The Great Debate UK
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".
The language echoes almost exactly the phrasing the FOMC used throughout H2 2003, when it repeatedly noted that "the Committee believes that policy accommodation can be maintained for a considerable period" (Aug, Sep, Oct and Dec meetings). The formula was altered in January 2004 ("the Committee believes it can be patient") (January and March meetings) but interest rates were not in fact raised until the end of June 2004.
Even then the Committee continued to damp down expectations of a sharp rise, employing the formula "policy accommodation can be removed at a pace that is likely to be measured". The phrase was repeated throughout the remainder of 2004 (Jun, Aug, Sep, Nov and Dec meetings) and almost to the end of 2005 (Feb, Mar, May, Jun, Aug, Sep and Oct meetings) before the Fed switched to a full inflation alert at the end of the year (Dec 2005).
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
(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
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
(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
-- 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
– 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”.
from The Great Debate:
Fed sets out exit strategy
-- John Kemp is a Reuters columnist. The views expressed are his own --
Intense criticism of the Fed's role in the financial rescue program and the decision to triple its balance sheet, including monetizing a portion of the Treasury's debt, has forced the central bank to issue an unusual defense of its actions (http://www.federalreserve.gov/newsevents/press/monetary/20090323b.htm).
It attempts to placate critics by acknowledging the real risk of inflation, and marks the Fed's first attempt to set out an "exit strategy" for ending quantitative easing and other credit programs once the crisis is safely passed.
from The Great Debate:
U.S. government borrowing runs into resistance
-- John Kemp is a Reuters columnist. The views expressed are his own --
Investors have started to balk at absorbing large quantities of U.S. government debt, taking on substantial inflation and devaluation risk in return for little reward. While the government has no trouble placing short-term debt with a maturity of up to 2 years, longer-dated securities are proving much harder to sell.
Increasing resistance from the market explains why the Federal Reserve felt it had no choice but to announce it would start buying back longer-term U.S. Treasury securities last week, in a $300 billion program of direct quantitative easing and monetization.
