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Apr-26-2011Fed Sweating the Details of First News Conference(topic overview)
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The Fed will release a policy statement at 12:30 p.m. EDT (1630 GMT) on Wednesday, followed by Fed Chairman Ben Bernanke's press conference at 2:15 p.m. EDT. Data suggest traders are betting on a bond-friendly statement from the Fed and dovish remarks from Bernanke at his first-ever post-FOMC conference. The latest Commitments of Traders data from the Commodity Futures Trading Commission showed speculative traders raised their bets last Tuesday that bond and interest rate futures will rise, even ahead of this week's Treasury supply and after S&P;'s revised outlook on the United States. The U.S. central bank is widely expected to signal it will finish its $600 billion bond program, known as QE2, by midyear and reassure investors it will stick with a near zero target for the federal funds rate for an "extended period" in a bid to support a still fragile economy, analysts said. "I think he (Bernanke) will say everything is on track to wind up QE2 in June, but it will keep the fed funds rate close to zero for the rest of the year," said Gus Faucher, director of macroeconomics at Moody's Analytics in West Chester, Pennsylvania. Most analysts predict the Fed will not commit more funds to buy bonds, but will hold the size of its balance sheet steady by reinvesting maturing assets after June to avoid a passive tightening -- an issue likely to be discussed at its upcoming meeting. [1] Philadelphia Fed President Charles Plosser said last month it isn't a cure-all because it doesn't address the need to shrink the central bank's balance sheet and reduce the amount of reserves in the system. "There is some concern in markets about whether the Fed will keep inflation under wraps as it goes through this exit strategy," Maki said in a telephone interview from his New York office. "It's unknown exactly what interest on reserves does to the economy." Cash in the banking system has ballooned since the credit crisis began in 2007, when the Fed embarked on its unprecedented monetary accommodation, which includes two bond-purchase programs that have swelled the central bank's balance sheet to a record $2.69 trillion. The amount of excess reserves climbed to $1.47 trillion this month from $991 billion at year-end and $2.2 billion at the start of 2007, Fed data show. The Federal Open Market Committee begins a two-day meeting tomorrow and will decide whether to continue with its planned $600 billion of bond purchases through June. The effectiveness of using interest on reserves, or IOR, as a main policy tool may depend on how closely the federal funds rate, or overnight inter-bank lending rate, follows its movements. The Fed has kept its target for the fed funds rate at zero to 0.25 percent since December 2008. [2]
Exactly how much of a threat inflation poses to the economy right now is a matter of disagreement within the central bank. A vocal minority, including the Fed regional chiefs in Philadelphia and Minneapolis, believe the Fed may need to raise interest rates by the end of this year to fight inflation. The Fed has kept its benchmark interest rate near zero since December 2008. And, Richard Fisher, president of the Federal Reserve Bank of Dallas, argues that the Fed has done its job and should consider halting the bond program now, not in June. "Now we at the Fed are nearing a tipping point," Fisher told reporters earlier this month, referring to inflation. The majority ''' including Bernanke, vice chairwoman Janet Yellen and William Dudley, president of the Federal Reserve Bank of New York ''' believe interest rates should stay low longer, and the bond-buying program should run its course. [3] NEW YORK, April 25 (Reuters) - U.S. Treasury prices rose on Monday on expectations the Federal Reserve will leave interest rates near zero for the rest of year, fostering a friendly climate to own bonds in the near term. In the lowest-volume day for Treasuries so far this year, according to IFR Markets, dealer purchases of Treasuries to hedge upcoming corporate bond supply helped hold down benchmark yields near their lowest levels in nearly a month. The Fed's $7.24 billion purchase of medium-term Treasuries, part of its quantitative easing program to help the economy, also lifted bond prices. "It's a bit of spotty buying in a thin market," said Suvrat Prakash, interest rate strategist at BNP Paribas in New York. [1]
Critics of the Fed have blamed the central bank's loose monetary policies, in part, for the surge in commodity prices and recent rise in global inflation, a contention that Bernanke and others at the Fed have vigorously denied. Even some of Bernanke's own colleagues have spoken out against what they see as too much of a good thing. At least for the moment, the Fed is likely to keep short-term interest rates at near zero and leave open the credit-flowing spigot to support the economy, continuing on a move to buy $600 billion of U.S. Treasury notes through June. [4]
April 25 (Bloomberg) -- Federal Reserve officials are staking their inflation-fighting credibility on an untested tool: the power to pay interest on bank reserves. Congress granted the Fed this ability in 2008, and Chairman Ben S. Bernanke, Vice Chairman Janet Yellen and New York Fed President William Dudley have all cited it as a main reason why they'll be able to keep the U.S. economy from overheating after pumping record amounts of cash into the financial system. Raising the rate, currently at 0.25 percent, is intended to entice banks to keep their money on deposit at the Fed instead of loaning it out and stoking inflation. [2] NEW YORK, April 25 (Reuters) - The euro rose against the dollar on Monday in a volatile but illiquid session with investors reluctant to make large bets in case the U.S. Federal Reserve shows no sign this week of changing its easy monetary policy. With many markets closed for the Easter holiday and no major U.S. economic reports on the calendar, the Fed's meeting on Tuesday and Wednesday will be the key event risk this week as traders try to gauge the direction of U.S. policy. Market participants will look to the post-meeting news conference by Fed Chairman Ben Bernanke on Wednesday -- the first regularly scheduled news briefing by a Fed chief in the U.S. central bank's 97-year history -- to see how the Fed plans to exit from its ultra-loose policy. [5] Analysts and traders on Wall Street have been scrambling to find out what to expect. "People are trying to get their arms around the whole thing," said David Greenlaw, chief U.S. economist with Morgan Stanley. He has quizzed colleagues who follow the European Central Bank, which, like other central banks, has held news conferences for years, to understand how it might unfold. For the Federal Reserve, holding its first ever public press conference after a policy meeting requires working out a lot of small details on issues like who gets in and how Fed chairman Ben Bernanke should kick things off. [6]
The Federal Reserve's public relations campaign continues Wednesday when Fed Chairman Ben Bernanke holds a news conference following the meeting of the central bank's Open Market Committee. At the two-day committee meeting, which is scheduled to begin Tuesday, the panel is scheduled to discuss issues such as whether to raise interest rates and whether to extent its stimulus -or quantitative easing--program beyond its June expiration date. [7] The Federal Reserve meets this week to discuss interest rates. David Wessel of The Wall Street Journal tells Steve Inskeep one thing different about the meeting is that Fed Chairman Ben Bernanke will hold his first news conference Wednesday. [8]
Mr. WESSEL: Actually not. They're kind of in a wait-and-see mode now. They're signaling they're going to keep interest rates near zero for several more months, at least. They think that they've done enough to get the economy going. It's not such a good party that they need to take away the punch bowl, as the cliche goes there. Actually, the big news this week isn't what they're going to do, but how they're going to explain it. Ben Bernanke, the Fed chairman, for the first time ever is going to have a press conference after the meeting to explain to people why he didn't do what he didn't do. Mr. WESSEL: Well, it's a big deal because Fed chairmen generally haven't done them. They usually take questions in public only at congressional hearings, which usually means they don't end up talking very much about the substance of monetary policy. Mr. Bernanke has advocated for a long time doing this stuff in public. He believes in what he calls transparency. [8] When Ben Bernanke hosts the first ever press conference by a Federal Reserve Chairman on Wednesday, the subtext will be all about trust trust in the Fed and the future value of the dollar. He and his audience are well aware that the danger signs of higher inflation are swirling about ''' higher energy and food prices, rapidly rising commodity and precious metal prices, and a steady fall in the value of the dollar on foreign exchange markets.'' Bernanke is likely to repeat his previous public statements that these price increases are transitory.'' By so doing, he will attempt to keep inflationary expectations low by promising that the Fed'''s efforts to stimulate the economy through an aggressive program of quantitative easing will prove to be non-inflationary. Just as important, he is likely to repeat his claim first made in his December interview on 60 Minutes that the Fed has the tools and the ability to keep its promise of controlling inflation should he conclude that inflation has, in fact, broken out. Adhering to these positions may prove to be an "all in" bet by the Fed Chairman.'' Individuals, companies, and governments all over the world look like they are about to call his bluff.'''' Unless the Fed takes immediate steps to strengthen the dollar, expect distrust in the dollar to grow with a consequent continued slide in its value. Count me among the skeptics on both promises. [9] Perhaps more than anything else, financial journalists and others will want to know Bernanke's latest take on inflation risks with oil above $112 per barrel, gold above $1,500 per ounce and the Consumer Price Index rising at a 2.7% year-over-year rate in March (1.2% excluding food and energy). When Bernanke last addressed the issue on April 4 in Stone Mountain, Ga., he downplayed inflation risks while saying they need to be monitored. Responding to questions following a speech at an Atlanta Federal Reserve Bank conference, Bernanke acknowledged that rising commodity prices have pushed up headline inflation, but said, "My sense, however, is that so long as inflation expectations remain stable and well-anchored, which in my view remains the case, and so long as commodity price increases eventually stabilize -- because commodity prices will, I am convinced, eventually stabilize -- that this will not be reflected in a steady increase in inflation." "I think the increase in inflation will be transitory," he said. "That being said, we have to monitor inflation and inflation expectations extremely closely because if my assumptions prove not be correct then we would certainly have to respond to that to make sure we preserve price stability," Bernanke went on. He added that, while short-term inflation expectations have risen, longer term expectations have not. He said, "our expectation at this point is that in the medium term inflation will, if anything, be a bit low relative to long-run normal levels." Other top Fed officials have taken a similar line, giving no indication of any eagerness to begin tightening a very loose monetary policy. [10]
The highlight of the week's events is the expected news conference by Federal Reserve Chairman Ben Bernanke on Wednesday after the bank's two-day policy meeting. Canadian bonds closely tracked U.S. Treasury prices higher as market players look to the Fed for signs it will not rush to shrink its huge balance sheet, though buying was kept to a minimum before a series of auctions. [11] Traders also expect Federal Reserve Chairman Ben Bernanke to offer a more dovish tone on the bank's policy than hawkish members of the bank when he holds a news conference -- the first regularly scheduled news briefing by a Fed chief in the central bank's 97-year history -- after its policy meeting on Tuesday and Wednesday. [12] WASHINGTON (Dow Jones)--A meeting of the U.S. Federal Reserve's policy-setting committee, featuring Fed Chairman Ben Bernanke's first post-meeting news conference, will dominate financial markets' attention this week. [13] The Federal Reserve is in the final throes of a $600 billion Treasury-buying scheme aimed at boosting asset prices—stocks in particular—and convincing Americans that the worst of the financial crisis is over. Bernanke is preparing for his much-anticipated news conference after this week's Fed meeting, an event that will be the first of its kind. Popularly nicknamed QE 2—or the second phase of the quantitative easing liquidity programs—the balance sheet expansion is largely credited with creating another leg in the stock market rally that has the Dow and S&P; 500 within 10 percent or so of their all-time pre-crisis highs. Gluskin Sheff senior economist and strategist David Rosenberg thinks he has the answer: With a sort of stealth round of easing that may sound a lot like QE 3 but differ from its two earlier iterations. [14]
SILVER'S POLISH: Silver stopped short of $50 an ounce on inflation worries ahead of the Federal Reserve meeting. WATCHING THE FED: The Federal Reserve is set to meet this week. It's expected to say it will keep interest rates near zero and that the $600 billion bond-buying program will continue until the end of June. [15] The first step toward a tightening is fairly straightforward: stop easing. The Fed is widely expected to end its planned $600 billion of Treasury purchases in June. The Federal Reserve is likely to begin closing a wide-open credit spigot this week-but faces a major decision: when to start draining the excess credit out of the economy by raising interest rates. [16]
