Showing posts with label Fed. Show all posts
Showing posts with label Fed. Show all posts
Tuesday, July 28, 2015
China and the dollar may be about to collide
Tuesday, April 28, 2015
Gold Advances as Data Clouds Rate Outlook Before FOMC Meeting
Gold rebounded from the lowest level in five weeks as conflicting U.S. data clouded the outlook for higher rates before Federal Reserve policy makers meet this week and investors boosted holdings of the metal. Silver surged.
Monday, October 20, 2014
Janet Yellen warns on growing inequality in the US
US Federal Reserve chair Janet Yellen said that she was "greatly concerned" about rising inequality in the US.
"I think it is appropriate to ask whether [growing inequality] is compatible with values rooted in our nation's history," she said in a speech in Boston on Friday.
Sunday, June 22, 2014
Recovery Tipped For Hong Kong Stocks
(RTTNews.com) - The losing streak has stretched to three sessions now for the Hong Kong stock market, which has given away more than 135 points or 0.6 percent in that span.
Monday, May 19, 2014
Fed may need to update its interest rate guide
(Reuters) - Interpreting Federal Reserve policy is hard enough, but the central bank may need to dust off its 'How to' guide to explain the nuts and bolts of new tools it will use when it finally starts to raise interest rates.
Sunday, November 24, 2013
Fed Not in the ‘Danger Zone’ as Exit Approaches, Lockhart Says
Federal Reserve Bank of Atlanta President Dennis Lockhart said he thinks the central bank can handle its exit from quantitative easing when the time comes, despite uncertainty caused by a balance sheet close to $4 trillion.
Friday, November 19, 2010
Ben Bernanke hits back at Fed critics
US Federal Reserve chairman Ben Bernanke has criticised countries like China that run large trade surpluses.
"Currency undervaluation by surplus countries is inhibiting needed international adjustment," he said in a speech to the European Central Bank
He said that by buying dollars, these countries were hurting the US recovery and the global economy with it.
He also defended the Fed's policy of "quantitative easing", which has been criticised by China and Germany.
Defending QE
China, Germany and others have attacked the Federal Reserve in recent weeks for its decision to purchase another $600bn of US government debt in a bid to stimulate the US economy.
They say that the policy will unfairly devalue the dollar in currency markets, and that this could lead to inflation and asset bubbles elsewhere in the world.
The Chinese also argued the Fed had failed to take account of its responsibility for protecting the value of the dollar as a global reserve currency.
In his speech, Mr Bernanke defended the policy as the right response to falling inflation and high unemployment in the US.
He also said it was a natural extension of monetary policy, given that interest rates were near zero and could not be cut further.
On the attack
But Mr Bernanke went further than this, hitting back against his critics.
He said that their policy of accumulating dollar reserves in order to weaken their currencies and help maintain a trade surplus would hurt the recovery in industrial economies, and this in turn could harm the entire global economy.
"For large, systemically important countries with persistent current account surpluses, the pursuit of export-led growth cannot ultimately succeed if the implications of that strategy for global growth and stability are not taken into account," he said.
He spoke of a two-speed recovery, in which developing economies like China and India had rapidly bounced back, while industrialised countries like the US, Europe and Japan were growing much more slowly and suffered from high unemployment.
"Because a strong expansion in the emerging market economies will ultimately depend on a recovery in the more advanced economies, this pattern of two-speed growth might very well be resolved in favour of slow growth," he said.
Collateral damage
He also said the currency interventions by countries like China had other iniquitous effects.
He said it was unfair on other countries that allowed their currencies to appreciate, as they would be forced to bear the brunt of the economic adjustment.
Countries such as Brazil and South Africa have already complained that they have been put in exactly this position by the "currency war" between the US and China.
Mr Bernanke also warned that by refusing to let their currencies appreciate, countries like China would be forced to take other measures to stop risky inflows of speculative money, and to cool rising inflation.
On the same day of his speech, China announced a half-point rise in the percentage of cash its banks must hold in reserve - a measure designed to slow down a recent jump in inflation to 4.4%.
China has also taken measures in recent months to tighten up capital controls - designed to stop people speculating on the value of the Chinese currency.
Source: BBC
www.bbc.co.uk
"Currency undervaluation by surplus countries is inhibiting needed international adjustment," he said in a speech to the European Central Bank
He said that by buying dollars, these countries were hurting the US recovery and the global economy with it.
He also defended the Fed's policy of "quantitative easing", which has been criticised by China and Germany.
Defending QE
China, Germany and others have attacked the Federal Reserve in recent weeks for its decision to purchase another $600bn of US government debt in a bid to stimulate the US economy.
They say that the policy will unfairly devalue the dollar in currency markets, and that this could lead to inflation and asset bubbles elsewhere in the world.
The Chinese also argued the Fed had failed to take account of its responsibility for protecting the value of the dollar as a global reserve currency.
