April 18, 2021

Tapering of Stimulus Could Start as Soon as September, 2 Fed Presidents Hint

Charles L. Evans, the president of the Federal Reserve Bank of Chicago, said he would not rule out the possibility that the Fed could start tapering as early as next month.

The remarks came at a breakfast with reporters in Chicago and echoed through the markets during the day, because Mr. Evans is a voting member of the Federal Open Market Committee, which sets Fed policy, and because he has generally supported more aggressive efforts to stimulate the economy in the past.

In a separate interview with Market News International, the president of the Federal Reserve Bank of Atlanta, Dennis P. Lockhart, also indicated a September move was an option. Mr. Lockhart is not a voting member of the committee, however, so his comments carry a bit less weight than those of Mr. Evans.

On Wall Street, which has benefited from the Fed’s accommodative stance, stocks dropped after the comments, and major market indexes closed lower by a little more than half a percentage point.

The Fed and its chairman, Ben S. Bernanke, have signaled that the central bank’s policy of buying $85 billion a month in government bonds and mortgage-backed securities will be wound down if the economy improves further and unemployment continues to fall.

Mr. Bernanke has said he envisions the stimulus program coming to an end by the middle of next year if unemployment falls to about 7 percent. Last Friday, the Labor Department reported that unemployment in July fell to 7.4 percent, from 7.6 percent in June.

Mr. Bernanke has not said, however, when the tapering will begin, only that the speed and timing of any easing is contingent upon continued signs of strength in the economy.

Traders and economists expect bond purchases to be reduced before the end of 2013, but opinion is divided about whether that will start as early as next month or come as late as December.

The Fed’s ultimate decision will have wide-reaching impact. The Fed’s aggressive bond buying has helped keep long-term interests rates low; mortgage rates have risen by roughly a full percentage point since Mr. Bernanke first raised the possibility of tapering in May. In addition, the stimulus has also helped prop up the big rally on Wall Street.

While the remarks by Mr. Evans and Mr. Lockhart on Tuesday did not resolve the debate, their tone suggested that tapering was indeed on the horizon if the economy held up.

“Adjustments to asset purchases are going to be conditional on our outlook materializing,” Mr. Evans said. “It’s going to be data-dependent.”

“I do expect though that the outlook will materialize, and we are quite likely to reduce the flow purchase rate starting later this year — couldn’t tell you which month that will be — and it’s likely to wind down, over time, in a couple or a few stages,” he said.

In terms of September, Mr. Evans said, “I clearly would not rule it out, it’s going to depend on the data — the data have been not so bad.”

For his part, Mr. Lockhart, the Atlanta Fed president, also said there was plenty of wiggle room for the central bank, depending on how economic growth shaped up over the coming months.

If growth turns out to be weaker than expected, he said, a reduction in stimulus efforts could be put off.

“If we see a deterioration from this point, and I would say my more realistic fear is just a kind of ambiguous picture of mixed data that signal neither accelerating strength nor necessarily deterioration, but that kind of moping along in the middle, then I think it’s not a foregone conclusion that the asset purchase program should be removed or removed rapidly,” he said.

Dean Maki, chief United States economist at Barclays, said: “Neither Fed president was willing to commit to September nor rule it out. What this is telling us is the F.O.M.C. is keeping its options open and awaiting further data.”

Article source: http://www.nytimes.com/2013/08/07/business/economy/2-fed-presidents-hint-tapering-of-stimulus-could-begin-next-month.html?partner=rss&emc=rss

Markets Drift Lower, Awaiting Bernanke’s Testimony

Financial markets were lackluster Tuesday as investors paused for breath ahead of testimony from the Federal Reserve chairman, Ben S. Bernanke.

In afternoon trading the Standard Poor’s 500-stock index fell 0.4 percent, the Dow Jones industrial average fell 0.3 percent and the Nasdaq was 0.3 percent lower.

Mr. Bernanke’s comments on Wednesday to lawmakers in Congress could set the tone in markets for the rest of the summer. In particular, investors will be looking for any further guidance on when the Fed will start to reduce its monetary stimulus.

The Fed is currently spending $85 billion a month buying financial assets in the hope of keeping long-term borrowing rates low and stimulating the American economy. The new money created in recent years has been one of the key drivers of markets.

Economic figures in the United States are being largely viewed through the prism of Fed policy. Tuesday’s batch of numbers did little to affect expectations. The 0.3 percent monthly rise in industrial production during June was in line with expectations while the uptick in the annual inflation rate to 1.8 percent from 1.4 percent was largely discounted because it was because of a sharp rise in gasoline prices.

