NEW YORK (Reuters) – Federal Reserve blunders before the financial crisis have damaged its image, but the central bank remains the logical regulator of banks, market experts said at the Reuters Investment 2010 Outlook Summit.

The Fed, among other U.S. regulators, did too little to curb financial institutions’ freewheeling risk taking and excessive exposure to toxic assets, most experts agreed.

Some Fed watchers even said the central bank’s credibility has been permanently impaired by the financial turmoil and long running economic downturn.

Yet warts and all, the Fed is the only institution with both the monetary and banking expertise necessary to avert another financial system crash, most said.

To strip regulatory power from the Fed, as some in Congress suggest, would not make sense as monetary policy and the flow of credit are so closely linked to the role of financial institutions, said veteran Wall Street economist and central bank expert Henry Kaufman, a vociferous critic of former Federal Reserve Chairman Alan Greenspan.

“Just because the Fed’s performance has not been the best in the last 20 years, that still does not mean we should have a separate supervisory authority” to regulate banks, Kaufman said.

NO TIME TO CHANGE HORSES

NEW YORK (Reuters) – Inflation is not yet a big threat to bonds, despite longer term concerns about the threat from huge U.S. government debt issuance, said fund managers at the Reuters Investment Outlook Summit in New York this week.

Next year, deflationary pressures in a still weak U.S. economy will crimp any outbreak of inflation stoked by a weakening dollar, fund managers said. The Federal Reserve is likely to leave interest rates near zero until late 2010, many expect.

“A weaker dollar will bring some commodity price inflation (which is) associated with an increased cost of imports,” said Ken Volpert, head of the taxable bond group with the Vanguard Group. Because of the slack in the U.S. economy, Volpert expects minimal U.S. inflation pressure next year.

Stubbornly high unemployment, now at a hefty 10 percent, will likely crimp wage pressures, which are a key ingredient for full-blown inflation, many analysts say.

Betting that for now the inflationary fears stalking the U.S. government bond market are overblown, Volpert reduced his holdings of Treasury Inflation Protected Securities (TIPS) within the last month.

Investors in these inflation indexed bonds are currently pricing in inflation expectations of about 2 percent a year in the United States. But Volpert expects core inflation nearer 0.5 percent next year in a slow-moving economic recovery.

“You will not have inflation fears in 2010 or 2011,” Volpert said. “They are not going to be anywhere near what is priced into the TIPS market right now.”

NEW YORK (Reuters) – A bubble has formed in commodities as “speculative fervor” returns to markets after the global financial crisis, veteran Wall Street economist Henry Kaufman said on Monday.

“There are bubbles in commodities,” and probably in the gold market as well, Kaufman, president of financial consulting firm Henry Kaufman & Co Inc in New York, told the Reuters Investment Outlook Summit in New York. He cited the return of leveraged bets as one driver.

Because commodity markets are small compared with some other financial markets, comparatively modest shifts out of other assets could increase the risks in commodity markets, he said.

Kaufman also cited some risks to the U.S. dollar and said it is debatable whether the dollar is bottoming, though he added that the currency’s retreat has so far been orderly, and that inflation is not likely to be a problem for the foreseeable future.

However, the “speculative fervor” where participants are borrowing heavily in short-dated markets “might be a risk for the dollar,” Kaufman said.

Investors, spurred by near-zero U.S. interest rates and easy availability of funds, have borrowed huge sums of money in dollars in recent months to purchase higher-yielding assets in so-called “carry trades.”

Kaufman said he did not expect the U.S. government to take any action to stabilize the dollar.

NEW YORK, Dec 3 (Reuters) – The U.S. commercial paper market shrank for the fourth time in five weeks, hinting the market’s recent expansion is stalling amid a muted economic recovery, Federal Reserve data showed on Thursday.

Companies typically use commercial paper to finance short-term costs such as restocking shelves and paying wages. The market’s earlier three-month expansion trend was one indicator analysts cited as confirmation the U.S. economy was growing again after a prolonged recession.