In his speech, Mr Bernanke defended the policy as the right response to falling inflation and high unemployment in the US.
He also said it was a natural extension of monetary policy, given that interest rates were near zero and could not be cut further.
On the attack
But Mr Bernanke went further than this, hitting back against his critics.
He said that their policy of accumulating dollar reserves in order to weaken their currencies and help maintain a trade surplus would hurt the recovery in industrial economies, and this in turn could harm the entire global economy.
"For large, systemically important countries with persistent current account surpluses, the pursuit of export-led growth cannot ultimately succeed if the implications of that strategy for global growth and stability are not taken into account," he said.
He spoke of a two-speed recovery, in which developing economies like China and India had rapidly bounced back, while industrialised countries like the US, Europe and Japan were growing much more slowly and suffered from high unemployment.
"Because a strong expansion in the emerging market economies will ultimately depend on a recovery in the more advanced economies, this pattern of two-speed growth might very well be resolved in favour of slow growth," he said.
Collateral damage
He also said the currency interventions by countries like China had other iniquitous effects.
He said it was unfair on other countries that allowed their currencies to appreciate, as they would be forced to bear the brunt of the economic adjustment.
Countries such as Brazil and South Africa have already complained that they have been put in exactly this position by the "currency war" between the US and China.
Mr Bernanke also warned that by refusing to let their currencies appreciate, countries like China would be forced to take other measures to stop risky inflows of speculative money, and to cool rising inflation.
On the same day of his speech, China announced a half-point rise in the percentage of cash its banks must hold in reserve - a measure designed to slow down a recent jump in inflation to 4.4%.
China has also taken measures in recent months to tighten up capital controls - designed to stop people speculating on the value of the Chinese currency.
Source: BBC
www.bbc.co.uk
Wednesday, November 03, 2010
Full speed ahead
THE ocean liner Queen Elizabeth 2 was launched in 1967 to throngs of spectators and adulatory press. Expectations are considerably lower for the Federal Reserve’s launch of monetary QE2: a second round of quantitative easing, the purchase of bonds with newly printed money. Experts from Joseph Stiglitz, the Nobel-winning economist, to Bill Gross, head of the bond-management giant, Pimco, have already predicted it will be either ineffectual or dangerous.
Undeterred, the Fed has moved ahead:
To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.
The announcement of $600 billion in new purchases is slightly above the $500 billion level many anticipated. In what may be disappointing news to some, the Fed has not changed its language to signal a move toward an official inflation or price-level target. Still, the early evidence suggests that QE2 is already working as advertised. Since Ben Bernanke, the Federal Reserve chairman, hinted in late August that it was on its way, financial markets have responded vigorously.
The 10-year bond yield has fallen to 2.65% from 2.53%. At the same time, expected inflation, as measured by the inflation-indexed bond market, has risen steadily. This means that real yields have fallen even more than nominal yields. Indeed on October 25, the Treasury Department sold five-year inflation-indexed bonds with a negative real yield for the first time.
Lower real yields also raise the value of future profits, and that has helped drive stock prices 13.5% higher. And easier monetary policy has made the dollar and dollar investments less attractive; the dollar has fallen 4.4% against the yen, 9.7% against the euro, and is down 4.1% on a trade-weighted basis. "You can declare QE to be a success already", says one hedge fund economist. "Whether this translates into real activity remains a question mark. But the question of whether the mechanism would work has been answered."
In theory, this should help the economy through three channels. First, lower real yields spur borrowing and investment. This channel, however, is partly blocked: households can’t borrow against the depreciated value of their homes, banks have tightened underwriting standards, and businesses are waiting for sales to pick up. The remaining two channels are not similarly impaired. Higher stock prices have raised household wealth, which should spur spending and offset some of the damage of lower home values. And the lower dollar ought to help trade. Indeed in October, American factory purchasing managers reported a sharp jump in export orders and a drop in imports.
Macroeconomic Advisers, a consulting firm, reckons that if this round of QE eventually adds up to $1.5 trillion that should be enough to raise growth next year to 3.5% from a little over 3%. That’s not exactly overwhelming. Larry Meyer, the firm’s vice-chairman, thinks the Fed would have to buy $5 trillion to achieve the equivalent of a 400 basis point drop in the federal funds rate that today’s economic slack actually demands. The Fed won’t go that far; it worries too much about unintended consequences. It would also invite attack from some of Congress’ newly empowered Republicans. In a Bloomberg poll, 60% of self-identified Tea Party supporters favoured overhauling or abolishing the Fed.
Could QE succeed too well, by driving expected inflation up dramatically? "The odds aren’t zero", says Don Kohn, a former Fed vice-chairman. But he sees that as more likely once credit loosens up and spending accelerates, which would signal that the Fed has succeeded, and can then tighten policy.
