Federal Reserve succession
NY lawsuit filed against JP Morgan over Bear Stearns MBS: New York Attorney General Eric Schneiderman filed a civil fraud lawsuit against JPMorgan on Monday over mortgage-backed securities packaged and sold by Bear Stearns, which JP Morgan bought in March 2008. The suit seeks unspecified damages and cites $22.5bn of losses were suffered by investors. It is the first action to come out of a working group created by President Barack Obama earlier this year to go after wrongdoing that led to the financial crisis. JP Morgan in a statement it would contest the allegations. Schneiderman’s office said: “We intend to follow up with similar actions against other sponsors and underwriters.” (Financial Times)(Reuters)(Wall Street Journal) EU report will call for bank bonuses to be paid in debt: The Liikanen commission, an independent review set up almost a year ago by EU commissioner Michel Barnier, will on Tuesday recommend reforms for long-term pay incentives as well as advocating ringfencing trading activities to make big banks safer. Some of the panel’s most radical measures have been toned down and Barnier will decide whether any of the proposals will be included in his reforms. (Financial Times)
ROUND-UP The Fed twisted (again), US stocks were shaken but not stirred. The S&P 500 broke four days of gains to fall 0.17 per cent, closing down at 1,355.69. The Dow Jones Industrial Average also fell, by 0.1 per cent, while the Nasdaq barely edged up 0.02 per cent (Reuters).
ROUND-UP The FT’s markets round-up: “Global stocks extended their biggest rally of the year as China cut interest rates for the first time since 2008, but US Federal Reserve chairman Ben Bernanke took the edge off the day’s gains with cautious remarks to Congress. Amid rising hopes of further market-boosting stimulus measures by policy makers around the world, the FTSE All World index rose 1 per cent after Wednesday’s biggest jump since December.” (Financial Times)
From the WSJ’s Jon Hilsenrath: Disappointing U.S. economic data, new strains in financial markets and deepening worries about Europe’s fiscal crisis have prompted a shift at the Federal Reserve, putting back on the table the possibility of action to spur the recovery.
Fed no. 2 backs low-rates policy: Janet Yellen, vice-chair of the US Federal Reserve, said further monetary easing may only be needed if growth is slower than expected but argued that a range of policy rules suggested keeping interest rates close to zero until as late as 2015. (Financial Times)(Wall Street Journal) Aviva is considering selling its US division, according to people attending a meeting of investment managers held with the insurer’s chief executive Andrew Moss. Some analysts have speculated the division may be put up for sale, despite it being designated as a core region. (Financial Times)
David Wessel over at the Wall Street Journal has followed up on a story FT Alphaville has been covering for a while. That the world economy is running out of super-safe financial assets, and that this is doing untold damage to central banks’ abilities to control interest rates (the last bit is our spin). He raises a point which we think is pretty important. The fact that all this asset encumbrance really started back in the mid 2000s — and was possibly the reason for Alan Greenspan’s famous yield conundrum, when the Fed chairman declared he couldn’t rationalise why longer dated yields would not budge higher despite Fed rate hikes.
This is getting ridiculous. At this rate there won’t be any point logging on to read the FOMC minutes on Wednesday evening. FedWire, the unofficial/official news service of the Federal Reserve, has done such a comprehensive briefing the market on what to expect that there can’t possibly be any surprises… can there?
The Federal Reserve is debating adopting different targets for inflation or unemployment as it considers its options over further stimulus, the WSJ reports. Fed chairman Ben Bernanke also has the votes he would need to resurrect “Operation Twist”, a stimulus option of altering the Fed’s Treasuries portfolio to include longer-term debt, thus reducing long-term interest rates. The debate over targeting is unlikely to be resolved in September’s meeting, but is focused on the best criteria to support the Fed’s commitment to keep rates low. Operation Twist II would likely see the Fed buy up 10-year bonds, but the 10-year yield has already reached a 60-year low of 1.88 per cent, the FT says.
Republican candidates for president squabbled over social security, foreign wars and the economy but presented a largely united front on one issue – the need to rein in the power of the Federal Reserve. The FT reports Rick Perry, the Texas governor who has been criticised for saying Ben Bernanke, the Fed chairman, has behaved in an “almost treasonous” manner in his management of monetary policy, declined to back away from his statement in Monday’s televised debate. The candidates questioned about the US central bank all said it should be audited and limited to a single mandate to preserve the integrity of the currency, although Mitt Romney, the former Massachusetts governor, offered a partial defence of the institution. Meanwhile news that President Obama’s jobs plan would be funded by ending oil and tax company breaks meant a fight with Republicans over the plan was likely, says the WSJ.
