Financial Regulatory Forum

BREAKINGVIEWS – Markets right to take Fed move badly

– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –


By Edward Hadas

LONDON, Feb 19 (Reuters Breakingviews) – The Federal Reserve deserves some sympathy. The U.S. central bank did everything it could to stage-manage its minimal tightening moves, announced late on Feb. 18. But markets reacted as if to serious bad news.

The changes really are small. The main one was to increase the Fed’s discount rate, which is not currently crucial to the financial system, by a token quarter of a percentage point.

That widens the spread between the policy interest rate, currently zero, and the discount rate, which is used for emergency lending to banks, to half a percentage point. Before the crisis, the gap was a full percentage point.

The Fed tried to keep markets calm. It had hinted the move was coming and the press release announcing the changes started by explaining that they were a response to the “continued improvement in financial market conditions”. To hammer the point home, the Fed added that the moves “do not signal any change in the outlook for the economy or for monetary policy”.

Obama stimulus plan halted economic freefall – White House report

WASHINGTON, Feb 16 (Reuters) – U.S. President Barack Obama’s $787 billion stimulus prevented another Great Depression while creating or preserving 2 million jobs, according to a White House report to be released on Wednesday.

The report, signed by Vice President Joe Biden who oversees how stimulus money is spent, stressed the depth of the crisis confronting Obama when he took office 13 months ago, as the President constantly reminds Americans in his speeches.

But it also highlighted Obama’s challenge of trying to cut a 9.7 percent jobless rate that has fueled voter discontent.

BoE’s King says far too soon to say easing program is finished

Options open

Options open

By Sumeet Desai and Matt Falloon

LONDON, Feb 10 (Reuters) – The Bank of England may have to pump more money into Britain’s fragile economy, Governor Mervyn King said on Wednesday after the central bank forecast inflation would stand well below target in two years.

Presenting the BoE’s quarterly Inflation Report, King said recovery from the worst recession since World War Two would be slow with output below pre-crisis levels for some time to come.

And that gloomy outlook did not even take into account the likelihood of fiscal policy being tightened hard after an election expected on May 6.

Bernanke lays out vision for Fed monetary exit

Eyes on the punch bowl

Eyes on the punch bowl

By Mark Felsenthal

WASHINGTON, Feb 10 (Reuters) – Federal Reserve Chairman Ben Bernanke on Wednesday detailed how the U.S. central bank will begin to wean the economy off its extraordinary stimulus, even as he stressed it was not yet time to do so.

Bernanke said the Fed would likely begin tightening monetary policy by removing cash from the financial system before it turns to raise benchmark short-term interest rates.

In his most comprehensive description to date of how the Fed aims to dismantle its extensive emergency economic supports, he also said the central bank could soon raise the discount rate it charges banks for emergency loans, but stressed that would not be akin to a tightening in monetary policy.

Bank of England halts quantitative easing, leaves door open for more

LONDON, Feb 4 (Reuters) – The Bank of England announced on Thursday no increase to its unprecedented 200 billion pound asset-buying programme, but left the door open to more so-called quantitative easing if economic conditions deteriorated.

It also left UK interest rates at a record low of 0.5 percent, as expected.

Almost all analysts had predicted a pause in the programme after 11 months of pumping newly-created money into the economy but sterling rose and gilts fell as some traders had positioned for an increase, given the fragility of the economy which has only just come out of recession.

The BoE said that, on balance, the prospects were for a gradual recovery in the level of activity but the high level of spare capacity in the economy after the recession meant inflation would fall below the target for a period.

Build America Bonds expansion needed-Geithner

WASHINGTON, Feb 2 (Reuters) – U.S. Treasury Secretary Timothy Geithner told a Senate panel on Tuesday that expanding the popular stimulus program known as “Build America Bonds” would help state and local governments at no cost to the federal government.

The taxable bonds, which give issuers a large federal rebate, have been a “remarkably effective program,” he said.

“It is one of the most effective per dollar of taxpayers’ money that we’ve seen out there. That’s a good case for making it permanent, but we think there’s also a good case to look at the scope of applicability,” he added.

Countries need timely exit from bank support – ECB’s Bini Smaghi

MILAN, Jan 29 (Reuters) – The support measures put in place by governments and central banks to help the banking system are becoming less necessary and their withdrawal must be timely, a top European Central Bank policymaker said on Friday.

In a speech on bank lending, Executive Board member Lorenzo Bini Smaghi also said banks were interpreting a global regulatory overhaul in ways that restricted lending, and that he was worried about criticism in the United States of the Federal Reserve.

“It is crucial to prevent the banking system making prolonged use of support measures, developing a sort of ‘dependence’,” he said, and added a premature withdrawal of support could sharply reduce financial gearing putting economic recovery at risk.

Obama pushes plans for more job creation

By Alister Bull and Patricia Zengerle

WASHINGTON, Dec 8 (Reuters) – President Barack Obama on Tuesday offered modest steps to spur jobs and defended his push to get the U.S. economy growing, amid deep public dismay over double-digit unemployment that has eroded his popularity.

Obama proposed small business tax cuts and energy efficiency rebates — a so-called cash-for-caulkers program — to boost jobs, but gave no details on the cost of the action.

He also called for an extension of unemployment and health insurance benefits for the more than 15 million out-of-work Americans, and stressed that reducing the jobless rate was the best way to tackle the country’s record deficit.

Japan unveils $81 billion economic stimulus

A worker walks at staircases as he prepares to carry containers loading onto a cargo ship at a pier in Tokyo December 8, 2009. Japan's government agreed on a 7.2 trillion yen ($81 billion) stimulus package on Tuesday, aiming to prevent the economy from tipping back into recession as deflation persists and a strong yen threatens exports. REUTERS/Issei Kato (JAPAN BUSINESS POLITICS EMPLOYMENT)  By Tetsushi Kajimoto

TOKYO, Dec 8 (Reuters) – Japan’s government agreed on a $81 billion stimulus package on Tuesday, aimed at preventing the economy from tipping back into recession as deflation persists and a strong yen threatens exports.

Economists said the 7.2 trillion yen plan, equal to about 1.5 percent of gross domestic product, would not provide a significant lift to an economy dependent on overseas demand for machinery, electronics and cars.

While several other economies are already debating phasing out economic stimulus deployed to fight the financial crisis, Japan continues to struggle amid chronically weak consumer demand and falling prices.

Darling says will not harm UK’s financial sector

 A man looks out over Hampstead Heath, with the City of London in the background October 29, 2009.   By Matt Falloon and Steve Slater

HORSHAM, England, Dec 7 (Reuters) – The British government will not do anything to hurt London’s financial prowess and would rather go too far with economic support measures than not go far enough, Finance Minister Alistair Darling said on Monday.