole dissenter was Esther L. George, president of the Federal Reserve Bank of Kansas City, who has dissented at each meeting this year, citing the risks of financial destabilization and higher inflation.

The committee had little time to digest the latest economic data. The government announced earlier Wednesday that the economy expanded at an annual rate of 1.7 percent in the second quarter, better than economists had expected but below the pace that Fed officials regard as necessary to create enough jobs to bring down the unemployment rate. The Fed has predicted faster growth in the second half of the year.

The Fed’s chairman, Ben S. Bernanke, surprised investors after the committee’s last meeting in June by announcing that the central bank expected to reduce the volume of its monthly asset purchases later this year, and to end the purchases by the middle of next year, provided that economic growth met the Fed’s expectations. The central bank has increased its holdings of mortgage-backed securities and Treasury securities by $85 billion a month since December.

Interest rates rose in response, undermining the purpose of the bond-buying program, but Fed officials have not backed away from that timeline. Mr. Bernanke and others have said that if the economy needs more help, they would rather lean on other tools, like the policy of holding short-term interest rates near zero.

The Fed has said that it intends to maintain that policy at least as long as the unemployment rate remains above 6.5 percent and likely for some time thereafter as long as inflation remains under control. The rate was 7.6 percent in June.

Mr. Bernanke described this as “a change in the mix of tools” in testimony before the House Financial Services Committee earlier this month.

The shift in strategy appears to reflect a reassessment of the potential costs of asset purchases. A number of Fed officials have expressed concern that the bond-buying could destabilize markets, for example by reducing the supply of low-risk assets, thus distorting prices or encouraging speculation. Other economists, including Lawrence H. Summers, a leading candidate to succeed Mr. Bernanke at the Fed, have expressed similar concerns about the purchases.

The Fed has also faced persistent questions about the benefits of the purchases. Mr. Bernanke and his allies say the bond-buying, by reducing borrowing costs, has contributed to a recent rise in home and auto purchases. Other economists, however, regard these effects as minor at best.

Fed officials and supportive economists also have suggested that the central bank’s asset purchases are valuable in convincing investors that the central bank is maintaining its long-term commitment to suppressing borrowing costs. As long as the Fed is buying bonds, it is not about to start raising rates.

Article source: http://www.nytimes.com/2013/08/01/business/economy/fed-maintains-course-on-policy.html?partner=rss&emc=rss

Markets Lose Their Momentum

Stocks on Wall Street closed lower on Tuesday, with early gains eroding.

By the end of trading, markets were nearly flat or lower as both the Standard Poor’s 500-stock index and the Nasdaq composite lost less than a point and the Dow Jones industrial average dropped 0.3 percent.

Trading is likely to be thin this week, with Wall Street markets closing early on Wednesday and all of Thursday for the Fourth of July holiday. This lower volume could signify greater volatility, especially with the release of the nonfarm payroll report on Friday.

“While all eyes are on the payroll report, markets are holding up as investors are holding out on the hope that we’ll see higher highs,” said Todd Schoenberger, managing partner at LandColt Capital in New York. “We’ll mostly tread water until Friday, but people aren’t selling their gains.”

Wall Street has shown signs of positive momentum recently, with investors becoming more optimistic about the economic outlook since Federal Reserve officials signaled that the central bank’s bond-buying stimulus policy was not ending imminently.

Adding to the positive tone, the Ford Motor Company rose 0.4 percent after reporting “very encouraging” 13.4 percent growth of car sales in June.

Also, the Commerce Department reported that new orders for factory goods rose for a second straight month in May, adding to tentative signs of stabilization in manufacturing after a recent slowdown.

William C. Dudley, president of the Federal Reserve Bank of New York, spoke on Tuesday afternoon about national economic conditions.

“If labor market conditions and the economy’s growth momentum were to be less favorable than in the [Federal Open Market Committee]’s outlook—and this is what has happened in recent years—I would expect that the asset purchases would continue at a higher pace for longer,” he said.

His comments were closely scrutinized for clues about when the Fed might begin to scale back its so-called quantitative easing.

Read more of Mr. Dudley’s speech here.

In corporate news, the alcoholic beverage company Constellation Brands fell 3.6 percent after the company reported first-quarter earnings and revenue that missed expectations.