Another potential cost is that by driving the dollar down, QE merely shifts the burden of growth to other countries, perhaps fueling asset bubbles in their markets in the process. Some of this is may be unavoidable. Countries with overheating economies need to tighten monetary conditions, either through higher interest rates, a rising currency, or both. The central banks of both India and Australia raised interest rates this week despite sharply higher currencies. China has grudgingly allowed its currency to creep higher recently, and this week central bank officials hinted they will have to tighten monetary policy soon.
By far the most interesting response, however, has been the Bank of Japan’s. It had planned to announce details of its own QE programme at a regular policy meeting on November 15-16. But it abruptly accelerated the date to November 4-5. This seems to reflect a desire to counteract any boost to the yen resulting from the Fed’s announcement. The action risks aggravating tensions over currency levels, but it could have a more benign effect. "This kind of follow the leader response by central banks is part of the solution and not part of the problem". says Barry Eichengreen of the University of California at Berkeley, who has long argued that such competitive reflation is analogous to the expansionary effect of quitting the gold standard in the 1930s. If Mr Bernanke's is the face that launches a thousand ships, the global economy may be the better for it.
Undeterred, the Fed has moved ahead:
To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.
The announcement of $600 billion in new purchases is slightly above the $500 billion level many anticipated. In what may be disappointing news to some, the Fed has not changed its language to signal a move toward an official inflation or price-level target. Still, the early evidence suggests that QE2 is already working as advertised. Since Ben Bernanke, the Federal Reserve chairman, hinted in late August that it was on its way, financial markets have responded vigorously.
The 10-year bond yield has fallen to 2.65% from 2.53%. At the same time, expected inflation, as measured by the inflation-indexed bond market, has risen steadily. This means that real yields have fallen even more than nominal yields. Indeed on October 25, the Treasury Department sold five-year inflation-indexed bonds with a negative real yield for the first time.
Lower real yields also raise the value of future profits, and that has helped drive stock prices 13.5% higher. And easier monetary policy has made the dollar and dollar investments less attractive; the dollar has fallen 4.4% against the yen, 9.7% against the euro, and is down 4.1% on a trade-weighted basis. "You can declare QE to be a success already", says one hedge fund economist. "Whether this translates into real activity remains a question mark. But the question of whether the mechanism would work has been answered."
In theory, this should help the economy through three channels. First, lower real yields spur borrowing and investment. This channel, however, is partly blocked: households can’t borrow against the depreciated value of their homes, banks have tightened underwriting standards, and businesses are waiting for sales to pick up. The remaining two channels are not similarly impaired. Higher stock prices have raised household wealth, which should spur spending and offset some of the damage of lower home values. And the lower dollar ought to help trade. Indeed in October, American factory purchasing managers reported a sharp jump in export orders and a drop in imports.
Macroeconomic Advisers, a consulting firm, reckons that if this round of QE eventually adds up to $1.5 trillion that should be enough to raise growth next year to 3.5% from a little over 3%. That’s not exactly overwhelming. Larry Meyer, the firm’s vice-chairman, thinks the Fed would have to buy $5 trillion to achieve the equivalent of a 400 basis point drop in the federal funds rate that today’s economic slack actually demands. The Fed won’t go that far; it worries too much about unintended consequences. It would also invite attack from some of Congress’ newly empowered Republicans. In a Bloomberg poll, 60% of self-identified Tea Party supporters favoured overhauling or abolishing the Fed.
Could QE succeed too well, by driving expected inflation up dramatically? "The odds aren’t zero", says Don Kohn, a former Fed vice-chairman. But he sees that as more likely once credit loosens up and spending accelerates, which would signal that the Fed has succeeded, and can then tighten policy.
Another potential cost is that by driving the dollar down, QE merely shifts the burden of growth to other countries, perhaps fueling asset bubbles in their markets in the process. Some of this is may be unavoidable. Countries with overheating economies need to tighten monetary conditions, either through higher interest rates, a rising currency, or both. The central banks of both India and Australia raised interest rates this week despite sharply higher currencies. China has grudgingly allowed its currency to creep higher recently, and this week central bank officials hinted they will have to tighten monetary policy soon.
By far the most interesting response, however, has been the Bank of Japan’s. It had planned to announce details of its own QE programme at a regular policy meeting on November 15-16. But it abruptly accelerated the date to November 4-5. This seems to reflect a desire to counteract any boost to the yen resulting from the Fed’s announcement. The action risks aggravating tensions over currency levels, but it could have a more benign effect. "This kind of follow the leader response by central banks is part of the solution and not part of the problem". says Barry Eichengreen of the University of California at Berkeley, who has long argued that such competitive reflation is analogous to the expansionary effect of quitting the gold standard in the 1930s. If Mr Bernanke's is the face that launches a thousand ships, the global economy may be the better for it.
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