Commercial paper serves as a vital source of short-term funding for companies’ daily operations. Though the sector’s current contraction is ringing some alarm bells, it is not yet a definitive trend.

“As much as we are talking about an inventory-led recovery there are still some questions,” said Robert C. King an economist at the Jerome Levy Forecasting Center in Mount Kisco, New York.

“In the environment we are in, we are recovering from an enormous recession and there are still major forces at play, (including) aggregate levels of debt in the economy, which we feel are weighing especially heavily on the household sector and the corporate business sector,” King said.

For the week ended Wednesday Dec. 2, the size of the U.S. commercial paper market shrank by $20.7 billion to $1.236 trillion outstanding from $1.257 trillion the previous week.

The overall U.S. commercial paper market is well below its peak of $2.2 trillion outstanding in August 2007 when the credit crisis broke out.

NEW YORK, Dec 1 (Reuters) – The U.S. manufacturing sector grew for the fourth straight month in November and pending home sales hit a 3-1/2-year high in October, reports on Tuesday showed, though there were indications the economic recovery will be slow.

Manufacturing growth slowed in November from prior months, according to a report from the Institute of Supply Management, and government data showed that U.S. construction spending was flat in October.

The Institute for Supply Management’s index of national factory activity fell to 53.6 in November from 55.7 in October, but was still above the 50 mark that separates expansion from contraction. The median forecast of 70 economists surveyed by Reuters was for a reading of 55.0 in November.

The ISM report was “a bit less-than-expected but overall still a strong number when added to the previous monthly levels that were greater than 50,” said Tom Sowanick, chief investment officer with the Omnivest Group in Princeton, New Jersey.

“Note that the China ISM was also up last night, which confirms that we are in a global recovery,” Sowanick added.

In another sign of the global recovery, a survey by JPMorgan released on Tuesday showed that global factory business activity grew for a fifth straight month in November, though more slowly than in October as growth eased sharply in Japan. [ID:nGEE5B01UY].

The labor market remains a weak spot, with the ISM employment index for the U.S. manufacturing industry falling to 50.8 in November from a 2-1/2-year high in in October of 53.1.

NEW YORK (Reuters) – The U.S. manufacturing sector grew for the fourth straight month in November, though at a slower pace, and questions remain about the staying power of the incipient economic recovery.

Signs the housing market was bouncing back in October were also tempered by a flat reading for construction spending for that month in other data reported on Tuesday.

The Institute for Supply Management said on Tuesday its index of national factory activity decelerated to 53.6 in November from 55.7 in October. The median forecast of 70 economists surveyed by Reuters was for a reading of 55.0 in November. Readings above 50 indicate expansion in the manufacturing sector, while numbers below 50 show contraction.

“We’re basically four months into a somewhat weak recovery. It will take a while to spread across 18 manufacturing industries,” said Norbert Ore, chairman of the ISM manufacturing business survey committee in Atlanta, Georgia.

The U.S. dollar trimmed gains against the yen after the manufacturing report, while U.S. stocks were little changed, but U.S. Treasury bond prices firmed.

The ISM report was “a bit less-than-expected but overall still a strong number when added to the previous monthly levels that were greater than 50,” said Tom Sowanick, chief investment officer with the Omnivest Group in Princeton, New Jersey.

“Note that the China ISM was also up last night which confirms that we are in a global recovery,” Sowanick added.

NEW YORK (Reuters) – The U.S. manufacturing sector grew in November for the fourth consecutive month, but at a slower pace than anticipated, according to an industry report released on Tuesday.

The Institute for Supply Management said its index of national factory activity decelerated to 53.6 in November from 55.7 in October. The median forecast of 70 economists surveyed by Reuters was for a reading of 55.0 in November.

Readings above 50 indicate expansion in the manufacturing sector, while numbers below 50 show contraction.

