The Great Debate UK

from The Great Debate:

Tightening underway, Fed a passenger

A tightening in financial conditions is under way but its principal architect won't be the Federal Reserve.

Far from it, the Fed will be pinned down by powerful disinflationary, perhaps even deflationary, forces, making it very unlikely to be willing to raise interest rates any time soon.

Instead the tightening is coming from Asia, where China is fighting a local battle against rampant lending, and from investors all over the world, as one by one they realize that lending to governments isn't always so risk-free.

These two forces will form a vise around still riskier assets like stocks, especially in the United States, as companies face weak conditions at home in combination with tightening from markets.

from Breakingviews:

Markets right to take Fed move badly

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.

from The Great Debate:

Fed redux: Making policy behind the curve

-- John Kemp is a Reuters columnist. The opinions expressed are his own. --

With clear signs the U.S. and world economies have returned to growth, investors are trying to guess when the Federal Reserve will begin to raise interest rates again.

Voting to maintain the federal funds target at 0.00-0.25 percent at this week's meeting, the rate-setting Federal Open Market Committee (FOMC) reiterated that low rates of capacity utilisation, subdued inflation trends and stable inflation expectations were "likely to warrant exceptionally low levels of the federal funds rates for an extended period".

from MacroScope:

Bernanke Who?

When it comes to investing in a turbulent market, is ignorance bliss? According to a new survey by IBM, around half of U.S. investors have never heard of Federal Reserve Chairman Ben Bernanke. This, despite the fact that 67 percent say the global financial crisis has prompted them to pay greater attention to financial news. More than one-third could not identify the current unemployment rate. In case you missed it, the jobless rate eased to 10 percent in November after hitting a 26-1/2-year high of 10.2 percent in October.

from The Great Debate:

The death of the “punchbowl” metaphor

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jamessaft1.jpg (James Saft is a Reuters columnist. The opinions expressed are his own)

Don't expect the year-long rally in risky assets to be undermined any time soon by the Federal Reserve becoming concerned about inflation.

The old metaphor -- that the Fed's job is to take away the punchbowl just when the party starts getting good -- just doesn't apply in the current circumstances. That's not to say inflation isn't a threat in the medium term -- it is virtually a promise.

from Commentaries:

Time to get tough with AIG

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It's time for someone in the Obama administration to read the riot act to Robert Benmosche, American International Group's new $7 million chief executive.

Since getting the job, Benmosche has spent more time at his lavish Croatian villa on the Adriatic coast than at the troubled insurer's corporate offices in New York.

from Commentaries:

Time for the Fed to stand up to its critics

John M. Berry is a guest columnist who has covered the economy for four decades for the Washington Post and other publications.

By John M. Berry

Financial crises and the policies to deal with them top the agenda at the Kansas City Fed's Jackson Hole conference. But what is actually going to be on everyone's mind at the august gathering is the uncertain future of the Federal Reserve itself.

from The Great Debate:

It’s tough to modify your way out of a hole

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jamessaft1(James Saft is a Reuters columnist. The opinions expressed are his own)

If you thought the U.S. housing crash could be blunted if only lenders would cut delinquent borrowers a break, it is perhaps time to move on to another vain hope.

That's right, the loan modification movement - pushed by the U.S. administration and others as a means of keeping non-paying borrowers in their houses, keeping those same houses from flooding the market as foreclosures, and even helping beleaguered lenders - is running into a reality-shaped wall.

from The Great Debate:

First exit for the Fed

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fed-- Agnes T. Crane is a Reuters columnist. The views expressed are her own --

Call it a battle for beginnings and endings, and the Federal Reserve is smack in the middle.

As Fed policymakers convene for a two-day meeting starting on Tuesday, the lines are growing more defined between those who want the Fed to do more to stimulate a still fragile economy, and those who are calling for a defined exit strategy to prevent the global economy from going into an inflation-inducing overdrive.

Issues in monetary normalisation

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john_kemp– John Kemp is a Reuters columnist. The views expressed are his own –

Investors like simple narratives, which is why markets swing erratically and illogically between extremes of hope and fear. Reality is more complex. As F. Scott Fitzgerald remarked “the true test of a first-rate mind is the ability to hold two contradictory ideas at the same time”.

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