FT Alphaville » US Markets Live transcript 22 Jun 2011

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US Markets Live transcript 22 Jun 2011

Posted by Cardiff Garcia on Jun 22 19:05.

Markets Live chat transcript for the chat ending at 19:16 on 22 Jun 2011. Participants in this chat were: Cardiff Garcia John McDermott Neil Hume, FT Gavyn Davies

Good afternoon/evening

Make yourselves known

Good evening!

evening rabble

John, hello

and Neil. special guest today

has the Scottish Tim Henman won yet?

come on TIM!

watching at the moment

2-0 up

going with serve

he’ll be British after the 3rd round

excellent

where’s the special guest

is he in?

we have the FOMC statement

yep

to analyse

Can I quote Neil from two minutes ago: “I’ll be staying on the right”

tech issue, i’m sure

would you believe it

Can’t help himself

After Murphy taking over this morning

hi everyone

I will go over to the right

there he is!

when the Chairman starts talking

Hello Gavyn

(Only joking boss)

hello all

Hi Gavyn

John, you’ve got the new projections?

Yup

The new projections are very little different

excellent, then a bit of reaction from Gavyn before the presser

surprisingly small changes really

John held up with a tech issue

but of course everything is worse

a few things slightly different on the statement itself

for instance

Change in real GDP. . . . . . 2.7 to 2.9 3.3 to 3.7 3.5 to 4.2 2.5 to 2.8

compared to April

April projection. . . . . . 3.1 to 3.3 3.5 to 4.2 3.5 to 4.3 2.5 to 2.8

but the fed says it can’t do anything now

yes, this line taken out from last statement

“will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.”

(the last numbers are the trend projections)

it says in effect it is OUT OF AMMO

and our colleague robin harding spots the “at” in this new line

“Inflation has moved up recently, but the Committee anticipates that inflation will subside to levels at or below those consistent with the Committee’s dual mandate as the effects of past energy and other commodity price increases dissipate.”

“subside to levels AT”

(shall i stop doing the projections?)

nope, sorry, keep’em coming

As bernanke said last week monetary policy is “not a panacea”

Unemployment rate. . . . . . 8.6 to 8.9 7.8 to 8.2 7.0 to 7.5 5.2 to 5.6

April projection. . . . . . 8.4 to 8.7 7.6 to 7.9 6.8 to 7.2 5.2 to 5.6

Query: will he talk about a price inflation target tonight?

PCE inflation. . . . . . . . . . . 2.3 to 2.5 1.5 to 2.0 1.5 to 2.0 1.7 to 2.0

April projection. . . . . . 2.1 to 2.8 1.2 to 2.0 1.4 to 2.0 1.7 to 2.0

FOMC types are all talking about it in speeches

lots of speculation about the inflation target recently, from Plosser et al

Core PCE inflation3 . . . . . . 1.5 to 1.8 1.4 to 2.0 1.4 to 2.0

surely he’ll be asked about it by the tough-minded reporters (ahem) who will be there

April projection. . . . . . 1.3 to 1.6 1.3 to 1.8 1.4 to 2.0

But can they swing a CPI target past congress?

it’s a bit of an end-around, and it would be tough

will they dare try?

Tracy and I spoke with Plosser about this a few weeks ago

pelnty of opposition, especially from Dems (B Frank inparticular)

And he said that the politics was the sticking point

Implied that BB was well up for it

yep but actually I think the fed could go ahead anyway

GD, you expecting BB to again wade into the fiscal debate of the moment?

yes same message

warn against using debt ceiling as leverage, etc?

starting any minute n ow

ie fix the problem with long term measures

but dont tighten now

what will he say on the dollar? interesting

everyone, here’s the link for the live stream: http://www.ustream.tv/federalreserve

and here. he. comes.