Pfizer and Novartis were said to be considering preliminary bids for Onyx Pharmaceuticals. On Sunday, Onyx turned down an offer of roughly $10 billion from Amgen. Shares in Onyx jumped 3.2 percent.

Shares in Zynga rose 6.5 percent after the company named Don Mattrick, the head of Microsoft’s Xbox business, as its chief executive.

Article source: http://www.nytimes.com/2013/07/03/business/daily-stock-market-activity.html?partner=rss&emc=rss

Shares Drop as Traders Try to Guess the Fed’s Next Move

The Federal Reserve guessing game threw the markets for another loop on Tuesday.

Comments from a Fed official raised expectations that the Fed could start easing off its support for the economy soon, sending the stock market sharply lower in the late afternoon. The market recovered in the last hour of trading to end with slight losses.

Snippets from a prepared speech by the official, Esther L. George, president of the Kansas City, Mo., branch of the Federal Reserve, were reported in the early afternoon. Ms. George pointed to “improving economic conditions” as well as evidence that financial markets were getting dependent on the Fed’s support. As a result, she said, “I support slowing the pace of asset purchases as an appropriate next step for monetary policy.”

“History suggests that waiting too long to acknowledge the economy’s progress and prepare markets for more normal policy settings carries no less risk than tightening too soon,” Ms. George was to say in the speech in Santa Fe, N.M. She did not give the speech because she was sick, but news outlets reported her comments, and the Kansas City Fed posted the speech online.

It was the latest volatile turn in stock trading as investors try to figure out when the Fed will make a move.

The Fed’s next step will be to pare down its bond-buying, but when that will happen is unknown. As a result, traders have been trying to outguess one another in anticipation of the decision, seizing on comments from bank officials and minutes from a recent meeting of policy makers to send stock and bond prices swinging sharply over the last two weeks.

The next big data point for investors is the Labor Department’s monthly employment survey, which is to be released on Friday. A weak report might be encouraging to stock investors since it would imply that the Fed would keep buying bonds to support the economy.

That was the stock market’s reaction on Monday, when traders interpreted an unexpected easing in American manufacturing last month as a sign that the Fed was not close to winding down its stimulus program.

“You’ve got to believe that people are getting ready for the end of the week,” said James W. Paulsen, chief investment strategist at Wells Capital Management in Minneapolis.

The Fed’s bond purchases have helped keep bond prices high and the yields they pay low. The Fed’s goal is to encourage borrowing and investing with low interest rates.

Many investors expect long-term interest rates to rise when the Fed scales back its bond-buying. If they climb high enough, more investors might be tempted to buy bonds instead of stocks. Trying to anticipate that outcome, many traders are pre-emptively selling stocks on the slightest signs that the Fed could be closer to slowing its stimulus.

The current yield of 2.15 percent on the benchmark 10-year Treasury note is low by historical standards. The yield rose from 2.13 percent on Monday, after the note fell 6/32, to 96 14/32, on Tuesday. It is nearly identical to the average dividend payment of 2.14 percent for stocks in the Standard Poor’s 500-share index.

The S. P. 500 fell 9.04 points to close at 1,631.38, a loss of 0.6 percent. It had lost as much as 16 points, or 1 percent, around 2:30 p.m. Other major market indexes also fell.

The Dow Jones industrial average lost 76.49 points to 15,177.54, a drop of 0.5 percent. It had been down as much as 153 points earlier in the day. The Dow had gained for the previous 20 Tuesdays in a row.

The Nasdaq composite fell 20.11 points to 3,445.26, down 0.6 percent. The price of crude oil slipped 14 cents, to $93.31 a barrel, and gold fell $14.60, to $1,397.10 an ounce.

Article source: http://www.nytimes.com/2013/06/05/business/daily-stock-market-activity.html?partner=rss&emc=rss

Fed Stands By Stimulus, and Says It’s Open to More

The Fed emphasized that it was ready to increase or decrease its efforts to spur growth and reduce unemployment as necessary, a more balanced position than it took earlier in the year, reflecting the reality that a strong winter has once again yielded to a disappointing spring.

It was the first time that the Fed had explicitly mentioned the possibility of doing more in a policy statement, although officials, including the Fed’s chairman, Ben S. Bernanke, have made the point repeatedly in public remarks.

Analysts disagreed about the central bank’s intent. Some saw it as a signal that the Fed’s next move could be an expansion of its stimulus.