BlackRock's Rick Riederhas been buying. Two of the biggest fund managers in the world are at odds over how U.S. government securities will fare once the Federal Reserve withdraws from the bond market in June, marking the end of its second quantitative-easing program, or QE2. Mr. Gross, who oversees Pacific Investment Management Co.' s $1.2 trillion in assets under management, has been vocal about his views that the end of the Fed's $600 billion program is bad for bonds. He argues that the absence of such a large buyer means Treasury prices are likely to fall, pushing rates higher. [17] James Bullard, the president of the Federal Reserve Bank of St. Louis, wants to sell securities before raising rates. Senior Fed officials believe they will be able to push up the fed-funds rate, the traditional benchmark for short-term interest rates, but not by the usual means of simply selling relatively small amounts of Treasury securities to soak up bank reserves. They are looking at a new tool, raising the interest rate that the Fed pays banks on cash kept on reserve with the central bank. When the Fed decides to tighten, the plan is to raise that rate from its low level of 0.25%. [16] The last time we observed Treasury bill yields at 0.25%, the monetary base was well under $2 trillion." The Fed may be able to mitigate the need to shrink its balance sheet by increasing the interest rates it pays on bank reserves ''' something it did not do in the past.'''' Those higher rates would encourage banks to maintain their excess reserves at the Fed, thereby slowing the increase in velocity associated with a higher Fed Funds rate.'' For the Fed to avoid making an inflationary mistake requires Bernanke and his colleagues to get it exactly right, even as a growing number of people become less willing to give him the benefit of the doubt. The fundamental challenge that Bernanke now faces is this:'' Nothing stands behind the value of the dollar other than people'''s willingness to trust its worth. [9] The larger problem is America's overreliance on the Fed as the driver of economic growth. With the failure of their stimulus spending plans, prominent Keynesian economists and pundits in particular have been flogging the Fed to do more. They seem to think Mr. Bernanke must save the dimming reputation of Obamanomics. The Fed has already kept interest rates close to zero for 28 months, purchased mortgage-backed securities and Treasurys at unprecedented levels, and blown out its balance sheet to $2.7 trillion. America hasn't run a monetary policy this loose in modern history. It was possible to justify such extreme measures at the height of the financial panic, but by now the recovery is nearly two years old. [18]
The ability to raise the deposit rate "will allow us to manage short-term interest rates effectively and thus to tighten policy when needed, even if bank reserves remain high." Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., said he expects interest on excess reserves to be the Fed's new benchmark rate, and it will be "effective enough." "Maybe you won't be able to precisely get the funds rate to where you want it to be every day, but I think when" the deposit rate "goes up, interest rates in general will go up," said Feroli, who predicts the Fed will stop reinvesting interest payments from its mortgage holdings in the second half of this year and won't raise the deposit rate until 2013. Feroli said he's confident the Fed will be able to control inflation as the economy improves. "If anything, they've got more ways to whack the economy now than they did before," he said. [2] Most investors already anticipate the Fed's bond and interest rate announcement. Attention will quickly shift at 2:15 p.m. EDT, when the Fed publishes its latest economic projections and Bernanke begins an hour of questioning from reporters. After a disappointing first quarter, when high gasoline and food prices hurt spending, the Fed is likely to slightly cut its January prediction that the economy would expand 3.4% to 3.9% this year. It is expected to raise its 2010 inflation forecast from 1.3% to 1.7%. Investors will be listening closely to the Fed chief's words and watching his body language, looking for hints to when rates may increase in order to contain inflation. [13] It never publicly announced its interest rate decisions until 1994. Even then, the Fed didn't feel the need to regularly explain its actions until 1999, when it began releasing a statement hours after considering interest rate changes. We will hear directly from Bernanke why the Fed is doing what it is doing: keeping its interest rate at historic lows, buying government bonds and not worrying about inflation. Those actions have stabilized the economy, but also have contributed to the sinking U.S. dollar, helping to push energy and food prices higher. While other nations have stepped up efforts to fight inflation, the Fed has been adamant in its mission to fight deflation and stimulate hiring. Some of the bankers working with Bernanke have become concerned about whether they have done enough to get the economy rolling again. [19] With U.S. unemployment at nearly 9% and faced with troubling ripple effects from problems in Japan and Europe, the Fed has continued to buy billions of dollars of U.S. bonds in a bid to hold down long-term interest rates and spur economic growth. Fed officials prefer to look at so-called core inflation, which excludes volatile energy and food prices, and this measure has been considerably more subdued. [4]
Thirty-year mortgage rates, which track 10-year note yields closely, have risen to 4.8% from 4.24% last November, doing little to help a struggling housing market. The direction of interest rates after the Fed ends its bond-buying program is crucial for the economy. The issue will be in sharp focus this week, when Fed policy makers hold a two-day policy meeting, starting Tuesday, to discuss their efforts to steer the economy between the shoals of recession and inflation. They face an economy that has shown signs of losing momentum in recent months, with first-quarter economic growth now widely believed to be less than 2% annualized. [17] The Fed and the Kennedy administration used Operation Twist to bring down long-term interest rates, while keeping short-term rates unchanged, and stimulate a weak economy, the researchers said in a paper released today. They didn't quantify the effects of the current program. The central bank may signal at the conclusion of this week's meeting it will continue to reinvest the proceeds of maturing mortgage securities in Treasuries, according to Neal Soss, chief economist at Credit Suisse Group AG. [20] Earlier in the month, the European Central Bank shifted course and raised interest rates. The Fed will take up the issue when its top officials begin a two-day meeting Tuesday, and Bernanke will defend the central bank's strategy in his first-ever news conference the next day. [4] For the first time since the central bank was founded in 1913, the head of the Fed will hold a news conference just hours after making a decision on interest rates. [19]
One early sign could be a shifting public view on inflation expectations, which are being closely followed by central bank officials. They see long-run expectations as stable, but if that view shifts it might signal they are becoming less comfortable keeping policy so easy. A clearer signal that interest rates will increase will be when the Fed drops from its formal postmeeting statement the assurance that short-term rates will remain low for an "extended period." [16] The Fed's rates have kept the dollar's value low as other central banks begin to raise interest rates because of inflation fears. Since commodities are priced in dollars, a weak dollar makes them more of a bargain for buyers who use other currencies. Silver draws a diverse group of investors because of its dual purposes. [21]
Bernanke is likely to reiterate the dominant view at the Fed that higher prices for oil, grains and other global commodities will have a temporary impact on U.S. consumer prices--like what happened in 2008--allowing the Fed to keep rates close to zero for a while. All else being equal, such remarks tend to weaken the dollar as investors switch to currencies that offer higher yields. Comparisons are likely to be drawn with the European Central Bank, which raised its key policy rate to 1.25% April 7. [13] More ECB increases are likely as early as June. In March, consumer prices rose by an annual 2.7% both in the euro zone and the U.S. The underlying inflation rate that strips out food and energy, a figure more closely watched by the U.S. central bank, stood at 1.2%, within the Fed's comfort zone. Bernanke is likely to use the press briefing to convey the Fed's determination to raise rates if prices look set to rise above its informal target of just under 2.0%. [13]
Bernanke has predicted that the jump in oil and food prices will cause only a brief, modest increase in consumer inflation. Excluding those prices, which tend to fluctuate sharply, inflation is still low, he has argued. Bill Gross, who manages the world's largest mutual fund at Pimco, worries that rates on Treasury bonds will rise when the Fed stops buying them. If other buyers don't step in and there's less demand for Treasury bonds, then the rates, or yields, on those bonds would rise. That would drive down prices on bonds. [3]
Since late last year, the Fed has bought government bonds to keep interest rates low. Fed Chairman Ben Bernanke and his colleagues are expected to signal this week that they will allow the program to expire as scheduled in June. [3] The British pound dipped to $1.6505 from $1.6516, while the dollar was worth 82.24 Japanese yen from 81.90 yen. The Fed, which meets Tuesday and Wednesday, is expected to say it will keep interest rates near zero and that its $600 billion bond-buying program, designed to help keep rates low, will continue until its scheduled end in June. [22] Investors are monitoring the movement of the dollar ahead of the Federal Reserve's meeting on Tuesday and Wednesday. The policymakers are expected to say they will keep interest rates near zero and that their $600 billion bond-buying program will continue until its scheduled end in June. [21] Taiwan'''s dollar traded near a two- month high on speculation global funds will add to holdings of the island'''s higher-yielding assets as the Federal Reserve keeps interest rates near zero. The currency has gained 1.7 percent this month as global funds bought $2.2 billion more Taiwanese shares than they sold during the period, exchange data show. The U.S. Federal Open Market Committee will hold its benchmark rate in a range of zero to 0.25 percent when it meets on April 27, according to all 80 economists surveyed by Bloomberg. '''There'''s anticipated continued dovishness from the Federal Reserve,''' said David Cohen, a Singapore-based economist at Action Economics LLC. '''That will continue to be a drag on the dollar and thus Asian currencies have been strengthening.''' Taiwan'''s dollar was unchanged at NT$28.930 against its U.S. counterpart as of the 4 p.m. local close, according to Taipei Forex Inc. The currency touched NT$28.860 on April 22, the strongest level since Feb. 10. [23]
If the Federal Reserve wanted to help out the weak dollar, the response would ideally be to raise interest rates.'' Due to serious weakness in the economy, the Fed is hampered in its ability to respond to this situation and I believe it will opt to keep interest rates low well into 2012 in order to promote economic growth.'' [24] Record low interest rates, the Federal Reserve's bond buying program, staggering budget deficits and the White House's export-driven jobs policy all have contributed to the dollar's decline. All this has a growing number of investors and currency experts thinking Washington is passively accepting a gradual decline in the currency, hoping it helps engineer a vigorous enough recovery to get a battered economy in order. [25] The dollar stayed close to its three-year low on expectations that the U.S. Federal Reserve would this week signal that it is committed to ultra-low interest rates for the foreseeable future. Investors have been encouraged to adopt strategies that bring them better returns ''' particularly carry trades, where the dollar'''s low yield has provided the funds to invest in riskier but higher-yielding assets. [26]
NEW YORK: The dollar steadied against other major currencies Monday on the eve of a Federal Reserve policy meeting expected to leave ultra-low interest rates unchanged. [27] Bloomberg News Fed Chairman Ben Bernanke is expected to talk and answer questions for about 45 minutes Wednesday. The Federal Reserve is doing some careful stage planning for its first-ever public news conference Wednesday afternoon following a two-day policy meeting. Details that would be extremely mundane for most other institutionssuch as who gets in, how Chairman Ben Bernanke should kick things off, and how questions will be askedhave potentially market-moving importance in this instance. [6] Market players expect Fed chairman Ben Bernanke to suggest the bank is in no rush to end its easy policy as it believes big slack in the economy is likely to keep inflation at bay, at his news conference on Wednesday after the bank's two-day policy meeting. [28] The Fed policy meeting ends on Wednesday with a news conference with Fed Chairman Ben Bernanke. Benchmark 10-year notes US10YT=RR rose 11/32 in price, their yields easing to 3.37 percent from 3.41 percent on Thursday. [29]
Markets keenly awaited Fed chairman Ben Bernanke's first post-FOMC news conference Wednesday. It will be the first by any Fed chief, in contrast with regular news conferences held by European Central Bank president Jean-Claude Trichet. [27] Reporters might get a chance to ask follow-ups. Mr. Bernanke will of course prep beforehand on what he thinks might be asked, as he does before congressional briefings, but he won't get advanced notice on what reporters plan to ask. The Fed's meeting will conclude a bit earlier than usual, and The central bank will put out its formal policy statement at 12:30 p.m., rather than at 2:15 p.m., as had been the custom previously. When the news conference kicks off at 2:15 p.m., the Fed also will release its updated forecasts for the economy, something investors in the past only learned about in the release of minutes three weeks after a meeting. [6]