Dudley virtually called for a lower dollar this month

good question

will he agree with Dudley?

gonna restate policy position now

we’re off

I have a question when you are done

on inflation

form the statement

but it can wait

bloody feed isn’t working

exceptioonally low rates for extended period

on the ft wi-fi

“committee to continue to reinvest” etc

Good afternoon, and welcome.
In my opening remarks today I will briefly review
today’s policy decision and I’ll place the decision
in the context of our economic projections and our
policy strategic, after that I will be glad to take
questions. Throughout today’s briefing my goal will
be to reflect a consensus of the committee. Of
course my remarks and interpretations are my own
responsibility. As indicated in the policy
statement the committee decided to keep the target
range for the federal funds rate at 0 to 1/4th
percent. We anticipate that economic conditions
including low rates of resources and subdued
allowing for inflation are likely to warrant
exceptionally low levels for the federal funds rate
for a period of time.

now going through the new projections

New projections cancel each other out for the Taylor Rule

Leaving the appropriate fed funds rate at — zero!

@Rapidfire, a bit early for that question, i think

hotairmail — I agree with your correction

back in the game

are we going to rate the questions again?

Kinda edging towards an inflation target by using the inflation forecast

= soft ball

as he has done before, of course

btw, while we’re waiting, everyone make sure to later check out GD’s latest post on stall speed: http://blogs.ft.com/gavyndavies/2011/06/15/the-us-economy-flirts-with-its-stall-speed/

= hard ball

definition: “the critical growth rate below which an economic upswing turns first into a period of much slower growth, and then shortly afterwards into a recession.”

@Neil, it’s a tossup between him and that CNBC guy

outlaw Taylor Rule says zero this time, and also zero at the time of last FOMC

and Jamie Dimon

forecast changes cancel out

in costume as Ken Rogoff

Hang on

some graphics this time

and is that a fan chart?

it is

Graphics not as pretty as B of England!

yep: 8.6 percent by Q4? sounds aggressive

and another chart

Mervyn designed all this a decade ago

In particular, the unemployment rate is
projected to inch down over the coming months to 8.6
to 8.9 in the fourth quarter of this year and
decline gradually over the subsequent two years to a
level of 7.0 to 7.5% in the fourth quarter of 2013.

that’s what the latest chart says

In short, we expect the unemployment rate to
continue to decline the pace of progress, which is
moving slow.

both aspects of our dual mandate: keep inflation low, and don’t piss off Congress

don’t see any spin in any direction from the way he has started

(not what he said)

question time

good call Neil

here we go

hilsenrath

fedwire!!

this could be a very neutral Chairman – let’s see

“does that guidance apply also for hte fed’s securities holding — will they be maintained at a high level for an extended period?”

questions

and fedwire is first

BB: “we havne’t made any commitment”

decent question

oh — no commitment on reversing QE

about the timeframe

Hilsenrath

ducked it

amazing

daft answer in my view – could worry people

“why give guidance on one policy tool but not hte other?” — good folloowup

follow-up

another duck

“good question” … which i will not answer

that suggests that some people are not willing to keep QE for 2 more meetings

explain what’s persisting in terms of holding the recovery back, and what’s permanently holding down expected growth — greg ip, was it?

John is giving a mark out of ten to each question

no consensus to keep QE in place for an extended period!

sounds nervous again, doesn’t he??

knackered rather than nervous

2/10 for the one on exit timing!

“some of the headwinds that have been concerning us like weakness in financial sector, housing sector, deleveraging..” headwinds might be stronger. and another 2 point deduction for use of “headwinds”

We don’t have a precise read on why this
slower pace of growth is persisting. One way to
think about it is that maybe some of the headwinds
that have been concerning us like, you know,
weakness in the financial sector, promise in the
housing sector, devaluing issues, some of these may
be strong are or more persistent than we thought and
ink it’s an appropriate balance to attribute to the
slow down, partly to the identifiable temporary
factors and to acknowledge the possibility that some
of the slow down is due to factors which are longer
lived and will be operative still next year.

question about extent to whcih greece/europe discussed

why does he look so uncertain?

bernanke always strikes me as nervous

for Greece

question on GREECE

have to ask

Mr. Chairman could you describe the
situation in Greece and in Europe was discussed at
the meeting and what policy conclusions were reached
and also whether or not in response to the recent
slow down there was a discussion

but he’ll be well prepared for that one

We
had a G-7 call over the weekend, for example. I
think the Europeans appreciate the incredible
importance of resolving the Greek situation. If
there were a failure to resolve that situation it
would pose threats to the European financial system,
the global financial system and to European
political unitity, I would conjecture as well so,
yes, we did did you say it, it’s one of several
potential financial risks we’re facing now.