Others, however, said the Fed was simply underscoring that it did not plan to reduce its asset purchases. It is buying $85 billion a month in Treasury and mortgage-backed securities.

“I don’t think there’s much chance of them stepping it up,” said Jim O’Sullivan, chief United States economist at High Frequency Economics in New York. “But this is certainly their way of saying there’s no bias toward scaling down.”

The Fed maintained a relatively sunny economic outlook in its statement, released after a two-day meeting of its policy-making committee. It said that the economy was expanding at a “moderate pace” and that the labor market had shown “some improvement.” It added, however, that federal spending cuts were “restraining economic growth,” an implicit critique of the rest of the government.

That language was stronger than the Fed had used in previous assessments of the economic impact of fiscal policy. Fed officials have repeatedly expressed frustration that fiscal policy is working at cross-purposes with their own monetary policy. The statement also noted that the pace of inflation had slackened, a potential sign of economic weakness. Bringing the annual rate of inflation closer to its target of 2 percent has been a primary goal of the Fed’s four-year-old stimulus campaign, but the statement expressed little concern about the recent deceleration to a pace of only about half that level.

Investors and the Fed have taken the view that inflation is likely to return to a more normal pace without additional effort.

“The committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline” to a level the Fed regards as acceptable, the statement said.

Michael Feroli, chief United States economist at JPMorgan Chase, said the stability of the Fed’s economic outlook suggested that policy, too, would remain stable.

“In effect, the Fed signaled that the pace of asset purchases would be data dependent in both directions, but that right now the data gives them little reason to change in either direction,” Mr. Feroli wrote Wednesday in a note to clients.

The statement won support from 11 of the Federal Open Market Committee’s 12 members. Esther George, the president of the Federal Reserve Bank of Kansas City, cast the dissenting vote, as she has at each meeting this year, citing concerns about potential “economic and financial imbalances” and the risk of excessive inflation.

The pace of economic growth appeared to slow in the weeks between the Fed’s previous meeting and the one this week. Inflation slackened in March to the slowest pace in two years, while employers added the fewest jobs in any month since last summer. And economists say that the pain of federal spending cuts is just beginning to tell.

Inflation was 1.1 percent during the 12 months ending in March, according to the most recent data from the Fed’s preferred inflation gauge, the Commerce Department’s index of personal consumption expenditures. That is well below the 2 percent annual pace that the Fed considers healthy.

The share of Americans with jobs has not increased since the recession.

Article source: http://www.nytimes.com/2013/05/02/business/economy/federal-reserve-to-continue-stimulus-efforts.html?partner=rss&emc=rss

Federal Reserve to Continue Stimulus Efforts

The Fed, which has struck a more balanced tone in recent weeks as strong growth during the winter months has been followed once again by a disappointing spring, emphasized that it was ready to increase or decrease its efforts in a statement released after a two-day meeting of its policy-making committee.

It was the first time that the Fed has explicitly referenced the possibility of doing more in a policy statement, although officials including the Fed’s chairman, Ben S. Bernanke, have made the point repeatedly in their public remarks.

Analysts disagreed about the meaning. Some saw a signal that the Fed’s next move could be an expansion of its stimulus campaign. Others, however, said the Fed was simply underscoring that it did not plan to reduce its asset purchases. It is buying $85 billion a month in Treasury and mortgage-backed securities.

“I don’t think there’s much chance of them stepping it up,” said Jim O’Sullivan, chief United States economist at High Frequency Economics in New York. “But this is certainly their way of saying there’s no bias toward scaling down.”

The Fed has struck a more balanced tone in recent weeks as strong growth during the winter months has been followed once again by a disappointing spring. Is statement on Wednesday said that the economy was expanding at a “moderate pace” and that the labor market had shown “some improvement.”

It added, however, that government spending cuts were “restraining economic growth,” an implicit criticism of the rest of the federal government for impeding a faster recovery.

The statement also noted that the pace of inflation had slackened, a potential sign of economic weakness, but it showed little concern about that trend.

The Fed said that it would continue to add $85 billion a month to its holdings of mortgage-backed and Treasury securities. It gave no indication of how much longer those purchases would continue, beyond its standard formulation that it wanted to see evidence that the labor market outlook had “improved substantially.”