Central banks using options as a monetary policy tool — crazy, right? But there’s history here. The Bank of Spain reportedly sold put options on the peseta to fight devaluation pressures back in the ERM crisis days of 1993, though it denied this emphatically at the time.
We have all the tools we need to achieve a smooth and effective exit at the appropriate time. Friday’s decent jobs report and accompanying hawkish cacophony have encouraged further talk about when the Fed will raise rates and revert to a place called normalcy.
Higher prices at petrol stations and grocery stores pushed consumer spending up 0.7 per cent in February as households faced growing pressure on their budgets, the FT reports. The core personal consumption price index, a measure of inflation favoured by the Federal Reserve, increased 0.2 per cent in February, the same rise as in January. The overall personal consumption price index, which includes food and energy prices, gained 0.4 per cent, the fastest rise since June 2009 and above the previous month’s 0.3 per cent increase. Federal Reserve chairman Ben Bernanke is hoping that those prices will be controlled in the long term. History backs him, but the size of the price increases is sorely testing that assumption, Bloomberg says.
Ben Bernanke, US Federal Reserve chairman, on Wednesday issued a more optimistic assessment of the state of the US jobs market, suggesting the central bank believes at least some of the drop in unemployment in recent months reflects economic growth, reports the FT. “Notable declines in the unemployment rate in December and January, together with improvement in indicators of job openings and firms’ hiring plans, do provide some grounds for optimism on the employment front,” Bernanke told the House of Representatives’ budget committee in his first appearance before it since Republicans took control in November. MoneySupply meanwhile looks at prospects for a rate rise and bets $100 the Fed will not raise short-term rates by its November 2011 meeting.
It’s the question that’s seemingly stumped Tim Geithner: how to identify a priori systemically important non-bank financial institutions. The Federal Reserve on Tuesday suggested further rules regarding who might be considered for attention by the Financial Stability Oversight Council (FSOC) as per section 113 of Dodd-Frank. In short, they need to be “financial” and “significant”.
Ben Bernanke, chairman of the US Federal Reserve, on Thurday made one of his strongest calls yet for Congress to deal with what he called an “extraordinarily wide deficit”, and also rejected suggestions that US policies were driving up global food and energy prices, the FT reports. In a speech in Washington, he said America’s long-term fiscal challenges were due mainly to “powerful underlying trends, not short-term or temporary factors”. The remarks represent a sharp call for action so far on a gap now running at 9-10% of GDP. The WSJ says the speech marked “the latest salvo in a debate among central bankers about the roots of commodity inflation and the global effect of the Fed’s policies”. Meanwhile, ECB president Jean-Claude Trichet on Thursday played down inflation as an immediate threat to the eurozone.
Ben Bernanke, chairman of the US Federal Reserve, has made one of his strongest calls yet for Congress to deal with what he called an “extraordinarily wide deficit”, the FT reports. “The long-term fiscal challenges confronting the nation are especially daunting because they are mostly the product of powerful underlying trends, not short-term or temporary factors,”Mr Bernanke said in a speech at the National Press Club in Washington. Mr Bernanke has warned about the fiscal deficit before, but his speech represents a sharper call for action on a gap that is now running at 9-10 per cent of gross domestic product. “Sustained high rates of government borrowing would both drain funds away from private investment and increase our debt to foreigners, with adverse long-run effects on US output, incomes and standards of living,” he said.
The Federal Reserve on Wednesday made a cautious upgrade to its growth outlook and kept its asset purchase programme, nicknamed QE2, at $600bn after its first unanimous vote since 2009, reports the FT. In a move that sparked some selling of US Treasuries, a key change to the Fed’s statement was a reference to rising commodity prices which, it said, had not affected the stability of longer-term inflation expectations, while “measures of underlying inflation have been trending downward”. The NYT says the unanimity within the rate-setting Federal Open Market Committee was a “somewhat surprising vote of confidence” in Fed chairman Ben Bernanke. Separately, the FT reports, congressional analysts projected the US budget deficit will jump this year to the highest level on record.