The FOMC is expected to take another detailed look at how it will eventually implement an "exit strategy" from extraordinary monetary accommodation, and the press conference will give Bernanke the chance to tell the world what the most likely or preferred sequence of steps the Fed will take to tighten monetary policy when the time comes. The FOMC members, including all Federal Reserve Bank presidents and governors, will be doing their quarterly, three-year forecasting exercise at this meeting, revising the projections they made in January. [10] The mere fact of Bernanke's inaugural post-FOMC press conference is likely to overwhelm the substance of the Committee's actual monetary policy decision. That's not to say that what the FOMC says and does, or how Bernanke embroiders on the FOMC statement and projections, is unimportant. It will obviously be very interesting to see how Fed thinking has evolved in light of recent developments. Unless the FOMC decides to spring a big surprise, it is unlikely to make any significant changes in policy at this meeting. This will not be the first time that a Federal Reserve chairman has participated in a press conference. It will be the first time one has done so in the immediate aftermath of an FOMC meeting. [10]
WSJ's Jon Hilsenrath reports from Washington on the Fed chairman's new media policy. "In light of uncertainty about the economic outlook it was seen as prudent to consider possible exit strategies for a range of potential economic outcomes," Fed officials concluded in March, according to minutes of their last meeting. Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, has said he would prefer separating the Fed's plans for shrinking the balance sheet from its plans to tighten credit. "You can't separate them entirely," he said in an interview last month, "but I would prefer to be doing the balance-sheet normalization over a sufficiently long period of time that it's not getting in the way of day-to-day monetary policy." [16]
Market News International - Federal Reserve Governor Daniel Tarullo Tuesday strongly defended the Federal Reserve's role in financial supervision as a prerequisite for good monetary policy. Tarullo, testifying before the Senate Banking Committee, was asked whether the Fed should concentrate on making monetary policy and give its financial regulatory duties to some new agency. (By contrast, under regulatory restructuring proposals made by Treasury Secretary Timothy Geithner, the Fed would be given enhanced supervisory authority.) [30]
WASHINGTON (MNI) - Market News International continues to solicit questions that could be posed to Federal Reserve Chairman Ben Bernanke Wednesday afternoon and Fed officials Monday gave a few more details of how Bernanke's news conference will be handled. [31] When Ben Bernanke hosts the first ever press conference by a Federal Reserve Chairman on Wednesday, the subtext will be all about trust -- trust in the Fed and the future value of the dollar. [9] Federal Reserve Chairman Ben Bernanke will go in front of the microphones for the first of his newly instituted quarterly press conferences. He will be asked about $4-a-gallon gas, shrinking cereal boxes, mounting government debt and, probably, the Fed's penchant for secrecy. [32] Federal Reserve Chairman Ben Bernanke will hold the first ever press conference by a Fed Chair on Wednesday. [33]
Hell hold the first-ever press conference by a Fed Chairman. The entire world'''particularly the Fed itself'''will assess every word, the Wall Street Journals David Wessel told NPR this morning. Bernanke feels this transparency is needed, given the public mistrust after the financial crisis. The slightest misstep by Bernanke would cause a market tumble, said Wessel adding that this move will change the role of fed chair forever. Charisma will now be a required skill set for any future Federal Reserve chair, he said. [33]
Market News International continues to solicit questions that could be posed to Federal Reserve Chairman Ben Bernanke Wednesday afternoon and Fed officials Monday gave a few more details of how Bernanke's news. [34] The Federal Reserve is doing some careful stage planning for its first-ever public news conference Wednesday afternoon following a two-day policy meeting. Details that would be extremely mundane for most other institutionssuch as who gets in, how Chairman Ben Bernanke should kick things off, and how questions will be askedhave potentially market-moving importance in this instance. [6] After years of speculation, finally we will witness a long-awaited ceremony that leaves little room for mistakes: Not the Royal Wedding, but Federal Reserve Chairman Ben Bernanke holding a news conference Wednesday. [19] Ben Bernanke, chairman of the Federal Reserve, will hold his first Q&A; style news conference on Wednesday when the Federal Open Markets Committee releases its statement, according to CNBC. [35]
With the well-being of millions of Americans and the U.S. economy at a pivotal point, Federal Reserve Chairman Ben S. Bernanke faces a crucial decision and he faces it almost alone on a world stage. At issue is whether it's time to begin putting on the financial brakes to avoid a potentially dangerous surge in inflation or instead keep stimulus policies in place to help keep the still-vulnerable recovery moving ahead. [4] "The problem is in thinking through the implications." Bernanke called interest on reserves "perhaps the most important" tool for tightening credit in July 2009 congressional testimony, and he and his top lieutenants have expressed confidence in the deposit rate's ability to quash inflation. Dudley, who is also vice chairman of the FOMC, said in response to audience questions after a Feb. 28 speech that he is "absolutely convinced" raising interest on reserves will prevent a rapid acceleration in prices. "It's very important that we at the Fed can convince people that this new tool is a viable means of preventing the economy from overheating," Dudley said. [2] "There are more issues here than it sometimes is made to sound. Chairman Bernanke mentioned the Fed could raise rates in 15 minutes if they decided to, but it's not clear they have that kind of control on the funds rate." While Stanley says Bernanke, Dudley and Yellen's premise -- that raising interest on reserves should dissuade banks from extending credit -- is valid, policy makers may have to increase rates faster than they'd like because a 25 basis-point jump in the deposit rate won't deter a bank from making a loan on which it would earn 6 percent interest, Stanley said. "I will grant the point that Bernanke and others at the Fed have made over and over again, that 'We have the tools,' but really what they're getting at is, in some ways, an academic question," Stanley said. [2] In a reverse repo, the Fed lends securities for a set period, draining bank reserves from the financial system. Stanley said he's skeptical these transactions can operate at a scale big enough to suck sufficient cash from the system to control the federal funds rate. The rate fell as low as 0.08 percent on April 13 after the Federal Deposit Insurance Corp. began adjusting calculations of U.S. banks' deposit-insurance fees this month to cover all liabilities instead of just domestic deposits. [2] For consumers and businesses, a shift in which tool the Fed uses to tighten credit would make little practical difference. A bump-up in either the rate on excess reserves or the federal funds rate would have an identical result: It would boost the prime lending rate, now at 3.25 percent, by the same amount. Those operations are called reverse repurchase agreements. Or the Fed could sell securities outright. Those moves would tighten credit by mopping up some of the money that was pumped into the economy during the financial crisis. [36]
Kos is a former executive vice president and markets-group head at the New York Fed. The central bank has historically moved the federal funds rate by buying or selling Treasury securities, adding or withdrawing cash from the system. [2] St. Louis Fed President James Bullard said March 30 that a "logical" order for an exit plan would be for the Fed to sell assets before raising rates. Dallas Fed President Richard Fisher said Feb. 15 that he may prefer selling Treasuries as a first step. Plosser said March 25 that the federal funds rate should be the main policy instrument, not the deposit rate, because it's more "familiar" to the market and central bankers. He outlined a strategy for the exit, saying the Fed should set a pace for selling its mortgage and Treasury holdings in conjunction with boosting rates. "The center of the committee is looking for asset sales after the rate increase" and is likely to get its way, even though the so-called hawks like Plosser and Fisher can "certainly make a lot of noise," Feroli said. [2]
Chicago Fed President Charles Evans, another FOMC voter, is no longer saying that additional quantitative easing is needed, but has made clear he's in no hurry to raise the federal funds rate from near zero or to start shrinking the balance sheet. "At present, we're underrunning both our inflation objective and our employment objective -- both call for monetary policy accommodation," Evans said on April 15. [37] The reason is a fundamental flaw in the traditional thinking at the Fed which equates an increase in the Fed Funds rate, per se, with an inflation reducing "tightening" of monetary policy. [9]
"Everything Bernanke's said over the last few weeks points to the need" to keep monetary policy loose to support the recovery, said John McCarthy, manager of currency trading at ING Capital Markets in New York. While McCarthy said a few words from the Fed acknowledging inflation might provide the dollar with a temporary boost, "I don't expect anything dramatic to change and in that regard???the news is pretty much negative for the dollar," he added. "Nobody is going to come to its defense." An undertow of investor pessimism has sent the dollar reeling to its weakest levels since late 2009 against the euro and British pound last week and a record low against the Swiss franc on Monday. [38] Yellen said "there can be no question that sometime down the road, as the recovery gathers steam, it will become necessary for the FOMC to withdraw the monetary policy accommodation we have put in place." She said "if a continued run-up in commodity prices appeared to be sparking a wage-price spiral, then underlying inflation could begin trending upward at an unacceptable pace. Such circumstances would clearly call for policy firming to ensure that longer-term inflation expectations remain firmly anchored." Yellen made clear she does not think that is a likely course of events. New York Fed President William Dudley, the FOMC vice chairman, has also minimized the inflation threat and indicated he is content with the monetary status quo for the indefinite future. [10] Fed Vice Chairman Janet Yellen, on April 11, said high unemployment and low inflation continue to justify an "accommodative" monetary policy and said rising commodity prices are unlikely to warrant "any substantial shift" in monetary policy. "Even additional large and persistent shocks to commodity prices might not call for any substantial change in the course of monetary policy as long as inflation expectations remain well anchored and measures of underlying inflation continue to be subdued," she said. [10]
The question now is whether the Fed's success in promoting inflation is undermining the economic recovery it claims to be supporting. This is the paradox of exceptionally easy monetary policy, and rarely has it been as obvious as it is today. The Fed has flooded the world with dollar liquidity that by its reckoning has lifted stock and other asset prices, eliminated the risk of deflation (if such a risk really existed), and prevented a double-dip recession. [18]
The American middle class doesn't feel any richer. Call this the price of putting all of your economic expansion hopes in Ben Bernanke's monetary basket. The Fed Chairman still sees only the bright side, much as he did during the Fed's previous easy money binge in 2003-2005. "I think the increase in inflation will be transitory," Mr. Bernanke said earlier this month in Stone Mountain, Georgia, blaming high oil and food prices on "global supply and demand conditions." [18] Investors will watch for hints Wednesday from the Fed's statement and from Chairman Ben Bernanke's first press conference about possible future actions to fight rising energy and food prices. [22] WASHINGTON (Dow Jones)--Federal Reserve Chairman Ben Bernanke is expected to open a Wednesday press conference with brief remarks, followed by roughly 45 minutes of questions from reporters, a Fed official said Monday. [39] With little data on the horizon, all eyes shifted to the Fed's two-day policy-setting committee meeting, which will culminate on Wednesday with Fed Chairman Ben Bernanke's maiden post-meeting press conference. [38]
Mr. WESSEL: You bet. They are spending a lot of time at Fed worrying about just that and prepping him. He's watched the tapes of other central bankers doing press conferences so he can avoid that. That's the downside risk, and they know it. It'll be a big challenge when Bernanke leaves and they get a new Fed chairman, who - in the past, you never had to select someone who was good on TV in real time. In the future, that will be part of the criteria they need. [8]
Since early August, it has taken about $17 billion a month that it earns in interest from mortgage-backed securities and used it to buy bonds, a separate and smaller step than the $600 billion program. This year, Bernanke has managed to forge consensus for his policies ''' all Fed decisions this year have been unanimous ''' but the deepening divides could make Bernanke's job more difficult. The decision comes at a time when Congress and the White House are fighting over how deeply they should cut federal spending over the next decade to curb the nation's budget deficit. The deficit is on track to be a record $1.5 trillion this year, marking the third straight year over $1 trillion. It's the highest share of the total economy since World War II. [3] The Fed's purchases of longer-term securities, an effort to keep long-term rates down and aid the economy, left the Fed bank with $1.3 trillion of long-term Treasury debt and $934 billion in mortgage-backed securities. Over time, officials want to reduce these holdings. [16] Selling securities could be especially hard to calibrate. The Fed's rule of thumb is that a $200 billion change in its holdings is roughly equivalent to a quarter-percentage-point change in the federal-funds rate. There are questions about the impact of such sales. Some Fed staff are pondering whether asset sales might have outsized effects on longer-term interest rates and thus on parts of the economy most sensitive to those rates, such as housing. Before it moves to the exit, and that could be a while, the Fed is sure to signal that its views are shifting. [16] After that, the act of tightening policy, once it begins, gets more challenging. The Fed likely will embark on some combination of raising short-term interest rates and reducing more than $2 trillion of Treasury and mortgage securities on its balance sheet. [16] The spread between short-term and long-term interest rates has widened, and demand for inflation-protected securities has picked up, suggesting inflation concern is rising among investors. The Fed's policy makers this week will likely vow to stick to their plan to end the purchases of Treasurys by the end of June. That's where the certainty ends. [17]