The statement won support from 11 of the committee’s 12 members. Esther George, the president of the Federal Reserve Bank of Kansas City, cast the sole dissenting vote, as she has at each meeting this year, citing concerns that the stimulus campaign could cause “economic and financial imbalances” and inflation.

The pace of economic growth appeared to slow in the weeks before the meeting. Inflation slackened in March to the slowest pace in two years, while employers added the fewest jobs in any month since last summer. And economists say that the pain of federal spending cuts is just starting to be felt.

Inflation was just 1.1 percent in the 12 months that ended in March, according to the most recent data from the Fed’s preferred inflation gauge, the Commerce Department’s index of personal consumption expenditures. That is well below the 2 percent annual pace that the Fed considers healthy.

Moreover, the share of Americans with jobs has not increased since the recession.

The central bank is modestly expanding its stimulus campaign each month as it expands its bond portfolio. But the Fed’s most recent economic projections, published in March, showed that most officials expected persistently low inflation and persistently high unemployment for years to come.

Officials, however, are reluctant to do more. They see modest benefits and uncertain costs in buying more bonds. The volume of the Fed’s first-quarter purchases already roughly equaled the volume of new mortgage bond issuance and about 72 percent of the volume of new issuance of long-term federal debt.

And the Fed already has tied the duration of low interest rates to the unemployment rate, announcing in December that it intended to hold its benchmark short-term interest rate near zero at least as long as the unemployment rate remained above 6.5 percent, provided that inflation remained under control.

Still, the Fed changed the language of its statement to emphasize that it was willing to adjust the pace of its asset purchases. “The committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes,” it said.

Analysts described the change as a response to the signs of economic weakness, although they noted the Fed did not change its relatively sunny description of the economic outlook, suggesting that no policy shift was imminent.

Michael Gapen, director of United States economic research at Barclays Capital, described the change as “a fairly obvious nod to some of the recent softness in economic activity, labor markets and inflation.” He said that it reinforced his view that the Fed would maintain its $85 billion-a-month pace through the end of the year.

The Fed also could increase the impact of its current campaign simply by telling investors how long it will run – either in terms of a calendar date or an economic target. But officials say it has been impossible to reach a consensus.

Article source: http://www.nytimes.com/2013/05/02/business/economy/federal-reserve-to-continue-stimulus-efforts.html?partner=rss&emc=rss

Fed to Maintain Stimulus Efforts Despite Jobs Growth

“We need to see sustained improvement,” the Fed’s chairman, Ben S. Bernanke, said at a news conference on Wednesday. “One or two months doesn’t cut it. So we’re just going to have to keep providing support for the economy and see how things evolve.”

The Fed’s policy-making committee said much the same thing in a stilted statement issued just before Mr. Bernanke took questions, announcing that it would continue to hold down short-term interest rates and buy $85 billion a month in Treasuries and mortgage-backed securities.

Mr. Bernanke’s remarks suggested that the Fed would reduce its asset purchases if job growth continued at the current pace, the first time he has said that the central bank is likely to reduce the amount of monthly purchases before it stops buying entirely.

But such a change remains at least a few months away, and quite possibly longer. The Fed is wary of pulling back too soon, a mistake it has already made several times in recent years. It is waiting to assess the impact of the federal spending cuts that began this month. And Mr. Bernanke said the members of the Federal Open Market Committee, which makes policy for the Fed, “have not been able to come to an agreement” about the goals of the asset purchases or, by extension, when they should end.

Mr. Bernanke, who has made job growth the Fed’s top priority for the first time in its 100-year history, spoke about the issue in personal terms. Asked when he last had spoken to an unemployed person, he said that one of his own relatives was out of work.

“I come from a small town in South Carolina that has taken a big hit from the recession,” Mr. Bernanke said. “The last time I was there, the unemployment rate was about 15 percent. The home I was raised in had just been foreclosed upon. I have a great concern for the unemployed, both for their own sake but also because the loss of skills and the loss of labor force attachment is bad for our whole economy.”

Mr. Bernanke also may have provided some insight into his own future. Asked repeatedly about his interest in a third term as Fed chairman, Mr. Bernanke demurred several times before telling one reporter, “I’ve spoken to the president a bit but I really don’t have any information for you at this juncture.”