he was

a g-7 call over the weekend

this is taking a long time to say nothing

was that known?

not by me

who is the “we”?

inflation low and falling last year, deflation a nontrivial risk then

G7 finance ministers — makes sense

G7 central bankers — more interesting

he doesn’t “have a precise read” on very much at all today

no he doesn’t

stressing the difference between now and last autumn

closer to “dual mandate objectives” now than last year

NOT making the case for QE3 at all

dow jones

says labor markets better now, except, you kjnow, since April

we’ve already had a WSJ question!

the markets have been too willing to believe that QE3 may happen – it ain’t

question on fiscal cuts, says they depend on the timing

FT should get 2 people

so it’s all very different to last year then

JM, i know just the two

As of last August we were
essentially missing significantly on both sides of
our mandate, inflation was too low and falling and
unemployment looked like it may be beginning to rise
Fwen. In that case the case for monetary action was
clear in my mind.

next time

soft ball, predictable

NH — his stuff on differences to last year is very important

In what way

cuts later, not now. this job is hard enough as it is

fiscal stuff identical to last week’s comments

no QE3?

No QE3, not remotely likely for now

AND no commitment to keep QE2 intact either for extended period

says sharp cuts won’t lead to more jobs

Isn’t that a bit more hawkish than we expected?

GD, yep, Fed on hold for forseeable future

GD it is

WHY ARE WE WASTING QUESTIONS ON FISCAL POLICY?

much more hawkish

Not sure what they do if financial assets implode

He’s not going to say anything interesting on fiscal policy.

“most efficient and effective way to address fiscal problems is to take a longer-run perspective… make a credible plan for reducing future deficits”. thanks

WaPo

No sign of the UK Plan A — ie we ease if fiscal policy is tightened

@outlaw — yes, but do we need a press conf to tell us?

NY Post

Inflation targetting question

There you go Gavyn

Do you need Congressional approval for an inflation target?

inflation targeting worth considering, but did i hear him say it’s not consistent with the employment objective?

or did i miss something?

As you know I’ve Ben a long
time proponent of inflation target, I think it would
anchor inflation expectations and make it easier to
reach our objectives, at the same time it’s not at
all inconsistent with our employment objectives
because it actually gives the Fed more Leeway to
respond to short-term shocks to respond to the
economy. It’s something worth considering

not inconsistent

no, that’s right

ah, better

I would just say that there
are multiple models around the world so, for
example, in the European central bank, that bank has
a mandate for priceability, period, and they set
their own definition of that, using input from
economists and others.

would have been strange given his history

Fed could set target without Congress approval

But it needs to be communicated first

“having a target would mean we’re not abandoning the other leg of a dual mandate”

*not (not no)

So I don’t think there is a
barrier to setting a target, however, it is very
important that, first, that we communicate to the
public what we’re doing, without sufficient
explanation and background many might think we were
somehow abandoning our employment target so we need
to make sure it’s well understood both by the public
and by Congress that having a target would not mean
that we were abandoning another leg of the dual
mandate.

It’s coming after consultation with congress

“we might have the legal authority but” woudl need “buy-in”

from administration and congress

that’s interesting

may take a while — not imminent

You asked about consulting with Congress,
under any circumstances it would be important to
take the pulse of Congress. We might have the legal
authority to do this but we do need buy-in from the
administration and Congress to take that step. We
continue to discuss this issue, it’s been part of
our on going communications discussion which
included this press conference as one inner Vags,
for example, and there is nothing imminent but we
will continue to discuss this as appropriate. We
will be consulting about it.