The buck stayed near its lowest in three years versus a basket of major currencies, as traders looked ahead to this week's interest rate decision from the Fed. Policy makers are seen keeping interest rates near zero, but may signal they will not extend or expand their quantitative easing program upon its expiration in June. The dollar was stuck near $1.46 versus the euro, having touched $1.4647 last week -- its lowest since December 2009. [40] Reputations ''' and trust are built by making and keeping promises. They can take years to develop, but only a short time to destroy. Once promises begin to be broken, reputations and trust begin to decline and people begin to "hedge their bets."'' At some moment, a tipping point is reached where the individual or company is no longer trusted and their reputation is lost. Breaking both the promise that inflation is under control, and the promise to control inflation once it has broken out, will not only undercut the Fed'''s reputation, it will also undermine trust in the future buying power of the dollar. As people trust the dollar less, they will drive prices higher as they seek to rid themselves of the falling currency.'' Lenders will demand higher interest rates to protect themselves against the uncertainty of its future value.'' [9]
The overnight lending rate has traded below the interest rate on reserves for almost two years, partly because Fannie Mae and Freddie Mac, the mortgage-finance companies under government control, became "significant sellers" of funds in the overnight market and aren't eligible to place cash on deposit at the Fed, according to a December 2009 research paper by the New York regional reserve bank. The "theory" of interest on reserves is "proved wrong every day: Why would a bank ever lend at less than what they're earning at the Fed?" Maki said. [2] Boosting that rate would give banks an incentive to keep money at the Fed rather than lend it. Tightening credit by adjusting the rate it pays on banks' excess reserves would be a new strategy for the Fed. Since the 1980s, its main lever to adjust credit has been the federal funds rate. That's the rate banks charge each other for loans. It's now at a record low near zero. [36] Before the Fed boosts the deposit rate, it likely will use reverse repurchase agreements and its new Term-Deposit Facility to gain more control over the federal funds rate, Stanley said. He predicts the Fed will raise rates as soon as November, which he said is an "aggressive" time frame that reflects his concern inflation will accelerate. [2]
Bernanke has slowly made Fed thinking more accessible to the public. Under his direction, the Fed published minutes of policy meetings after three weeks, instead of six. It has begun to publish its economic forecasts four times a year, instead of two, and extended the length of its outlook to three years from two. It has included a long-range forecast as well a backdoor way of saying what its preferred level of inflation is (1.6 percent to 2 percent). Bernanke's own speeches, testimony, and responses to questions at congressional hearings have been much easier to understand than those of his predecessor, who believed some ambiguity about the Fed's intentions left it with more policy options. [41] Bernanke plans to conduct the press conference once a quarter to unveil the Fed's updated economic forecasts. The Fed is expected to lower its forecast for economic growth slightly this year, bump up its inflation estimate and upgrade its outlook for jobs. [3] Bernanke also is likely to use the press conference to emphasize the Fed's prediction that the jump in oil and food prices will lead to only a modest and short-lived increase in consumer prices. He'll also stress that the Fed stands ready to act if inflation shows signs of taking off. [3] "The recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation," it said. "The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations." There has been no indication from public or private official comments that the FOMC is prepared to go much beyond that in its April 27 policy statement. It would be surprising if Bernanke materially changes his view of the economic or policy outlook. Covering his first post-FOMC press conference will certainly be an event. [37]
The end result was double-digit inflation, record high interest rates, a global run on ''' and near collapse ''' of the dollar.'' How close we are to a re-run of this scenario will be determined not only by what Bernanke says during his press conference, but also by the skillful actions that he and his colleagues take to demonstrate to millions of people all over the world that the dollar is a currency worthy of their trust. [9] The Fed is expected to keep interest rates close to zero because unemployment remains high and inflation, while rising, is still low. [13] For decades, our government'''s philosophy during recessions has been to publicly espouse a strong dollar while also cutting interest rates to strengthen the economy and give unemployment a boost.'' This has traditionally been done despite the fact that lower interest rates generally lead to a weaker dollar.'' I don'''t see anything in the cards that appears to have changed that policy. '' Therefore, I expect continued pressure on the dollar as the Fed seeks to get economic activity going again. [24] The program was necessary in part because the Fed's key interest rate can't be cut any more to prop up the economy. Economists predict the Fed at this week's meeting will maintain a pledge to hold the rate where it is for an "extended period." [3] The big difficulty we face now is that the economy is weak and the Fed likes to have very low interest rates to help the economy begin to grow again.'' [24]
In order to shore up the dollar, the Federal Reserve would be forced to raise short-term interest rates and, though that would help the dollar, it would hurt the economy in the short run. Consider how these events would affect China.'' Selling its stake in dollar-denominated securities is something that could not be done quickly.'' [24] We will continue to hear lots of noise from Washington and parts eastward about the dollar, but I do not think anyone in the Treasury Department or the Federal Reserve will do anything meaningful about the dollar soon. As long as this low interest rate trend continues, the dollar will weaken.'' [24]
Currency speculators pared bets against the U.S. dollar for a fourth straight week, according to data from the Commodity Futures Trading Commission released Friday, but were still net short to the total of $24.36 billion. "The united currency is unlikely to move very far in either direction until the chairman of the Federal Reserve has completed his first-ever press briefing" after the rate announcement by the policy-setting Federal Open Market Committee, said Joseph Trevisani, chief market analyst, FX Solutions, LLC in Saddle River, New Jersey. [5] A $600 billion bond purchase program is due to end in June. "This week, all eyes are now on the Federal Open Market Committee meeting which concludes on Wednesday as global portfolio managers watch for clues about U.S. monetary policy direction and the implications for asset markets and currencies," said Samarjit Shankar at Bank of New York Mellon. [27] The Federal Reserve is expected to complete its purchase of 600 billion of U.S. Treasury bonds in June, The Wall Street Journal reports. Since its inception in November 2010, the program has accounted for 85% of all government debt sold by the Treasury. The formal announcement is likely to come after the Federal Open Market Committee concludes its meetings this week. [42] Federal Reserve officials are expected to signal this week that their $600 billion Treasury bond purchase program will end in June as planned. [36]
April 25 (Bloomberg) -- The Federal Reserve's $600 billion bond-purchase program may be yielding results like those of a Kennedy-era effort to spur growth, which spawned a 0.15 percentage point reduction in long-term Treasury yields, said researchers at the central bank. [43]
Q: Rick, for two years you've prophesied calamity if the Federal Reserve pursued its policies, yet the economy is plainly recovering. It's just as well that no one but me is clamoring to grill the rabble-rousers - the reason is that they're not, as yet, in power. They're being intellectually dishonest in failing to address the effect of growth in emerging markets on the prices of commodities, and the effect of the dollar's status as reserve currency on the U.S. job market. All those greenbacks stuffed under mattresses and inside the central bank vaults would have driven down the dollar long ago had they been recycled in a timely fashion. [32] The dollar was mixed against other major currencies Monday ahead of a key meeting of Federal Reserve policymakers that could affect how investors think the central bank will act later this year. [22]
NEW YORK (Dow Jones)--The dollar edged slightly lower on Monday as investors refrained from betting aggressively for or against the U.S. currency ahead of a key Federal Reserve policy meeting this week. [38] NEW YORK, April 25 (Reuters) - U.S. government debt prices rose on Monday, helped by the view that even as Federal Reserve approaches the end of its second phase of bond buying, it will hold on to its portfolio -- and thus its current level of monetary accommodation -- for some time. [29] Two of the biggest fund managers in the world are at odds over how U.S. government securities will fare once the Federal Reserve withdraws from the bond market in June, marking the end of its second quantitative-easing program, or QE2. [44] April 25 (Bloomberg) -- Treasuries rose, pushing two-year yields to the lowest level in a month, before the Federal Reserve begins a two-day meeting tomorrow as a decline in U.S. stocks boosted demand for government debt. The Fed bought a higher-than-average amount of Treasuries in its asset-purchase program. The Federal Open Market Committee meets as the stimulus effort, the second round in a strategy called quantitative easing, approaches its scheduled end in June. [20] U.S. government debt yields have declined over the past two weeks as investors anticipate that slowing growth and pressure to cut government spending will require the Federal Reserve to hold rates lower for longer than some had expected. [12] TOKYO, April 26 (Reuters) - U.S. Treasuries were firm in Asia on Tuesday, with the 10-year note yield on the verge of breaking below an important trendline, helped by expectations of easy monetary policy from the Federal Reserve and worries that Japan's supply chain disruptions after the earthquake could hamper growth. [28] "There is no obvious evidence of that in official rhetoric or in the commentary of key officials, but de facto the United States is permitting if not aiding a deliberate dollar decline," said Allen Sinai, chief global economist for Decision Economics Inc. in Boston. "The heart of the dollar decline," he added, stems from the super-loose monetary policy run by the Federal Reserve for more than two years as opposed to fiscal or tax policy. [25]
The dollar's contained moves reflected how much negative news the beleaguered currency has already priced in and how likely the unit would be to rebound if the Fed gave a surprisingly hawkish assessment of the economy. Concerns about the U.S. fiscal outlook and ultra-loose monetary policy have made the dollar an unattractive alternative to higher-yielding currencies such as the euro and pound. [38] Oh wait, that happened anyways. The evidence is beginning to show that QE2 was a giant SNAFU. It was a misguided policy that was improperly implemented and entirely misinterpreted by the public (including 99% of all economists reporting on it). The U.S. economy is in a worse position because of this policy. It's time for the Fed to stop tinkering with experimental policies. It's not helpful when the same people who were wrong about this policy from the very beginning make excuses for the Fed that might only encourage them in the future. The U.S. economy might look like a corpse, but that doesn't mean it is ripe for Dr. Bernankenstein's experiments….As I said 8 months ag0 - it's time for Dr. Bernanke to put down the mallet and step away from the operating table. [45] For Fed Chairman Ben''Bernanke, the emphasis on greater openness predates the financial crisis. Many economists, Bernanke included, believe financial markets function more smoothly when the Fed makes its intentions, and its expected reaction to twists and turns in the economy, crystal clear. [41]
The latest estimates from economists, in fact, suggest that the pace of recovery from the global financial crisis has flagged since November, when the Fed started buying $600 billion in Treasury securities to push private dollars into investments that create jobs." They're right that QE2 has been a disappointment. [45] The Fed has bought $548 billion worth of Treasurys under QE2, according to a Barclays Capital tally, with maturities ranging from 1 1/2 to 30 years, and inflation-protected securities as well. [17]