The Fed said last year that it planned to hold short-term interest rates near zero at least as long as the unemployment rate remained above 6.5 percent. The rate stood at 7.7 percent in February and has barely budged in half a year. Most economic forecasters do not expect the threshold to be reached before 2015.

The asset purchases are intended as a short-term measure to catalyze faster job growth; the Fed has said it will slow increasing its collection of Treasuries and mortgage bonds, a policy known as “quantitative easing,” once it is convinced that employment is increasing at a sustainable pace.

The unusual rigidity of this basic course has diminished the importance of the Fed’s regular meetings, and it has to some extent created a problem of foreshortening. The next change in policy is necessarily the major subject of discussion among Fed officials, analysts and investors. But that may make the next change seem nearer than it really is. It is quite possible that the year could pass without any significant change.

“In one line: Sustainability, sustainability, sustainability,” Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors, wrote in a note to clients. “Mr. Bernanke clearly does not want even to consider slowing Q.E. until he is convinced that any such run of strength now is a permanent shift.”

The decision, of course, does not rest with Mr. Bernanke alone. And he noted on Wednesday that there was no consensus on the policy-making committee about how much longer asset purchases should continue. “We’ve not been able to come to an agreement about what guidance we should give,” he said.

As is often the case, Fed officials are not just debating how to respond to economic circumstances. They are debating the nature of those circumstances.

The economy has grown more robustly in recent months — the committee hailed “a return to moderate economic growth following a pause late last year” — and job growth has increased since the Fed began its latest stimulus campaign in September.

But even as spending by consumers and businesses drives growth, the Fed noted that fiscal policy “has become somewhat more restrictive.”

“The committee continues to see downside risks to the economic outlook,” the statement said.

The Fed separately released economic forecasts by 19 of its senior officials showing that their expectations had actually soured slightly. They predicted growth of 2.3 percent to 2.8 percent this year, down from a forecast in December of 2.3 percent to 3 percent. The consensus forecast for 2014 also fell. Officials now expect growth of 2.9 percent to 3.4 percent in 2014, compared with a December forecast of growth from 3 percent to 3.5 percent.

Concerns about inflation remained in abeyance. Fed officials do not expect inflation above 2 percent over the next three years, well below their self-imposed ceiling of 2.5 percent inflation. At the same time, officials were modestly more optimistic about job growth. They predicted that the unemployment rate would rest between 6.7 and 7 percent at the end of 2014. In December, they predicted that the rate would sit between 6.8 and 7.3 percent at the end of 2014.

Against concerns that the pace of growth remains subpar, the Fed continues to weigh the possibility that its efforts will destabilize financial markets by encouraging excessive risk-taking.

So far, support on the committee for the stimulus remains strong. The decision to press forward was supported by 11 of the 12 voting members of the Federal Open Market Committee. Esther L. George, the president of the Federal Reserve Bank of Kansas City, recorded the only dissent, as she did in January, citing concerns about stability and future inflation.

Article source: http://www.nytimes.com/2013/03/21/business/economy/fed-maintains-rates-and-strategy.html?partner=rss&emc=rss

Economix Blog: For Fed Presidents, Economics Is Local

The Federal Reserve’s dissenters often are portrayed as ideologically motivated. They are said to oppose the Fed’s stimulus campaign because they are more worried about inflation, or less worried about unemployment, than their peers.

But it is fascinating to consider that the four Fed districts whose presidents have dissented most frequently are also the Fed districts that had the fastest economic growth between 2008 and 2011, the most recent year for which data is available.

“Specifically, the four fastest-growing districts since the crisis erupted have been Dallas, Minneapolis, Kansas City and Richmond,” the Citigroup economists Nathan Sheets and Robert A. Sockin wrote in a research note earlier this month. “Presidents from these four districts have cast a historically significant 28 dissents for tighter policy since the fall of 2007, the vast majority of such dissents.” (I first learned about the note from a blog post by Victoria McGrane of The Wall Street Journal.)

The Chicago Fed’s district, by contrast, had the weakest growth, and its president, Charles Evans, has twice dissented in favor of doing more. He played a key role in pushing the Fed to undertake the latest expansion of its stimulus campaign.

This linkage of region and outlook only goes so far, as the authors are quick to concede. The Boston Fed’s district ranked fifth in growth, but its president, Eric Rosengren, is a leading proponent of additional asset purchases. The Philadelphia Fed’s district ranked near the bottom of the growth table, but its president, Charles Plosser, has dissented over concerns about inflation. And the president of the Minneapolis Fed, Narayana Kocherlakota, has left the ranks of conservative dissenters to become the only Fed official who still wants to do more.