The Fed’s asset-purchase scheme is paying off, with inflation a percentage point higher and 3m more jobs to be added in 2012, Fed vice chair Janet Yellen said at the weekend, citing Fed research, reports the FT. It is the first time a senior Fed official has detailed the benefits of ‘QE2′. The estimates suggest that, if the Fed had not started QE in 2008, the economy would now be close to deflation and 2012 unemployment would be 1.5 percentage points higher. Clearly, says the FT, “something is stirring” in the US economy. Meanwhile, Pragmatic Capitalism “commends” Yellen’s understanding of the banking system, but tears apart most of her comments about QE2′s efficacy.
The US Federal Reserve’s asset-purchase scheme is paying off, with inflation a percentage point higher and 3m more jobs to be added in 2012, Fed vice chair Janet Yellen said at the weekend, citing Fed research, reports the FT. It is the first time a senior Fed official has detailed the benefits of the Fed’s second round of quantitative easing, or ‘QE2′. The estimates suggest that, if the Fed had simply cut rates to zero in 2008 and not started its asset-buying scheme, the economy would now be close to deflation and unemployment in 2012 would be 1.5 percentage points higher. Yellen’s remarks followed Friday’s delivery by Fed chair Ben Bernanke of what MoneySupply called a “dovish” Congressional testimony. Clearly, says the FT, “something is stirring” in the US economy.
Ben Bernanke, chairman of the US Federal Reserve, said that “it’s certainly possible” that the Fed will increase its new round of asset purchases beyond an initial $600bn, reports the FT. But he made clear it could be decreased as well. “It depends on the efficacy of the programme. It depends on inflation. And finally it depends on how the economy looks,” Mr Bernanke said in an interview with CBS’s 60 Minutes broadcast on Sunday night. The rare interview with the Fed chairman reflects a push to connect with ordinary Americans in the wake of attacks on the Fed’s new effort to stimulate the economy by buying assets to push down long-term interest rates. In recent weeks Mr Bernanke has written newspaper opinion pieces and fielded questions from students and business leaders. As Robin Harding writes for the FT in Washington, the Fed’s critics run the risk that their attacks will backfire.
The Ben Bernanke show hit prime time Sunday night. The Federal Reserve chairman played warm-up act to Facebook’s chief executive Mark Zuckerberg on CBS’ 60 minutes, continuing his recent profile-raising efforts and his polite offensive against QE2 critics.
Ben Bernanke, chairman of the US Federal Reserve, said on Sunday that the Fed could increase its new round of asset purchases beyond an initial $600bn but also stressed that the amount could just as well be decreased, reports the FT. “It depends on the efficacy of the programme. It depends on inflation. And finally it depends on how the economy looks,” Bernanke told CBS’s 60 Minutes on Sunday night. The rare interview with the Fed chairman reflects his recent drive to connect with ordinary Americans amid criticisms of the Fed’s new effort to stimulate the economy by buying assets to push down long-term interest rates. Bloomberg adds that the dollar rose on Monday on Bernanke’s assertion in the CBS interview that a US return to recession was ‘unlikely’.
The People’s Bank of China sure knows how to gatecrash a party. In an uncanny coincidence, the PBOC lifted bank reserve requirements 50bps – widely seen as a step against QE-inspired capital flows – just as Fed chairman Ben Bernanke rose to speak at the European Central Bank on, erm, the merits of QE.
Ireland is no longer on the edge of Europe but is instead an Atlantic bridge. High-tech companies such as Intel, Oracle and Apple have chosen to base their European operations there. I will be asking Google executives today why they set up in Dublin, not London… What has caused this Irish miracle, and how can we in Britain emulate it? … in a world where cheap, rapid communication means that investment decisions are made on a global basis, capital will go wherever investment is most attractive. Ireland’s business tax rates are only 12.5 per cent, while Britain’s are becoming among the highest in the developed world.
The US Federal Reserve has deployed two of its most senior officials to defend its new $600bn round of quantitative easing in rare on-the-record interviews that reveal the bank’s concern over domestic and international criticism of the policy, the FT reports. Janet Yellen, Fed vice-chair, and William Dudley, president of the New York Fed, dismissed concerns that quantitative easing was aimed at weakening the dollar or that it could ignite inflation. Mike Pence, chairman of the House Republican conference, on Monday said he planned to introduce a bill that would end the Fed’s dual mandate on unemployment and inflation and force it to concentrate solely on price rises. A group of Republican economists have also written an open letter to Fed chairman Ben Bernanke saying that the “planned asset purchases risk currency debasement and inflation”.