If interest rates do drift up, it will be modest and gradual, Mr. Rieder says. The two fund managers publicize their views far differently: Mr. Gross isn't shy about appearing in the media or sharing his thoughts in monthly missives, likening Congress to skunks and ratings firms to hookers. While Mr. Rieder's television appearances are rarer, he is a fixture on BlackRock's trading floor, and his monthly calls attract 300 to 500 BlackRock employees. Regardless of their styles, both hold sway, even in the $9 trillion government-bond market. Their moves are widely followed and mimicked by other investors. Mr. Rieder said BlackRock has been buying Treasurys and will step in again if rates move higher; he considers 3.75% on the 10-year note a possible buying opportunity. The BlackRock Strategic Income Opportunities fund he comanages has returned 9.6% in the last year, according to Morningstar Inc. Mr. Gross has been betting against government securities in his flagship, $237 billion Total Return bond fund, which has returned 7.3% in the past year, according to Morningstar. He believes yields on the 10-year note should be closer to 5%. [17] The current value of the dollar doesn't reflect the possibility that interest rates will rise as the Fed stops buying bonds, said UBS currency strategist Mansoor Mohi-uddin in a research note. [22]
Because no bank will lend to another bank at a rate lower than it can get at the Fed, increases in interest paid on reserves will, the Fed figures, pull up the fed-funds rateand with it other short-term rates. It will also soak up some reserves with technical operations, such as a practice called reverse repos in which the Fed lends out Treasury bonds. [16] Right now, when Treasury goes to sell new bonds, it enters a fairly robust market, with not just the Fed but a bunch of fairly price-inelastic Asian central banks who are willing to take on our bonds at whatever the market offers. [46] Stock market losses also made bonds look more appealing. Markets expect the Fed to complete its QE2 purchases by mid-year, and many analysts say the Fed will hold the size of its balance sheet steady by reinvesting maturing assets after June to avoid a passive tightening -- an issue likely to be discussed at its April 26-27 meeting. Fed policy makers who favor accommodation "seem to be in the lead, which leads us to expect no substantial shift in the (policy) statement," from the central bank's two-day meeting this week, said David Ader, senior government bond strategist at CRT Capital Group in Stamford, Connecticut. [29]
The Fed controls the short end of the curve by setting the rate. They do not come out at the FOMC meetings and declare that they will buy $XXXmm in reserves. They announce that the short rate is X.XX%. With regards to QE2 the Fed has come out and said they are going to buy back a specific number of bonds. The bond market has yawned at the Fed. In fact, the bond market has spat in their face. [45] "The bond and currency market reaction is still an unknown and a significant risk," said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto. The Fed is expected to confirm its $600 billion asset purchase program, known as QE2, will end as scheduled in June. [5] The Fed is still in the second phase of quantitative easing, known as QE2, a $600 billion bond purchase program intended to help spur economic growth. [29]
The Fed is expected to renew its commitment to complete its $600 billion in government debt purchases by June, with focus on whether the bank also plans to keep investing proceeds from maturing mortgage-backed debt into government bonds. [12] The first step toward a tightening is fairly straightforward: stop easing. The Fed is widely expected to end its planned $600 billion of Treasury purchases in June. [16] Three-month bills traded at 0.0456 percent after touching 0.0253 percent, the lowest since April 11. Rates on six- and three-month bills have dropped this year as the Treasury cut to $5 billion from $200 billion the amount of outstanding Supplementary Financing Program bills it sells on behalf of the Fed in a program set up in 2008 to help prop up the financial system. [20] Louis Crandall, a money market analyst with Wrightson ICAP LLC, estimates that $15 billion of mortgage debt would run off the Fed's balance sheet monthly in the second half of the year if not reinvested, and $5 billion of Treasury securities would run off and $25 billion in total per month in 2012 would run off. [16] Supply from Treasury note auctions totaling $99 billion -- $35 billion in two-year notes on Tuesday, $35 billion in five-year notes on Wednesday, and $29 billion in seven-year notes on Thursday -- will be partially offset by $52.6 billion in maturing debt, leaving $46.4 billion of net cash needs, Ader said. Four Fed buybacks, month-end demand, and a persistent short-base should also support prices, he said. [29]
"There's quite a bit of issuance in the corporate market in the next couple of weeks." Companies are expected to sell at least $10 billion to $15 billion in high-grade bonds this week, according to IFR, a unit of Thomson Reuters. In the meantime, the U.S. Treasury will roll out its first significant bout of bond supply since Standard & Poor's reduced its credit outlook on the United States a week ago. It will auction $35 billion in two-year notes on Tuesday, $35 billion in five-year notes on Wednesday, and $29 billion in seven-year notes on Thursday. [1] For August, the Treasury Department said it will sell $37 billion 3-year notes on Aug. 11, $23 billion in 10-year notes on Aug. 12 and $15 billion in 30-year bonds on Aug. 13. Settlement for these issues is Aug 17. [30]
One yardstick for the immediate future of Treasury yields after QE2 could be QE1, which included a $1.25 trillion Fed buying spree of mortgage bonds from late 2008 to March 2010. [17] Mr. Rieder, chief investment officer, fundamental fixed income, at BlackRock Inc., with $1.58 trillion in fixed-income assets, sees the Fed's exit as far more benign. He says the Treasury market has known for several months that QE2 will end and has had plenty of time to prepare, meaning QE2's actual end will have little effect on yields. [17]
A year ago the Fed sketched out a rough plan for tightening: Use the short-term interest rate as the main lever and sell the securities gradually over a long time in a predictable way. Many officials want to stick with that plan, but they and staff are re-examining the whole exit strategy, according to several people involved in the discussions and meeting minutes. [16] The dollar is likely to be weak until the Fed starts raising interest rates, which is unlikely to happen until later next year.'' [24]
Setting interest rates through the excess reserves rate gives the Fed more control over money floating through the financial system. [36]
U.S. financial markets were closed in observance of Good Friday. Forex traders appeared to hedge their bets ahead of the two-day Federal Open Market Committee (FOMC) meeting that opens Tuesday. Central bankers are widely expected to maintain interest rates at between zero and 0.25 percent, where they have stood since December 2008 in a bid to boost recovery from recession. [27] The U.S. dollar is likely to start a roller-coaster ride when the Federal Open Market Committee gathering ends Wednesday as investors try to gauge how and when interest rates will rise. This meeting will be the dominant event for investors from Washington this week, especially with Congress adjourned for a spring recess. [13]
"Markets aren't going to buy the dollar when you offer zero interest rates and have an economy that is growing at roughly one-third the rate of China's -- that's an easy choice for investors." The dollar index, a gauge of the U.S. currency against six advanced country currencies, fell to 73.735, its lowest level since August 2008, setting up a possible run toward its record low of 70.698 touched in March 2008. [25]
Thirty-year bond yields declined one basis point to 4.46 percent. Six-month bill rates reached a record low earlier as some investors sought the relative safety of U.S. securities because of speculation Greece will restructure its debt. The Standard & Poor's 500 Index dropped as much as 0.4 percent in its first loss in four days. "The FOMC meeting is taking center stage, and talk of what could potentially happen," said Ray Remy, head of fixed income in New York at the primary dealer Daiwa Capital Markets America Inc. "People think they may downgrade their forecasts going forward. [20] The median forecast in a Bond Dealers of America survey of chief economists and market strategists at middle-market bond dealers calls for the yield curve to widen to 2.86 percentage points at the end of the second quarter. It will be 2.70 percentage points at year-end, and will narrow to 2.17 percentage points by the end of 2012, the survey predicts. The survey showed a 60 percent chance the Fed will not begin to increase its benchmark rate until 2012. The group expects gross domestic product to rise 2.9 percent this year and 3.1 percent in 2012. [20] Bond dealers project the gap will narrow by the end of 2012 as the Fed begins raising rates next year, according to an economic forecast released today. [20]
Fed officials and others believe that because the end of the program has been well telegraphed, it won't have much of an impact on bond rates. That was the case in 2010 when the Fed ended a $1.7 trillion stimulus program. [3]
The Nov. 3 decision to embark on the $600 billion program sparked the harshest political backlash against the Fed in three decades, with Republican lawmakers saying the policy risked causing a surge in inflation. [2] While the $600 billion quantitative easing program may be winding down, policy makers are unlikely to raise interest rates from near zero anytime soon. [47]
WASHINGTON (AP) ''' The Federal Reserve is increasingly confident in the economy and about to end a $600 billion program to support it. [3] The Federal Reserve is also expected to say it will complete its $600 billion Treasury purchase programme in June as planned. Many players also expect the bank will hold the size of its balance sheet steady by reinvesting maturing assets after June to avoid a passive tightening. [28]
Silver settled just short of $50 an ounce after a big price swing Monday as the precious metal draws in investors worried about inflation ahead of a meeting this week by the Federal Reserve's policy-making committee. [21] Food and gasoline prices are up, but the Federal Reserve says it is not worried about inflation. David Wessel, economics editor of The Wall Street Journal has been tracking all this. [8]
At present, China, whose economy the IMF says will outpace that of the U.S. by 2016, has $3.04 trillion in dollar reserves. What's going to happen to the dollar when China sells off $1.74 trillion? And who, besides the Federal Reserve, is going to buy our bonds? If anything, I think this understates the problem. [46] Not much increase in wages. That is contributing to a lack of enthusiasm among consumers, which is keeping the economy from growing faster. INSKEEP: Now, longtime listeners to this program or readers of your column will know that you closely track the Federal Reserve. They're meeting tomorrow and Wednesday. This raises a question, I guess. [8]
Then at 2:15 in the afternoon will come the headlines generated by the updated FOMC forecasts. Immediately following that will be headlines generated by Bernanke's opening remarks as the news conference gets under way, followed by headlines on his answers to reporters' questions. The Federal Reserve will stream the news conference live on its Web site, federalreserve.gov, and it is expected to be carried live on the various cable TV financial news channels. [31] Fed watchers will want to examine how the new forecast, which will be released with the policy statment ahead of the news conference, takes into account the economy's recent behavior. It will be even more interesting to hear Bernanke expound on that revised forecast and its policy implications. [10] Fed officials Monday told reporters that the news conference is expected to last about 45 minutes but may go longer. It will likely begin, they said, with Bernanke delivering some brief comments. [31] The news conference will be held at the Fed's Martin building in a room on the top floor that overlooks the National Mall. It is expected to last about 45 minutes starting with a brief statement by Bernanke. [41]
"Bernanke is not as savvy as Trichet when it comes to dealing with the press and any indecisiveness by the Fed chairman could add pressure on the dollar," said Kathy Lien at GFT. In late New York trade, the dollar slipped against the British currency to 1.6493 pounds, from 1.6514 Friday. [27] The Wall Street Journal's Real Time Economics Blog asked readers what they would ask Fed Chairman Ben Bernanke if they were able to attend his press briefing on Wednesdaythe first of what will become regular gatherings with the Fourth Estate each quarter. [48] Next week, Ben Bernanke for the first time ever will take questions from journalists after a Fed policy meeting. [16] I think there are two other things going on. One is the Fed knows that people don't trust them. It's the residue of the financial crisis. He's looking to use this as an opportunity to build confidence in the Fed. Secondly, there's a big committee at the Fed, and they tend to all talk at the same time and confuse people. By being the first one out to talk to people after the Fed holds its policy meeting, he will set the tone and he will send a clear message, he hopes, that won't be so polluted by every - all the disagreements being aired in public. INSKEEP: That said, is there a bit of a risk? A reporter asks the wrong question in the wrong way, Bernanke gives the wrong answer and somebody looks at the wrong word, and the stock market goes down 300 points. [8]