The ISM report was “a bit less-than-expected but overall still a strong number when added to the previous monthly levels that were greater than 50,” said Tom Sowanick, chief investment officer with the Omnivest Group in Princeton, New Jersey.

“Note that China ISM was also up last night which confirms that we are in a global recovery,” Sowanick added.

The ISM report also said its employment index for the manufacturing industry slipped to 50.8 in November from 53.1 in October, which had been the strongest showing since April 2006.

The U.S. dollar trimmed gains against the yen after the manufacturing report.

NEW YORK (Reuters) – Manufacturing in parts of the United States was picking up steam, data showed on Monday, but jobs were lagging the recovery and consumers remained cautious, economists said.

Business activity in the Midwest and in New York City expanded more than anticipated in November, but analysts worry that the U.S. economic recovery may lose momentum in 2010 after retail data showed consumers tightened their purse strings on the biggest shopping day of the year.

Monday’s data “is all consistent with a gradual to moderate economic recovery,” said Scott Brown, chief economist with Raymond James & Associates in St Petersburg, Florida.

On Wall Street stocks rose on the business activity data, with the Dow up 20 points in early trading.

The Institute for Supply Management-Chicago business barometer grew faster than anticipated in November, rising to 56.1, which is above the 50 mark which divides expansion from contraction.

Economists look to the report for clues about trends in the national Institute for Supply Management manufacturing report, due on Tuesday, because there are broad correlations between the two reports.

For graphic see link.reuters.com/pap24g

NEW YORK, Nov 30 (Reuters) – Manufacturing and business activity in parts of the United States gathered steam in November, data showed on Monday, keeping the economy on track for recovery, though continued weakness in the labor market will constrain growth, economists said.

Business activity in the Midwest and in New York City expanded more than anticipated in November, according to regional reports from the Institute of Supply Management.

“This is good news, and another statistic that supports the scenario that we’re clawing our way out of the abyss. This is clearly reflective of an economy, at least on the manufacturing side, that is starting to heal,” said Ned Riley, chief executive officer, Riley Asset Management in Boston.

“There’s optimism here that this will improve the outlook for manufacturers. The only question is, Manufacturers can make the goods, but will consumers buy them?” he added.

On Wall Street stocks rose on the business activity data, with the Dow up 20 points in early trading, but then slipped on concerns about holiday spending [.N]. Data from the key Black Friday weekend that kicks off the holiday shopping season indicated that consumers are being cautious.

The Institute for Supply Management-Chicago business barometer grew faster than anticipated in November, rising to 56.1, above the 50 mark that divides expansion from contraction. For details, see [ID:nNAT007184].

Economists look to the report for clues about trends in the Institute for Supply Management national manufacturing report, due on Tuesday, because there are broad correlations between the two reports.

NEW YORK (Reuters) – A dollar plunge could ravage the U.S. economy as soon as 2012, when foreign investors are likely to exit en masse from U.S. assets, according to a new book by two analysts who forecast the recent credit crisis.

Even after credit, stock and housing bubbles popped in the past two years, dollar denominated assets are still overvalued, and a bigger crisis is yet to come, write the authors of “Aftershock: Protect yourself and profit in the next global financial meltdown”.

Huge U.S. government debt issuance will drag the dollar into a much deeper dive, say analysts David Wiedemer and Robert Wiedemer, and writer Cindy Spitzer.

In the short term, China and other foreign investors will keep buying Treasuries to curb their currencies’ appreciation against the dollar, say the analysts, who forecast the financial crisis in the 2006 book, “America’s Bubble Economy”.

Over the long run, investors will slash purchases as bond prices drop, according to the book published this month.

Though most of the pressure on the dollar will come from the Chinese yuan and other resurgent Asian currencies, the euro will eventually punish the debt-burdened dollar, said Robert Wiedemer in a telephone interview with Reuters this week.

The euro will rise to about $2 over the next two to three years, before surging rapidly above $3, forecast Wiedemer, whose risk assessment firm advises hedge funds and businesses.