NYT

@fernando, inflation targeting hard enough politically, price-level targeting not gonna happen ANYTIME soon

so they are going to consult about it

..as would require going above-target after disinflationary period

inflation target that is

7:36PM

as appropriate, Neil, as apporpriate

they have the legal authority to go for an inflation target, but won’t force it on congress

Question about Greece bt

now talking about stress tests

Have you done your homework?

effects on capital if greece defaulted — “very small”

Esp wrt Greece derivatives

Good question

(on US banks)

Binyan has been reading Alphaville

here’s the line

We have asked the banks to
do essentially stress tests looking at all their
positions and hedges, what would the affect on their
capital be if Greece defaulted. The answer is that
the affects are very small.

MMFs don’t have much exposure to periphery

hotairmail, they already do print without congressional approval!

But do to the core

t’s also the case that — while we don’t
oversee the money market mutual funds we have Ben
keeping a close eye on that situation. There again,
the situation is similar in some sense in that with
very few exceptions the money market mutual funds
don’t have much direct exposure to the three
peripheral countries what are currently dealing with
debt problems. They do have substantial exposure to
European banks and the so-called core countries,
Germany, France, et cetera

Which if contagion… would be a concern

But are monitoring exposures

Greece — it’s not our problem, folks (thank the lord)

and there is a reason why the Federal
Reserve and other regulators are continuing to look
at ways to strengthen those funds. In terms of the
impact problem in Greece on the United States, as
I’ve indicated direct exposures are pretty small and
we’re doing all we can to monitor those exposures.
However, as we saw in a small situation, a small
case last spring, a disorderly default in one of
those countries would no doubt impact global
financial markets, credit spreads, stock prices and
so on, so in that respect the affects in the United
States would be quite significant.

a default would roil financial markets

well, our problem, just not our fault

quite significant

effects in the US

American Banker

question about G-SiFi

where do you cross the line and hurt flow of credit if cap surcharges go too high

The Jamie Dimon question

yep

BEN BERNANKE: I will be attending that
meeting and I will hear others’ views and contribute
to that discussion. It’s only went two years since
we had the worst financial crisis certainly since
the great depression and possibly in the history of
the United States and the possible near failure of
large financial institutions was a major contributor
to that crisis. Since we can’t know exactly what
threats will come in the future, probably the best
all-purpose way of strengthening the balance sheets
of banks and other financial institutions is by
capital.

he is not equidistant between more and less QE, or at least the FOMC isn’t

he is closer to removing QE 2 than to doing QE3

Question should have been: do you agree that a 3% buffer is sufficient, or should it — as Tarullo implied — be nearer 14%?

(14% total)

Since we can’t know exactly what
threats will come in the future, probably the best
all-purpose way of strengthening the balance sheets
of banks and other financial institutions is by
capital.
I’m supportive of increased capital and better
quality capital to ensure that these banks will be
stable and able to lend in the event of another
crisis which I hope we don’t of course ever see. In
terms of the is yourcharge — surcharge, I think
it’s important to have capital for the largest and
most systemically important institutions, and we
need to take extra steps to make sure they will be
unlikely to fail.

The FT office has more screens turned to the tennis than to this presser

argues that cap charges should be progressive

higher institutions have funding advantage

get a grip in the FT — tennis isn’t golf!

interesting take from hotairmail — Fed must think the slowdown is temporary

Question: if this was a job interview for Fed Chairman would BB get the job?

only if the other candidate was Rory Mcilroy

FT’s robin harding

Ft in da house

There’s them glasses

+ HUGE tie

Tie disaster

question about rise in core inflation

someone have a word

obviously

tie

Oh boy — lower output gap is possible, but not their best guess

Nairu still around 5% and change, so not signficant rise in structural unemployment

FT question

Mr. Chairman, you now expect that both head
line and core inflation would be close to your
long-run objective in 2012 and ’13 while
unemployment remains high. Does that mean that you
think the trade-off between inflation and growth has
got worse and furthermore, can I ask has the
unexpected rise in core inflation changed your
understanding of the output gap? Thank you

Fitz — I am Rory’s biggest fan, of course

Robin — go for a follow-up

Fedwire got one

sounds like he’s saying there’s been passthrough from energy into core, and that will soon moderate too with fall in commods

everything is temporary today, according to BB

i’m having trouble paying attention

robin is doing a good job at looking fascinated

FOX BUSINESS

good question.. if it were February 2010

Something about Glen Beck

Only joking

Mr. Chairman, what is the extended period
right now for exceptionally low Fed funds rates,
given recent developments in the U.S. and global
economic picture? Is it a year or two? Under what
conditions would the extended period, extended
longer?