Bernanke and the Fed must decide whether it's time to being putting on the financial brakes to avoid a potentially dangerous surge in inflation or instead keep stimulus policies in place to help keep the still-vulnerable recovery moving ahead. [4] On April 1, in San Juan, Puerto Rico, Dudley said the Fed must make sure rising commodity prices don't cause inflation expectations to become "unmoored" and make it "more difficult to keep inflation in check." He said the economy remains "very far away" from its statutory "dual mandate" objectives and that improvement in economic conditions is "not a reason to reverse course." [10] The conservative rhetoric in opposition to QE2 has been disappointing in two ways. First for its obsession with commodity prices as a predictor of inflation. For the emphasis on how inflation hurts those on fixed incomes mainly retirees. These sorts of arguments have arguably crowded out reasonable and sensible discussions about what the Fed'''s response should be. These two topics will be discussed in separate posts. [49] Long rates are higher by almost 100 bps since QE2 started and there is no evidence that QE2 is helping to spur the lending markets as the Fed might have hoped. Can you imagine if the Fed set the overnight rate at 0.25% and the market just ignored them and took short rates right up to 1.25%? The Fed would be mocked as a meaningless institution. In the case of QE2 we make all sorts of excuses about size, real rates, etc in order to shield their impotence. Had the Fed hoped to control long rates they should have come out and directly stated their target rate. They should have done exactly what they do at the short end - stand guard at that rate and challenge any and all speculators to move the rate. My guess is they don't want to do that because they are fearful it will be viewed as a mass monetization of debt (even though the Fed can do no such thing). That would spark a mass hysteria over inflation and could cause investors and speculators to pile into other assets and that might counteract the entire efforts of the Fed's actions. [45]
The Fed's sages assure us that the "core" rate of inflation that doesn't include food and energy is rising slowly, and that the oil problem will dissipate. As for inflation in the rest of the world, Mr. Bernanke says that's not his problem. It is already proving to be ours. [18] Bernanke does not care about you or me. You can't fight the Fed, so you might as well find ways to profit from the crazy things they're doing. If the Fed's easy-money policy continues, we will have double-digit inflation and then they'll be forced to tighten at some point. When this happens, the stock market will collapse. Before the collapse occurs, millions of average Joes will put most of their money in the stock market because they'll be tired of seeing their friends and coworkers making a killing. [4] Minneapolis Fed President Narayana Kocherlakota, on April 14, said it is "not appropriate" for the Fed to tighten policy now because core inflation is still "very low." He said he is "pay(ing) a lot of attention to inflation" and said "If I start to see that increase that's when you have to start thinking about. raising rates." (He had previously been quoted saying, in a hypothetical vein, that tightening later this year is "possible"). [10] In March, core inflation was up 1.2% from a year earlier, less than the Fed's informal target of 2%. [4]
Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser have continued to issue strident warnings about inflation and called for early tightening, though neither have dissented against the FOMC majority as yet. Other FOMC voters are more in line with Bernanke, Yellen and Dudley in thinking that core inflation will remain acceptably modest and that there is no urgent need to tighten. [10] One of Bernanke's early transparency initiatives, an explicit target for inflation, was shot down by Democratic Congressman Barney Frank who argued that since the Fed has a dual mandate to keep inflation in check but also promote maximum employment, setting an inflation target would focus too much on one side of that equation. [41]
There was little relief for the dollar today, with traders waiting for Wednesday's remarks from Fed Chair Ben Bernanke and company. The buck stayed near multi-decade lows versus the Austrialian dollar and Swiss franc, while showing modest improvement against its Canadian counterpart as crude oil prices eased. [47] When the dollar falls against gold, the debasement shows up in higher oil prices. I elaborate on these points in my Marh 14th column: Angry Over Oil Price? Demand a Change in Fed Policy. [9]
In the past, fuel price surges often had been followed by sharp drop-offs some months later, most recently in 2008. "An accommodative monetary policy continues to be appropriate because unemployment remains elevated," said Janet Yellen, the Fed's vice chair, in a speech this month. [4] The price of oil, and the price of gold, are in fact highly correlated and both reflect directly on monetary policy of the Fed. [9]
Almost all other major central bank governors hold press conferences connected to monetary policy decisions, and Bernanke has been slowly laying the groundwork for regular sessions with the media. He has given two interviews to CBS television's "60 Minutes." He has spoken twice before the National Press Club and taken questions afterward. He answered questions from college students on the record. He has ample experience answering confrontational and sometimes hostile questions from lawmakers at hearings over financial bailouts and the financial crisis of 2007-2009. [41] "There's a little bit of nervousness building up into the FOMC meeting," said Sean Murphy, a Treasury trader in New York at Societe Generale, one of 20 primary dealers that trade with the U.S. central bank. "The press conferences are to prepare the market and steer them toward the exit strategy with as little disturbance in the market as possible." [20] Bernanke will hold the first-ever regularly scheduled news conference by a head of the U.S. central bank on Wednesday at 2:15 p.m. [41]
With the benchmark overnight lending rate trading at 0.1 percent, less than half the deposit rate, it isn't clear how much control the central bank can exert over borrowing costs by raising the interest on reserves, said Dean Maki, chief U.S. economist at Barclays Capital. [2] The U.K. central bank's benchmark, now at 0.5 percent, is the rate it pays on the reserves it holds for commercial banks. That's below the overnight sterling London interbank offered rate of 0.57 percent. [2]
The Frankfurt-based European Central Bank pays a rate on the deposits banks park with it overnight. The ECB raised this rate a quarter point to 0.5 percent on April 7, the same day it increased its benchmark refinancing rate by the same margin to 1.25 percent. [2]
The euro, seemingly unscathed by Europe's debt struggles, has benefited from the prospect of higher European Central Bank interest rates. If investors are nervous about the potential fallout from the euro-zone sovereign debt crisis, they have yet to demonstrate it in a sustained way. [38]
"WASHINGTON -- The Federal Reserve's experimental effort to spur a recovery by purchasing vast quantities of federal debt has pumped up the stock market, reduced the cost of American exports and allowed companies to borrow money at lower interest rates. Most Americans are not feeling the difference, in part because those benefits have been surprisingly small. [45] While others are leaning that way, too, it isn't the clear consensus. Federal Reserve Bank of Philadelphia President Charles Plosser said in a recent speech that he prefers "raising rates and shrinking the balance sheet concurrently and tying the pace of asset sales to the pace and size of interest-rate increases." [16] '''I wasn'''t a big fan of it in the first place,''' Federal Reserve Bank of Philadelphia President Charles I. Plosser was quoted as saying in a recent New York Times article. [42]
To prepare for an expanded systemic regulator role, Tarullo said the Fed is already "incorporating economists and other experts from non-supervisory divisions of the Federal Reserve more completely into the process of supervisory oversight. [30] As the Federal Reserve waits for the right moment to begin tightening credit, it is working at hashing out a plan for how to do it. Though the Fed is still months away from actively unwinding its easy-money policies, the intensity of the internal discussion about how to tighten has picked up in recent weeks. [16]
Government bond prices edged higher Monday, ahead of a two-day meeting of the Federal Reserve. [50] TOKYO, April 25 (Reuters) - U.S. Treasuries were supported in Asia on Monday as market players look to the U.S. Federal Reserve for signs it will not rush to shrink its huge balance sheet at a policy-setting meeting this week, though buying was kept. [12] U.S. # 9 cause of the illegal printing of bills by the private bank known as the federal reserve. [33] We need to regulate the whole financial structure especially the banks, wall street, imports, and stop outsourcing jobs. reform did not happen. so talk to the hand federal reserve and your bald headed representatve. [33]
Don’t get too excited over Federal Reserve Chairman Ben Bernanke’s press conference on Wednesday, said David Zervos, head of global fixed income strategy at Jefferies. [51] The Federal Reserves board convenes on Tuesday with Chairman Bernanke taking an unprecedented risk. [33] Bernanke is not expected to divulge much more information than is normally presented from the Federal Reserve. [35]
Suffice it to say, the factors driving up oil prices are entirely beyond the power of the Federal Reserve to do anything about. [9] The Federal Reserve's Open Market Committee meets again today, and we suppose congratulations of a sort are in order. [18]
The Fed has pumped so much money into the financial system that banks are flush with reserves, and that supply will work to hold the rate down. [16] Economists at the Fed's regional bank in San Francisco likened "Operation Twist," a 1961 initiative by the central bank and President John F. Kennedy's administration, to the current round of Treasury purchases. [20] Rep. Ron Paul (R-Texas), who has written a book calling for the Fed to be abolished, chairs the subcommittee that oversees the central bank. [7]
Bernanke is set to speak after officials conclude a policy meeting--the first in what is expected to be a regular event to answer questions about the central bank's decisions. [39] Bank of Italy's Governor Mario Draghi has gained support from French President Nicolas Sarkozy in the race to become the next European Central Bank chief, Bloomberg News reported Monday, citing an unidentified source. Sarkozy is expected to disclose his support to Draghi tomorrow in Rome. As Draghi is the only representative for the post from the big-four eurozone nations, namely Germany, France, Italy and Spain, the French support raises the chance of him being selected as the ECB chief, the Bloomberg report said. His bid apparently has German backing. [47]
As long as the U.S. remains a significant trading partner for China's exports, the dollar will be a major currency for Chinese central bank activities.'' There are those who think the Chinese will dump the dollar and buy Euros on a wholesale basis, but that is unlikely. [24]
The Wall Street Journal reported in February that banks are sitting on $1.3 trillion worth of liquidity. Instead of focusing on this important fact, conservatives instead remained fixated on inflation and defending those on fixed incomes. She did this back in November in a speech at Phoenix, which the Wall Street Journal, in a laudatory editorial at the time, characterized as zeroing in on the connection between a weak dollar and rising prices for oil and food. [49] Investors pushed the price of gold, a hedge against inflation, above $1,500 an ounce for the first time last week. [4]
The past several weeks have seen price increases accelerate again, taking the price of gold to above $1500 an ounce and oil prices north of $110 a barrel. I sincerely doubt that Bernanke will be able to keep his promise to control inflation quickly once he finally admits it has arrived.'' [9] For months, Bernanke and his supporters have downplayed the recent increase in U.S. inflation, arguing that overall consumer price gains reflected spikes in oil and other commodities that were unlikely to last. [4]
Rising prices for raw materials and components are starting to flow through to U.S. goods. Kimberly-Clark, the consumer products maker, reported a sharp profit fall yesterday on rising costs and announced plans to raise prices on most of its North American products. The nearby chart shows the monthly increases in producer prices for finished goods since the Fed announced its second round of "quantitative easing" (QE2) last year. [18] In a breakthrough study, Dr. John P. Hussman of the Hussman Funds points out that an increase in the Fed Funds rate alone would increase, not decrease, inflationary pressures.'' His study documents that a higher Fed Funds rate would increase the velocity of the monetary base.'''' [9] "The big unknown is how tight the spread between the IOR and effective fed funds rate will be," said Dino Kos, a managing director at economic-research firm Hamiltonian Associates Ltd. in New York. [2] "If the fed funds rate trades at a stable, and preferably narrow, discount to the IOR, then tightening policy through the IOR is doable. [2] The Fed sets that rate directly. By contrast, its federal funds rate is merely a target. [36]
The Fed probably would like to mimic the so-called corridor system in Europe, where the deposit rate acts as a floor to the overnight lending rate, according to Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. [2] One early step the Fed might take is ending the practice of reinvesting proceeds when the Fed's Treasury and mortgage securities mature or are paid off. This would effectively shrink the Fed's portfolio, amounting to a slight tightening of policy. [16] At 12:30 p.m. EDT Wednesday, the Fed is expected to release a statement that signals plans to stop buying U.S. Treasurys in June because of an improving economy. [13] This and other steps will require clear, considered communication, a big focus inside the Fed these days, because such moves are so novel, the U.S. economy remains far from full strength and because financial markets around the global are fixated on the size of the Fed portfolio. [16]
There isn't a hedge-fund manager who wouldn't like to be there, nor a fair share of financial bloggers. To keep the event manageable, Fed officials will limit attendance to those who represent news organizations accredited by Congress and only one per organization. That leaves it open to potentially hundreds of news organizations, including U.S. newspapers, foreign press, television, radio stations and magazines. [6]