“It’s certainly possible that they could begin tapering their bond purchases later this year, but the absence of higher inflation and the stubbornly high jobless rate suggests that it may not need to do so in the near-term, particularly if those growth expectations fail to materialize,” said Jim Baird, chief investment officer for Plante Moran Financial Advisors.

In Europe, the FTSE 100 index of leading British shares fell 0.5 percent to close at 6,556.35 while Germany’s DAX dropped 0.4 percent at 8,201.05. The CAC 40 in France ended 0.7 percent lower at 3,851.03.

Tuesday’s run of corporate news had little impact despite solid earnings from Goldman Sachs and Johnson Johnson. Coca-Cola’s, though, were disappointing as it reported falling profits and weak volume growth, particularly in North America.

Once Mr. Bernanke’s appearance before lawmakers is over, markets, particularly Wall Street, may return their focus to the earnings reports.

“Corporate earnings season is going to play a much bigger part in driving market sentiment in the coming weeks, than it has over the last couple of years,” said Craig Erlam, market analyst at Alpari. “With investors no longer able to rely on the Fed to drive equity markets higher, they have to make do with focusing more on the fundamentals, and nothing gives us a better overview of these than company earnings reports and their expectations for the coming quarters.”

Earlier in Asia, South Korea’s Kospi fell 0.5 percent to 1,866.36 while Hong Kong’s Hang Seng was flat at 21,312.38. China’s Shanghai Composite Index rose 0.3 percent to 2,065.72.

In currency markets, the euro was up 0.6 percent at $1.3143 while the dollar fell 0.5 percent to 99.35 yen.

Oil prices were steady, with the benchmark contract in New York down 23 cents at $106.09 a barrel.

Article source: http://www.nytimes.com/2013/07/17/business/daily-stock-market-activity.html?partner=rss&emc=rss

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

Waiting on the Fed, Wall St. Is Unchanged

Stocks were largely unchanged in early trading on Wednesday, holding on to gains over the last two sessions ahead of a highly anticipated Federal Reserve statement and news conference.

The Standard Poor’s 500-stock index and the Dow Jones industrial average were both 0.1 percent lower, and the Nasdaq composite was flat.

The Fed will release a policy statement on Wednesday afternoon, which will be followed by a news briefing with its chairman, Ben S. Bernanke.

“The early morning action is not surprising given the fact that we’ve had two days of position jockeying ahead” of the policy statement, said Andre Bakhos, director of market analytics at Lek Securities in New York.

The advance in the markets this week so far suggested that investors expected reassurances of continued economic support from the Fed. The equity market had been roiled recently by indications that the Fed’s asset purchases would be scaled back earlier than anticipated.

Even as volatility has spiked in the wake of Mr. Bernanke’s comments to Congress on May 22, which spurred investor angst over a winding-down of so-called quantitative easing, equity markets have mostly traded sideways. The S.P. 500 is now 1 percent below its record closing high set on May 21.

“A well perceived statement, and the upside momentum will continue,” Mr. Bakhos said. “However, a statement which creates concern with Fed policy may prove to be a chance for the market to reverse its recent gains.”

Shares of Adobe Systems, the maker of Photoshop and Acrobat software, rose 6.1 percent in early trading, a day after the company reported a higher-than-expected adjusted quarterly profit and said demand rose for Creative Cloud, the subscription-based version of its flagship software package.

FedEx posted a larger-than-expected quarterly profit as its ground shipment business did well, and the company said it benefited from lower jet fuel prices. Its shares were down 0.1 percent.

Japan’s SoftBank cleared a major hurdle in its attempt to buy the wireless provider Sprint Nextel, as a rival bidder, Dish Network, declined to make a new offer after SoftBank raised its own bid last week. Sprint shares fell 3.3 percent.

European shares turned lower, but major currencies and commodities stuck within recent ranges on Wednesday as investors awaited clarity on the Federal Reserve’s next move.

Expectations for a scaling back of the Fed’s huge bond-buying program have supported the dollar, especially against emerging market currencies, though uncertainty over the effect of any policy shift has led some investors to prefer the yen.

The dollar shed 0.3 percent, to 95.06 yen, on Wednesday, although the dollar was steady against the euro at around $1.34.

Europe’s broad FTSEurofirst 300 index gave up earlier gains to dip 0.1 percent, tracking a softer session in Asia outside Japan, where mainland Chinese stocks were hit by dampened hopes for a local policy easing.

Japanese stocks bucked the softer trend in Asia, closing up 1.8 percent to reach a one-week high, as data showed Japan’s exports rose in May at their fastest annual rate in more than two years.

United States crude oil for July delivery touched a nine-month high of $99.01 a barrel, before easing to $98.41, down 3 cents.

Article source: http://www.nytimes.com/2013/06/20/business/daily-stock-market-activity.html?partner=rss&emc=rss