Extended period — 2/3 meetings for rates, nothing for QE

we use “extended period” not to be intentionally opaque — that’s what we use “transitory” for

If only because it was asked last time

Extended period language more dovish than last time — much more dovish

the reason is that we don’t know exactly how long.
I think the thrust of extended period is that we
believe we’re at least two or three meetings away
from taking any further action, and I emphasize “at
least.”

2 or 3 meetings away at least!

So he is more dovish on rates, less dovish on ending QE

+ most Fed watchers know the answer to that one

yep

It seems they might reverse QE without raising rates

Follow-up: will Europe = contagion = further extended period?

Answer: see above

more on this

If the economy worsen and
inflation remains low then we wouldn’t begin an
exist and we wouldn’t change the language. The
expected length would be keeping rates longer and we
could, I suppose, but we have chosen not to give a
time frame because, again, it’s our intention to
monitor the economy, revise our outlook, we’ve
revised it significantly since April and make a
judgment based on the incoming data. So we don’t
want to necessarily commit ourselves to a fixed time
frame.

Bloomberg news

“cool fan charts”

Joker! lol

To all my American friends — we have better fan charts than you

meh

fighting words, GD

Bloomberg meh

(says the one American here)

Mr. Chairman, cool fan charts.

One of them questions that seemed like a hard ball in the office that morning

But too silly to be answered properly

@praxis22 — exactly

correct praxis22

asks about Bernanke’s own forecasts before each FOMC meeting begins. Greenspan apparently never did this

You bring your own forecasts to FOMC — where were they in relation to others’?

and question about marginal tax rates — he’ll never answer that

to the first one

here coems the dodge

i want someone to ask the Richard Koo question

again emphasises slowdown is temporary but not fully explained

“reluctant to get into specifics of tax and spending policy”

Do you still want to recap small banks?

someone please ask about the dollar, just in case he wants to say anything

BBC

asks if there’s been a rise in structure unemployment. limited projected rise in nairu suggests no

“if our forecast is correct”… don’t know why people didn’t burst out laughing

last year he said they were missing BOTH parts of the mandate

Milky – YELLOW card

I love structural vs cyclical employment discussions

this time he thinks they are missing the employment mandate but not the inflation mandate

therefore he cant do QE3

“if growth picks up as we anticipate, jobs numbers will start getting better”. says it’s frustrating because might be larger consequence to long-term unemployed

and indeed he might reverse QE2

zap

Warning to rude and abusive commenters – your ability to comment will be terminated immediately and permanently, without warning. Henceforth, FTAlphaville has instituted a One Strike and You Are Out policy. We’ve had enough. We are going to clean up these pixels once and for all.

but he won’t raise rates for ages and ages

Reuters

praising hilsenrath

GD, implied probability right now from futures predicting no rate raises until November 2012

If you were to do more, what more would you do?

More bonds, more comms, etc?

blah blah blah

For repetition and for praising your rival in asking the question

This is war, folks

On top of that we have
uncertainty now about how much of this slow-down is
temporary, how much is permanent, so that would also
suggest that we need a little bit of time to see
what’s going to happen and that would be useful in
making policy decisions.

goes through various options: cutting interest on reserves, etc… “all of these thigns are somewhat untested, have their own costs, but we’d be prepared to take additional actions if conditions warranted it”

We will continue to look at the outlook and act
as appropriately as the news comes in and the
projections change. We do have a number of ways of
acting, none of them without risk or costs. We
could, for example, do more securities purchases and
structure them in different ways, we could cut the
interest on excess reserve Thaz we pay to banks and
as was suggested by an earlier question, several
earlier questions, actually John’s question about
giving guidance on the balance sheet or by perhaps
even giving a fixed date to define extended period,
those are ways that we could he’s further if needed
but, of course, all of these things are somewhat
untested, they have their own costs, but we are
prepared to take additional action, obviously, if
conditions warranted that.