When it ends on Wednesday, Bernanke, who wants to make the Fed more of an open institution, will take an unprecedented step for a Fed chief and hold a press conference. The press conference gives Bernanke the chance to build support for the Fed. But it could also backfire if what he says causes confusion and rattles Wall Street. [3] “I imagine we’ll get the typical clarity that we get from reading the minutes—I don’t think we’re going to get a whole lot of new information,” Zervos told CNBC. “The fact that we get some new bombshell information seems highly unlikely to me. The Federal Open Markets Committee is scheduled to release its statement at 12:30pm ET on Wednesday and for the first time, Bernanke will hold a Q&A-style; press conference shortly following the statement. [51] The latest quarterly updates of the FOMC forecasts, which have been published four times a year since late 2007, will be made public at the beginning of the news conference, at 2:15 p.m. Wednesday afternoon. Now, instead of being appended to the FOMC minutes that are published three weeks after every FOMC meeting, the forecasts will be made public immediately after the FOMC meeting where they are formulated, as the quarterly Bernanke news conference begins. [31] Mr. Bernanke has taken questions from the media twice before at the National Press Club. On both occasions, reporters wrote down questions on cards and a moderator from the media chose which ones to ask. This news conference will be more traditional and less confining for reportershands will go up, the chairman or his staff will call on reporters and the questioning will begin. [6]
With U.S. monetary policy still notably weak, an extended dollar rally is not likely, Sutton said. "This is the medium-term risk; the near-term risk lies in the wording of the statement, any shift in tone, the press conference itself and the FOMC's updated set of forecasts," she said. [5] While there has been a shift in sentiment toward greater awareness of inflation, well-informed sources have told MNI that it would take a significant increase in upside risks to persuade an FOMC majority to begin tightening monetary policy so long as unemployment remains high. The FOMC is unlikely to make any significant changes in policy at this meeting. Confirming a trend that MNI had been reporting since early February, the FOMC elevated its concern about inflation at its March 15 meeting. [37] "As long as core inflation year-over-year is 1.5% or lower, I am extremely doubtful that we'll need an adjustment to monetary policy," Evans said. [37]
The Treasury's three note auctions, further refinements of monetary policy expectations, and a first report on U.S. first-quarter gross domestic product growth, however, could add some volatility to the week's trading. [29] WASHINGTON: For years, U.S. Treasury secretaries parroted a line that America was committed to a strong dollar policy. [25]
SINGAPORE, Aug. 4 (MNI) - The U.S. dollar continued to trade near key lows against major currencies through the morning in Asia Tuesday, particularly against the euro and the Australian dollar, amid buoyant risk sentiment. Much of the morning's trade appeared to be focused on the euro, which had soared to fresh a high for the year so far at $1.4445 overnight in New York after rising through its June high of $1.4339. [34] Gold hits record high, U.S. oil nears $113 a barrel By Claire Sibonney TORONTO, April 25 (Reuters) - The Canadian dollar edged up against a broadly weaker U.S. dollar on Monday as commodity prices soared and higher-yielding assets were bid after North American markets reopened following the long Easter holiday weekend. Spot gold hit a record high above $1,518 an ounce and silver surged 5 percent to top $49 an ounce, moving closer to its 1980 all-time peak, lifted by a weak U.S. dollar. [11] Around the world, investors reach for investmentsgold, silver, Iowa farmland, emerging market stocksto hedge against the decline in the value of dollar assets or to bet on booming commodity prices. This dollar flood can't last forever, and when it stops the reckoning could befor many it will beharsh. As for Mr. Bernanke's confidence that inflation will be transitory, we hope he's right. We also recall his confidence in May 2007 when he declared that "Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited." [18] Wall Street and the White House are delighted. This dollar flood has also contributed to a boom in commodity prices around the world, spurred inflation in countries with links to the dollar, and prompted investors to seek returns in non-dollar assets that are often risky and in many cases will prove to be a misallocation of capital. All of this, in turn, has reduced growth in real incomes, undermined consumer confidence and raised doubts about the durability of the recovery. [18]
The ECB's inflation outlook differs from the Fed as it views the higher commodity prices will result in companies passing on higher costs to consumers. [13] The forecasts will be broken down as the Fed usually doesshowing the highest and lowest forecasts for growth, unemployment and inflation, and also what the Fed calls the central tendency, which excludes the three highest and three lowest forecasts. [6]
Traders will be watching for any changes to the Fed's outlook on the economy. They also expect to find out if the Fed's $600 billion bond-buying effort will expire as scheduled in June. [50] With uncertainty, you get a bid in Treasuries." The Fed bought $7.24 billion in Treasuries maturing from October 2016 to March 2018 as part of its program to purchase up to $600 billion in Treasuries. [20]
Bonds reached session highs after the Fed bought $7.24 billion in Treasuries maturing October 2016 to March 2018. [29]
Bernanke did an about-face, and the Fed announced the bond program during the summer. [3] Bernanke's views are anything but secret. They've been aired regularly through his testimony before Congress, his frequent speeches, and his interviews on programs like "60 Minutes" - and the Fed chief routinely answers skeptical questions. His critics, in contrast, get to blast away from the cheap seats, and their complaints are rarely fact-checked, much less challenged. [32]
Belying the Fed's typically bland policy statement and the carefully rehearsed answers that are likely to follow in Bernanke's news session there is growing restlessness. [4] The affects of the New money are being seen around the world, what is going to unfold shortly is after Daddy Bernanke stops buying debit, leaving a huge hole in Government funding. something is going to collapse. oh wait FED is just going to implement QE3 (Infinity). ehem. I mean roll over maturing debt and buy more securities. [45] The Fed's balance sheet stood at $2.67 trillion as of last Wednesday. Its holdings of Treasuries, agency debt and mortgage-backed securities stemming from two rounds of quantitative easing accounted for 88 percent of that total. [1]
The reduction was made because of concern the federal debt limit was approaching. The Treasury will auction $99 billion in notes this week: $35 billion of two-year debt tomorrow, $35 billion of five-year securities the next day and $29 billion of seven-year notes on April 28. [20] The price of the 10-year Treasury note rose 31.2 cents per $100 invested. Its yield, which moves in the opposite direction, slipped to 3.37 percent from 3.40 late Thursday. [50] Yields on the two-year note fell two basis points, or 0.02 percentage point, to 0.64 percent at 5:11 p.m. in New York, according to Bloomberg Bond Trader prices. It touched 0.63 percent, the lowest level since March 23. [20] Data on Monday showed new U.S. single-family home sales increased more than expected in March, but there was little immediate reaction in bond prices. Other economic reports likely to evoke somewhat muted market reaction this week include consumer confidence, durable goods and the Chicago purchasing managers index. [29] In economic news, U.S. sales of new homes rebounded 11.1 percent in March to a seasonally adjusted annual rate of 300,000, the Commerce Department said Monday. [47] Sales of new homes increased 11.1% in March from a record low a month earlier, the Commerce Department said Monday, a small boost for a struggling part of the U.S. economy. [38]
Comments to that effect would benefit the dollar. A day after the Fed meeting, the Commerce Department publishes its first reading on how the economy performed during the first three months of 2011. [13] The Fed and the Kennedy administration used Operation Twist to bring down long-term rates, while keeping short-term rates unchanged, and stimulate a weak economy, the paper said. [43]
Now, the debate shifts to the Fed's next potential moves. That rate, called the discount rate, is 0.75 percent. [36]
A widely cited New York Times piece from this weekend discusses some of the disappointments with QE2, the Fed'''s recent attempt at quantitative easing. [49] The goal is to kick things off without a long monologue that might stray or distract from what the FOMC has said. "Any time he opens his mouth it could be a market mover, so the opening statement could be important," Mr. Greenlaw said. "If he says anything different than what they have in the official statement, it is another potential market mover." Mr. Bernanke will try to focus on summing up the decision and thinking of the broad consensus of the FOMC, which consists of 12 regional Fed bank presidents and the current five Fed board governors, rather than his own thoughts. In all, he'll talk for roughly 45 minutes, maybe a bit longer. [6] The outreach efforts have come at a time when Congress has pushed for additional accountability by the Fed. The financial overhaul bill passed last year required additional disclosure of the Fed's activities. [7] "The Fed isn't prepared to do that just yet. It would be an invitation for a rate-hike party," said economist Stuart Hoffman of PNC Financial Services Group. [3] Borrowing has not grown significantly, suggesting that corporations ''' which are sitting on record piles of cash ''' are not yet seeing opportunities for new investments. Until they do, some economists argue that the Fed is pushing on a string. [49]
Gross domestic product rose at a 2 percent annual pace from January through March, after increasing at a 3.1 percent rate in the final quarter of 2010, according to the median estimate in a Bloomberg News survey of economists. [20] New-home sales rose 11 percent in March from the previous month to a seasonally adjusted rate of 300,000 homes, according to the Commerce Department. That pace is still far below what economists consider a healthy level. [22]
Economists are betting it'll be bad. They say these good things are beginning to work their way through the whole economy. By the second, third quarter of this year, things will be getting better unless something else goes wrong. INSKEEP: Although when you say manufacturers are doing more business, exporting more, making more profits but not doing a lot of hiring, right there would suggest why it's been an uneven recovery. Mr. WESSEL: That's right. That's right. They are now beginning to hire, and the unemployment rate is coming down. It's just coming down so painfully slowly that there's widespread anxiety about that. [8] Economists predict first-quarter gross domestic product data to show the economy expanded at an annual rate of less than 2.0%, compared to 3.1% in the last three months of 2010. [13]
According to economist Carmen Reinhart, who has made an intensive study of crises, there's no reason to expect the change to be orderly and gradual. She says the lesson of history is pretty unequivocal: interest rates are not a good predictorof who is about to tip into a crisis. People are willing to lend at decent rates, until suddenly they're barely willing to lend at all. [46] Low interest rates are helpful to overall economic activity, but low rates generally hurt the dollar. [24] "Bond yield spreads of several peripheral countries continue to hover around record against German bond yields." He added, "There are no solutions likely in the near term; this ongoing impasse may undermine the potential interest rate advantage of the euro, leading to periodic falls." [38] Unless interest rates increase (or debt buying decrease--which is really the same thing) in a very gradual, orderly fashion, then by the time your interest rates rise, it is already too late to do anything easy; your debt service burden forces you into dramatic fiscal measures, or default. [46] An increase in the discount rate wouldn't directly affect interest rates charged to consumers and businesses. It would be viewed as a signal that those rates will soon rise. [36]
Rising inflation and interest rates feed the distrust, potentially producing a vicious circle of accelerating inflation and interest rates. [9] The obvious problem with all this is, all this potential change in circumstances will dictate the viability of every investment and every business decision. The second Bernanke yanks the chain and raises interest rates, the table tilts another direction. It's incendiary. [4] If China exits the market, we will either need to borrow less, or attract new lenders by offering higher interest rates. [46] The short-term interest rate that it controls, the federal-funds rate at which banks lend to each other overnight, could be harder to push up than in the past. [16] When you look at how much of our debt comes due by the end of 2012, it's easy to see how fast higher interest rates could turn into a real problem for us. Their stock of lenders probably isn't going anywhere. [46] In fact I made a similar point about interest rates the other day. [46] Even a noticeable decrease in volume would force us to pay more for our deficits. We saw this on a personal level in 2009 when credit card companies reacted to the crisis by reducing credit limits, often to the outstanding balance. This was a big problem for households who were faced with sudden cutbacks, or higher interest rates, or even both. [46]
The acceleration in more sensitive producer prices has been even more startling, with the three month annualized rate of advance in the Producer Price Index for Finished Goods rising from 4.1% in September, to 9.2% in December and a stunning 13.1% for the three months ending March. Bernanke'''s position that these price increases will prove transitory are contradicted by the continued fall in the value of the dollar on commodity and foreign exchange markets.'' [9] “The balance sheet is crucial. but I don’t think we’re going to get any resolution to that on April 27th. They’re not going to tell you up front,” he said. “Where you get answers from Bernanke is maybe how transitory are these commodity price increases, what are they thinking about in terms of the dollar, what are they thinking in terms of the immediate GDP consequences of what happened in Japan. [51] Bernanke is also expected to touch upon the financial fallout expected from Japan's nuclear crisis as well as related commodity price increases. [35]