Still, the pattern is striking. The evidence suggests regional presidents are seeing the national economy through the lens of local experience. Which, as it happens, is exactly what they are supposed to be doing. The Fed’s structure was meant to ensure that regional perspectives were heard. It seems to be working.

Article source: http://economix.blogs.nytimes.com/2013/02/28/for-fed-presidents-economics-is-local/?partner=rss&emc=rss

Bank of England Chief Joins Minority Favoring Asset Purchases

Minutes of the bank’s last meeting, released on Wednesday, also reveal the central bank is thinking about how to boost non-bank lending to the economy.

The pound fell to an 8-month low as the bank confirmed it was in no hurry to force inflation back to its 2 percent target.

“The (policy) committee agreed that it was important to communicate clearly its willingness to bring inflation back to the target over a longer time horizon than usual,” the minutes said.

Britain’s economy has been stagnant for two years, but the central bank now sees a sluggish recovery. Unemployment data released at the same time as the minutes again showed a record number of people in work.

Many economists had largely written off the chance of more asset purchases – or quantitative easing (QE) – especially after King last week stressed that monetary policy was near the limits of what it could do to boost growth. He also forecast inflation would remain above target until early 2016, even without additional stimulus.

But it now turns out that at the central bank’s February 6-7 Monetary Policy Committee meeting, King and Paul Fisher, the bank’s executive director for markets, joined long-standing dove David Miles in arguing for an increase in bond purchases to 400 billion pounds ($618 billion) from 375 billion pounds.

“A case could … be made for undertaking additional asset purchases at this meeting,” the minutes of the nine-member committee said. “The degree of slack in the economy, and the likely positive response of supply capacity to increased demand, meant that higher output growth would not necessarily lead to any material additional inflationary pressure.”

The policy committee also said that they still believed that asset purchases had the ability to help the economy by lowering interest rates and encouraging investment in riskier assets.

February marks the fourth time King has been in a minority since he became governor in 2003. While unusual, it is not the shock it would have been be at most other central banks as MPC members are encouraged to make differences in view public.

The last time King was in a minority was in June last year – when there was also a 6-3 split – and in July a majority of the MPC joined King in backing a 50 billion pound increase in asset purchases.

“February’s UK MPC minutes provide another clear demonstration of the committee’s increasingly flexible approach to inflation targeting,” said Samuel Tombs of Capital Economics. “More QE is likely this year, particularly if GDP growth continues to fall short of the Committee’s expectations.”

Economists polled by Reuters after the minutes saw a median 51 percent chance that the bank will restart asset purchases this year, up from 35 percent last week and the first time the probability has been above 50 percent since October.

QUALIFIED QE

The support in the minutes for further asset purchases was more nuanced than in the past, however. The three policymakers supporting purchases were only calling for a modest 25 billion pounds extra – in contrast to the increases of 50 billion pounds that were more typical in the past.

And there was a general acceptance – in line with King’s recent comments – that monetary policy alone will not get Britain’s economy back on track.

The minutes cited the importance of the central bank’s Funding for Lending Scheme, which opened in August and offers banks cheap finance if they lend more, as well as reiterating a call for British banks to strengthen their capital positions.

But there was also a hint that the bank may be looking at a new way to boost lending that bypasses banks.

“In addition to improving the supply of bank credit, the committee thought that consideration of measures to support the flow of credit more broadly, including from non-bank lenders, was also warranted,” the minutes said.

The central bank also said it would disregard upward price pressures from higher university tuition fees and energy levies.

Long-range communication is an approach favoured by Bank of Canada Governor Mark Carney, who will take over at the BoE when King steps down in July. Berenberg Bank economist Rob Wood said he expected more of this to come.

“We suspect the BoE’s toe in the water on guidance will get more specific over the coming months. Specifically, we expect any further easing to be in the form of something closer to Fed-style guidance accompanied by more QE,” Wood said.

(Additional reporting by Costas Pitas and Li-mei Hoang. Editing by Jeremy Gaunt)

Article source: http://www.nytimes.com/reuters/2013/02/20/business/20reuters-bank-bond.html?partner=rss&emc=rss