Reuters blog archive
This is the thing about delaying the new Fed chair's follow-up testimony by two weeks due to bad weather, you actually make the second hearing something that's potentially interesting. (It will depend, of course, on whether members of the Senate Committee ask provocative questions, and while you can lead a horse to water, well, you know.)
In the interim two weeks since Janet Yellen last appeared before Congress, the U.S. economic picture has gotten much more muddled. That's mostly because of poor retail sales and employment figures, and the out-of-control situation in Ukraine which has led to a regional flight of some assets. There's also been some interesting comments from the likes of Fed Governor Daniel Tarullo, who suggested the Fed should be paying more attention to the formation of asset bubbles and the use of monetary policy to curb them. That anyone is surprised at this shows how pervasive the "Fed put" option has become in the discussion of Fed activities, so we've really lowered expectations here.
Meanwhile, Boston Fed head Eric Rosengren said the Fed is looking very closely at activities in emerging markets, which is sort of obvious in a sense but contradicts, if only modestly, Yellen's thoughts two weeks ago. And really, the Fed's ability to influence economic activities overseas in some of the world's developing markets or troubled spots is even weaker than what it can exert over U.S. demand. So maybe it's just one to grow on.
Either way, Yellen would probably want to comment on the situation, if, again, a smart senator would think to ... well, never mind.
Overnight, the situation in the Ukraine has worsened, with armed gunmen taking control of regional government headquarters in Crimea, vowing to be ruled from Russia. The Ukrainian hryvnia continues to sink while the Russian ruble plumbs new five-year lows, surpassing the previous day's losses, and a bit of risk-off action can be seen in the zloty and a bit of better buying in Treasuries, where the 10-year yield was lately at 2.66 percent. Fund flow figures will be key to watch here to see if overseas flows increase to the U.S. or at least to the developed areas of Western Europe and Japan.
from Global Investing:
Is it all over? Is the emerging market turmoil no longer a concern among investors, economists and academics? Measured at least in the last week, the market is recovering some lost ground. Maybe January's sell-off was enough and in the last week all boats seem to be rising once again. After all, there's a new Fed Chair in Janet Yellen who has now officially taken over and the likelihood of easy monetary policy, tapering of asset purchases notwithstanding, isn't expected to change.
MSCI's emerging market benchmark stock index has rebounded 3.5 percent from a Feb. 4 low. The U.S. benchmark S&P 500 stock index has risen slightly more over the same period.
An odd jobs report sets the tone for what’s likely to be another choppy day in the markets – stock futures plunged, briefly, after the Labor Department said nonfarm payrolls grew by just 113,000, but the household survey saw a drop (again) in the unemployment rate to 6.6 percent on a big gain in jobs in that survey. An odd decline of 29,000 in government payrolls offset the overall about-at-trend-but-let’s-not-kid-ourselves-about-this-being-awesome 140,000 or so gains in the private jobs market, so there’s a little bit to like, some to shake one’s head at, and still more to wonder about how many people didn’t get to work because their feet froze to the ground when they tried to get into their cars.
(More seriously on that point – the establishment survey doesn’t get some kind of massive job loss just because of a storm on a particular day of surveying, so it’s not as if a snowstorm destroys job growth, so let’s not overstate the weather issue here. It’s a factor, but don’t look for a revision to +300,000 or something.)
from Nicholas Wapshott:
President Barack Obama’s State of the Union was all about jobs. He said the word 23 times, often congratulating himself on having helped create 4 million. He urged a “year of action” to make more jobs, raise wages and create opportunities for social mobility. Then he set out on a jobs tour to persuade large companies to start hiring and pay more.
But if we assume the Tea Party-dominated House of Representatives is not going to help him here and will block any new public borrowing for infrastructure projects, what is the president to do?
December’s last salvo before going into holiday mode was the surprise Federal Reserve decision to trim its monthly $85 billion in bond buying to a more modest (but still enormous) $75 billion, that helped balloon its balance sheet to north of $4 trillion.
Suffice to say, on some levels, there was a bit of a disconnect here: The Fed’s inflation outlook showed inflation not getting back to its 2 percent target for a long time (like, forever; several years out, it was seen as just sneaking its way over 2 percent, never mind what Charles Plosser of Philly says).
from Anatole Kaletsky:
Following Wednesday’s publication of the Federal Open Market Committee minutes, we now know that a reduction in U.S. monetary stimulus could be on the agenda for the next FOMC meeting on December 19. How much does this matter?
When the Fed unexpectedly decided not to “taper” in September, the markets were stunned and gyrated wildly, although investors had only themselves to blame for being wrong-footed in this way. Ben Bernanke had made crystal clear his reluctance to reduce monetary stimulus as long as the U.S. economy appeared to be weakening, which appeared to be the case throughout the summer. By December 19, the situation may well be very different, since the economy will probably be improving and the U.S. fiscal stalemate may well have been resolved. If such improvements happen, the Fed will have no compunctions about wrong-footing investors again, in the opposite direction, as this column suggested last month.
from Anatole Kaletsky:
If anyone still doubted that central bankers all over the world will keep interest rates at rock-bottom levels, those doubts should have been dispelled this week. Janet Yellen’s statement on Thursday to the U.S. Senate that the Fed has “more work to do” to stimulate employment, and that “supporting the recovery today is the surest path to returning to a more normal approach to monetary policy,” capped a series of surprisingly clear commitments to easy money from central bankers this week. On Wednesday Joerg Asmussen, a member of the executive board of the European Central Bank, and Ewald Nowotny, the Austrian central bank governor -- both of whom had previously been reported as voting against last week’s surprise ECB rate cut -- said that they might in fact support further rate cuts and even negative interest rates, as well as the possibility of breaking the taboo against U.S.-style purchases of government bonds. And Mark Carney, the Governor of the Bank of England, reiterated more strongly than ever that any early increase in British interest rates was out of the question, despite the fact that the outlook for the British economy has turned out to be much better than the BoE had expected.
But what if these zero interest rate policies produce disappointing results in the year ahead, as they have in each of the past four years? What if the world economy fails to spring back to life or just plods along with sub-par growth, despite all this stimulus, as has happened in each of the past four years?
from Nicholas Wapshott:
For those with memories of hyper-inflation and “stagflation” in the 1970s, these cogent pleas for higher prices is heresy, an irresponsible clamor for the return of an ever-changing fiscal landscape that led to widespread misery and economic turmoil.
from The Great Debate:
The confirmation hearing of Federal Reserve Chairwoman nominee Janet Yellen on Thursday will be an opportune moment for Fed critics to air their grievances. There is plenty of fodder for disagreement and debate -- ranging from the Fed’s supervisory track record, to the rules for tapering large-scale asset purchases, to the criteria for ending its zero-interest rate stance.
Yet, one sure criticism is sharply at odds with the facts: That the Fed’s crisis response was an insider affair, run by and for a handful of too-big-to-fail banks.