I understand Gross is now in disagreement with other Bond dealers; read it in one of the financial articles. He's like a private sector version of Bernanke; whenever he opens his mouth, he stirs the pot too much. Every time Big Ben says something, the markets go crazy and everyone loses money; maybe he can just cancel his Weds speech, it would do more good than whatever he's going to say. [44] I suspect U.S. manufacturing could have peaked. That would support bonds for the time being," said a trader at a Japanese bank. The market is also looking to a series of bond auctions planned this week, the first significant bout of bond supply since Standard & Poor's reduced its credit outlook on the United States last week. [28]
Bond prices even seem to reflect some of the longer-term fiscal challenges the United States faces. "The market reaction to the S&P; outlook revision suggested that investors had already gone a good way toward pricing in the fiscal difficulties in the United States," said Robert Tipp, chief investment strategist for Prudential Fixed Income, the latter with $240 billion in assets under management. [29] In addition to bond supply, investors are preparing for the Fed's two-day meeting that begins on Tuesday. [1]
The Fed also is releasing economic forecasts concurrent with the start of the press conference. [39] The longer the Fed keeps the dollar flood going, the greater the risks of serious economic harm. [18] Between 1980 and 2000, the price of oil fell in half as did the price of gold, under the strong dollar policies of the Reagan and Clinton Administrations, and Fed chairmen Volcker and Greenspan. [9]
While analysts expect to parse the Fed's customary statement for any hint of a shift toward tighter monetary policy, few expect surprises. [38] Giving the banks more reserves does nothing because banks are never reserve constrained. Now all of the experts are trying to convince us that QE just wasn't tried hard enough! If only the apple salesman had put more apples on the shelves - then his sales would have improved! No, that's not how monetary policy works. And as I’ve said for many many months now, this obsession with size is entirely misguided. [45] Any "tightening" of monetary policy, which would make credit harder to get, could support the dollar. [22]
The euro soared to a 16-month high above $1.46. Geithner last year flatly denied he is pursuing a policy aimed at cheapening the dollar. "We will never use our currency as a tool to gain competitive advantage," he told reporters last November after a meeting in Kyoto, Japan, of finance ministers from the Asia-Pacific Economic Cooperation group. [25] The economic benefit of another major government measure meant to stimulate the economy, a $821 billion package passed in 2009 for building roads, repairing bridges and other infrastructure projects, has already rippled through the economy. The economy is still getting support from a sweeping package of tax cuts, including a reduction in the Social Security payroll tax that will give an extra $1,000 to $2,000 to most households this year. [3]
Policy makers are set to convene in Washington on April 26- 27, and determine whether to stick with the $600 billion program through June. [43] Today's acquisition amounted to 42.7 percent of the $16.9 billion in securities submitted by dealers. [20]
A precipitous fall in the dollar would reduce the value of all dollar-based securities China continued to hold.'' Assuming the U.S. economy softened under this scenario, exports to America would dry up quite a bit. [24] The U.S. dollar is on our minds these days because it is weak and getting weaker.'' We hear reports that Chinese officials are actively cautioning, scolding and remonstrating the U.S. on its profligate ways because China has a few trillion in reserves, much of it invested in dollar-denominated securities. [24]
In terms of foreign currencies, I believe there are only two other actual currencies ''' the Euro and the Japanese Yen ''' that China could look to other than the dollar.'' China'''s financial reserves are big enough that the Chinese government has to have its foreign assets denominated in a very large, liquid currency. And, there are not too many of those around other than the U.S. dollar, the Euro and the Yen. For a variety of historical and cultural reasons, I doubt if the Chinese would seriously entertain putting most of their foreign currency and foreign assets holdings in the Japanese Yen, so the currency choice is between the dollar and the Euro. [24]
At 8:26 (1226 GMT), the Canadian dollar CAD=D4 stood at C$0.9514 to the U.S. dollar, or $1.0511, up slightly from Thursday's North American finish at C$0.9537 to the U.S. dollar, or $1.0485. It was a softer after reaching its highest level in three and a half years. [11] Gold hits record high, U.S. oil nears $113 a barrel By Claire Sibonney TORONTO, April 25 (Reuters) - The Canadian dollar edged up against a. [11]
If silver reaches $50, it would be a new level in dollar terms but still below the peak reached in the 1980s after accounting for inflation. [21] "If you really do have an inflation problem, not only can you raise overnight rates, you can sell a trillion dollars in mortgages or Treasuries." [2] The rate of consumer price inflation including energy and food has accelerated into the mid single digits. [9] Most certainly a monetary non-event, however, there is substantial evidence now showing that QE2′s one targeted goal - increasing inflation expectations - is working via the exact wrong channels by contributing to the surge in commodity prices. While it's been a monetary non-event it's been a substantial economic event. [45]
While Bernanke, Dudley and Yellen have advocated interest on excess reserves to stop inflation, other members of the FOMC have proposed taking different approaches to withdraw stimulus. [2] Bernanke, who has expressed repeated concern about the health of the recovery and has pressed for continued stimulus, finds himself increasingly isolated in a global economy where fears of inflation are rising. [4] Read More apitol Hill, in Washington,D.C. Bernanke's testimony on the "State of the U.S. Economy", comes as the economy attempts to recover from the recent recession, amid a ballooning federal deficit and continuing high unemployment. [35] Just to finish the thought, what if China did dump the dollar in a significant way?'' First, the implications of that are obviously negative for the U.S. economy as the dollar would fall even further under the selling pressure.'' [24] Rising risk appetite makes the dollar less attractive for investors looking for higher-yields, weighing on the dollar. Last week, dollar index futures fell to their lowest level since 2008, stung by S&P;'s downgraded outlook on U.S. debt and lingering weakness in the nation's economy. [47]
The goal would be to lower rates on loans and push up stock prices. That could spur spending and invigorate the economy. [36] On a monthly basis, producer prices rose 0.9 percent, the same rate of growth as seen in February. [47]
Policy makers will leave the target rate for overnight lending between banks at zero to 0.25, according to all 82 economists in a separate Bloomberg survey. [20] Where the NY Times and economists like Paul Krugman ( who is now saying “told ya so” after supporting QE at much larger levels) get it woefully wrong is with regards to size. There has been a chorus of economists in recent weeks telling us that QE2′s results have been disappointing because it wasn't large enough (they're essentially backpedaling from previous assertions that QE2 would do something beneficial). Now that it's becoming clear that QE2 didn't contribute positively to economic growth these same economists are changing their tune to give the appearance that QE is not a flawed policy, but that it was merely implemented incorrectly. This is sheer nonsense. [45]
The FOMC panel also was expected to discuss whether the U.S. economic recovery is strong enough to allow the Fed to wind down massive support. [27] "In order to achieve a non-inflationary increase in yields even to 0.25%, the Fed will have to reverse the entire amount of asset purchases it has engaged in under QE2. [9] The bond-buying program was the Fed's second since the recession, and is known as "quantitative easing," or "QE2" for short. [3] The press is busy speculating about if and how the Fed will extricate itself from QE2, which clearly matters. [18]
Treasurys might even gain, sending rates lower, if the end of QE2 causes stocks and other assets to fall. "Any market concern over liquidity, or increased volatility, tends to benefit Treasurys as they are still considered to be the flight-to-quality asset," Mr. Rieder says. [17] Rates on mortgages, corporate debt and other loans pegged to the Treasury securities would rise, too. [3]
As the greenback slides close to all-time lows, President Barack Obama's administration has been noticeably quiet. Treasury Secretary Tim Geithner last used "strong dollar" language in November, and a glance through his speeches and news databases shows he has had almost nothing to say on the matter since. [25] Aussie drops after hitting post-float peak (Updates prices, adds details) NEW YORK, April 25 (Reuters) - The euro rose against the dollar. [5]
Chairman Ben S. Bernanke will speak to reporters after the meeting in a new communications plan. [20] At the time, Palin'''s warning invoked Weimar-style hyperinflation, which hasn'''t happened: '''When Germany, a country that knows a thing or two about the dangers of inflation, warns us to think again, maybe it'''s time for Chairman Bernanke to cease and desist.''' [49]
Yellen also emphasized the deposit rate in a Jan. 8 speech defending the central bank's second round of asset purchases. [2] During a recent summit, the leaders of Brazil, Russia, India, China and South Africa (the BRICS) announced that they want to trade between themselves in their own currencies. This comes amid a growing chorus in China pushing for a limit of dollar reserves to $1.3 trillion. [46] I agree totally, the federal reserve is a joke, run by the former employees of the very establishments they are supposed to regulate. [33]
U.S. crude prices approached $113 a barrel, buoyed by an escalation of violence in the oil-producing Middle East and post-election unrest in OPEC member Nigeria. "All things are pointing for Canada to continue to do better, but I think it's just going to be a flow-driven session more than anything else today," said Steve Butler, director of foreign exchange trading at Scotia Capital. [11]
SOURCES
1. TREASURIES-Bond prices firm on Fed outlook, supply hedging | Reuters
2. Dudley Seeing Interest on Reserves as Favored Tool Spurs Debate - Businessweek
3. The Associated Press: As economy gains strength, Fed weighs what's next
4. U.S. economy, Fed, Bernanke: Federal Reserve Chairman Ben Bernanke faces decision on inflation - latimes.com
5. FOREX-Dollar down vs euro in volatile trade before Fed meeting | Reuters
6. Fed Sweat the Details of First News Conference - WSJ.com
7. Bernanke to Meet the Press on Wednesday
8. Chairman Bernanke To Explain Fed's Action At News Conference : NPR
9. An "All-In" Bet By Fed Chairman Ben Bernanke - Charles Kadlec - Community of Liberty - Forbes
10. Analysis:Historic Bernanke Press Conf Overshadows FOMC Itself | iMarketNews.com
11. CANADA FX DEBT-C$ firms on rising commodities, weaker greenback | Reuters
12. TREASURIES-Bonds supported on expectations of dovish Fed | Reuters
13. DC AHEAD: US Fed Meeting Dominates Washington Agenda - WSJ.com
14. News Headlines
15. Summary Box: Silver Rise on Inflation Concerns - ABC News
16. Inside the Fed, Not When but How - WSJ.com
17. WSJ: Fund Giants Take Competing Stands On US Bond Outlook - WSJ.com
18. Review & Outlook: Bernanke's Inflation Paradox - WSJ.com
19. Ben Bernanke news conference a dream come true | detnews.com | The Detroit News
20. Treasuries Gain Before Federal Reserve Meets as Equities Slip - Businessweek
21. Silver Nears $50 an Ounce on Inflation Concerns - ABC News
22. Dollar Mixed Ahead of Fed Meeting - ABC News
23. Taiwan Dollar Trades Near Two-Month High on Higher-Yield Appeal - Bloomberg
24. Can China really dump the dollar? - Fundmastery Blog - MarketWatch
25. Has Barack Obama's administration forgotten it has a strong dollar policy? - Economic Times
26. FT.com / Currencies - Dollar slides on likelihood of low rate decision
27. Dollar steadies ahead of Fed rate-setting meeting - The Economic Times
28. TREASURIES-Bonds firm, 10-yr yield could break below trendline | Reuters
29. TREASURIES-Bonds up on outlook for monetary easing, growth | Reuters
30. Government Policy | iMarketNews.com
31. Questions for Bernanke? Details of News Conference | iMarketNews.com
32. Some Questions for Bernanke's Critics - Seeking Alpha
33. Mondays Most Intriguing: Bernanke, Bahrains prince, The Elders This Just In - CNN.com Blogs
34. North America | iMarketNews.com
35. Ben Bernanke, Federal Reserve Chairman, To Speak At Q&A; | ThirdAge
36. What's Next? Some Options Available for the Fed - ABC News
37. Analysis: Historic Bernanke Press Conf Overshadows FOMC -2- | iMarketNews.com
38. WORLD FOREX: Dollar Edges Lower As Market Awaits Fed Meeting - WSJ.com
39. Bernanke To Field Questions For About 45 Minutes Wednesday - WSJ.com
40. Dollar Remains On The Ropes As Focus Turns To Fed
41. Bernanke and the media Round One coming up | Front Row Washington
42. Mortgage Orb: Content / Residential Mortgage / Fed To Close Treasury Purchases In June
43. Fed Paper Finds Links Between Bond Buying, 'Operation Twist' - Businessweek
44. WSJ: Treasury prices fall June Fed pulls out bond market
45. Here's The Real Reason QE Wasn't Able To Keep Interest Rates Down
46. What a Crisis Looks Like - Megan McArdle - Business - The Atlantic
47. Dollar Doldrums Persist As Markets Eye Fed
48. The Fed Meets the Press - WSJ.com
49. Fed Critics Miss Reason Stimulus Stalled | FrumForum
50. Treasury Prices Edge up Ahead of Fed Meeting - ABC News
51. News Headlines
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