John this

John that

outlaw – no they could raise rates without offloading the bonds first — like the ECB

it’s a Fedwire love in

asking about Bernanke’s advice to Japan in 98

Japanese newspaper, didn’t catch which one

they are not worried about bond losses on the balance sheet

GREAT question

asks if there is a historical lesson we should draw from japan, given his research paper about lost decade (from 98)

S+P is slipping because he hasn’t promised to keep QE2 for more than 2/3 meetings — significant omission

says central bank can always do something about deflation, channels milton friedman (always and everywhere monetary, etc…). now saying that’s what he did

last year

This is what Richard Koo was getting at

No deflation risk now, unlike last year

yeah, the one thing most people are confident QE2 succeeded at: ending threat of deflation

In his note, which I lovingly wrote up earlier: http://ftalphaville.ft.com/blog/2011/06/22/602951/koo-and-gross-on-what-bernanke-will-do-next/

QE aimed at deflation risk; no risk of that now

he sees little chance of QE3, that’s clear

This is a good guide for questioners

Start with something that BB said as an academic

Indeed GD

And then pivot to his current job

equity market won’t like that

Because he wants to defend his record

As an academic

equity markets started to realise last week that he isn’t a proponent of QE3

but that hasn’t fully sunk in yet

but it will

meanwhile in the UK

What was that question?

we have started talking about Qe2

Let’s move on

AP question

On housing

AP says underlying fundamentals in housing still weak. what can be done to stimulate growth?

No hope of a housing revival — see Yellen speech recently — Fed can do very little

@ Red Knight because he won’t act if equities fall; the Bernanke put is in doubt

BB says he’s kept well informed about Hamp

More efforts to modify loans

Speed up foreclosure process

and that’s that

Anyone fancy a pint?

GD, parting thoughts?

is that it?

yep, that’s all NH

My summary: we are nowhere near QE3; nor will we raise rates; very uncertain about why economy has slowed

no applause

good summary GD

Fed on hold for a while

thanks for joining us GD

well two to three meetings

at least

Meanwhile, BoE hinting at QE2

CG yes on hold but if it changes it would be a smidgeon of tightening via the balance sheet, not rates

And the ECB is in its own world

good point JM — sell sterling?

yep

another good point JM — buy euros?

I hope not, if only because Lex has been saying so for the last year

Stopped clocks and all

3 central banks with very different views of QE

actually GD

while you are here

what did u make

B o E in favour; ECB very opposed; Fed neutral

of the mpc minutes

MPC minutes very dovish

but is QE

and a big shift now Broadbent is on the cttee

really a possibility

NH — yes I think so but not immediately

interesting

very interesting

We quoted an ex Boe economist on the site today

he mentioned some of the triggers for UK QE2

That’s the answer: buy Gilts!!

short rates to stay low in UK/US, not in the EMU zone

Richard Barwell

More seriously, what you have is three central banks

We suspect that a negative Q3 GDP print, corroborated by dire survey data, is a necessary condition for the Committee to be convinced that more QE is required in November. A possible sufficient condition is a persistent global shock to which the UK economy is heavily exposed – most likely a financial crisis, perhaps triggered by a disorderly resolution of the European periphery crisis – which would both depress commodity prices and UK DGI.

None of them wanting to go any further on monetary policy

But feel that they have to

Because the politicians in their regions

mutant dog — may be worth a try

Are either unwilling (UK) or unable (US + EU) to do fiscal policy

In my humble opinion

your our policy expert

so we will fo with that

shall we bring things to a close

I am hungry and need food

yup

@mutantdog, political paralysis, if anything policy here likely to become more less expansionary, not more

gents, it’s been fun

when is the next one?

Good night everyone – it;s been a great discussion

yes

i bid you adieu from new york

thanks all

bye!

closing down

cya tomorrow

bye

shall I close this?

Yes!

closing

This entry was posted by Cardiff Garcia on Wednesday, June 22nd, 2011 at 19:05 and is filed under Uncategorized. Edit this entry.

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US Markets Live transcript 22 Jun 2011

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