Archives of “federal reserve” tag

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Fed’s Beige Book: Economy expanded at slight-to-modest pace

  
  Analysis
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Highlights of the Fed’s anecdotal economic summary:

That’s a downgrade from modest previously.
Highlights:
  • Businesses see expansion continuing, many have cut outlook
  • Business activity varied across the country
  • Districts in south and west were more upbeat that midwest and great plains
  • Spending was solid on balance, housing market conditions changed little
  • Some districts suggested persistent trade tensions and slower global growth weighed on activity; early impact of GM strike was limited
  • Most expect economic expansion to continue; however many lowered their outlooks for growth in coming 6-12 months
  • A number of manufacturers reduced headcount because orders were soft, some cut hours rather than reduce staff
  • Wages rose moderately in most districts, with upwards pressure noted for lower-skill workers
  • Employers continued to use bonuses and benefits to attract and retain talent
  • Most districts characterized the recent pace of prices increases as modest
  • Retailers and manufacturers noted rising input costs
  • Shipping rates remained lower than they were earlier in the year because of excess capacity

China Beige Book says the country’s economy the weakest it has been all year in Q3

  
Analysis, Economy
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China’s economy at its weakest for the year, CBB saying manufacturing, property and the services sectors all worsening

  • lending has increased
  • current weakness in the economy is primarily due to manufacturing
  • drop in exports a factor
  • most of the decline was due to “considerably slower sales price growth
Bloomberg with the report.
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China Beige Book adapts methodology used by the U.S. Federal Reserve’s “Beige Book”
  • It’s a privately produced quarterly report
  • Uses quantitative & qualitative data to track conditions within the Chinese economy

Time to dust off the ‘hawkish cut’ outlook – September FOMC to lift the USD

  
  Analysis
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Morgan Stanley expect the sept September meeting of the Federal Open Market Committee to cut

  • by 25bp
  • But the dot plot published alongside is unlikely to show more rate cuts for the balance of 2019 and into next
  • expects confusing dots reflecting diversity of views on the committee
More:
  • ” …. FOMC materials are likely to be insufficiently dovish to meet the market’s lofty expectations”
  • “USD is likely to outperform on the day, particularly against risk-sensitive currencies like high-yielding EM FX and the dollar bloc” 

Fed Bullard says a 50bp cut would align the Federal Reserve with market expectations

  
  Analysis
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Bullard is president of the Federal Reserve Bank of St. Louis

  • Bullard says current Fed policy rate “too high,” would be better to get to “the right point” now rather than in smaller steps
  •  “aggressive” action needed given dive in US bond yields, impact of trade war
  • calls trade debate a “reckoning” for the current world trading system that could take a long time to sort out
B speaking in an interview, headlines via Reuters
Bullard is president of the Federal Reserve Bank of St. LouisYeah, hi

US stocks mixed as attention turns to Fed

  
  Analysis
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US stocks were mixed as Federal Reserve officials cast doubts on further rate cuts and a reading on domestic manufacturing stoked concerns over the health of the economy. The S&P 500 ticked 0.1 per cent lower after drifting between gains and losses, with investors turning their attention to the central bank’s annual summit where chairman Jay Powell will speak on Friday. The Nasdaq Composite was down 0.4 per cent, while the Dow Jones Industrial Average rose 0.2 per cent on a rally in shares of Boeing. Central bankers from around the world have descended on Jackson Hole, Wyoming, for a policy symposium that is closely watched by investors seeking clues on monetary policy.

Market participants are looking for the Fed to follow its July rate cut with another one in September, but at the start of the Jackson Hole gathering on Thursday, Philadelphia Fed president Patrick Harker and Kansas City Fed president Esther George indicated in television interviews that they would not back further cuts. “My sense was we’ve added accommodation, and it wasn’t required in my view,” Ms George, one of two dissenters in the July decision, told CNBC. Mr Harker, who is not a voting member of the Fed’s policy setting committee, said he believes the federal funds rate is around its neutral level, adding: “I think we should stay here for a while and see how things play out.” The US 10- and two-year yield curve inverted for the second time this week following the remarks. The yield on the benchmark 10-year Treasury rose 3.3 basis points to 1.6097 per cent, while the policy-sensitive two-year yield was up 4.5bp at 1.6141 per cent. An inverted yield curve is considered a sign that investors expect a recession.

The Dog Days of August are Upon Us

  
  Analysis
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The die is cast. To defend the uneven expansion and ward off disinflationary forces, monetary authorities will provide more accommodation.  The Federal Reserve delivered its first rate cut in more than a decade and stopped unwinding its balance sheet two months earlier than it previously indicated (worth $100 bln of additional buying of Treasuries and Agencies).  Following the end of the tariff truce, and after the July jobs report,  the market was certain the Fed would cut rates again in September, according to Bloomberg and CME calculations).
The ECB has signaled its intention to ease policy in September.  It is also thought to be considering several different tools, including a deeper negative deposit rate, renewed asset purchases, and perhaps, easier terms for the TLTRO that will be forthcoming at the start of Q4.
The BOJ has downgraded its growth forecasts and acknowledges that it will not meet its inflation target for at least the next two years.   It is unlikely to move until the after October when the impact of the sales tax increase can be assessed.
The US has lifted the debt ceiling and suspending spending caps.  US fiscal policy is less restrictive, and there is talk that the Trump Administration will support efforts to index capital gains.  UK government spending to prepare for a no-deal exit will increase, but it may prove insufficient to offset the private sector investment paralysis.  Germany, it would seem from the outside, has the need and resources to expand fiscal policy (and funding at negative yields), but it lacks the will.   On the other hand, Italy has the will but lacks the means.  Japan can provide a supplemental budget if the sales tax increase makes it necessary.

(more…)

ALERT : Federal Reserve lowers interest rates by 25 basis points, as expected

  
  Analysis
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Highlights of the July 31, 2019 Federal Reserve statement:

  • Rates lowered to 2.00%-2.25% from 2.25%-2.50%, as expected
  • Fed says economic activity is rising at ‘moderate rate’ versus ‘a moderate rate’ prior
  • Fed says labor market ‘remains strong’ versus ‘remains strong’ prior
  • 2 dissents with George and Rosengren dissenting
  • Repeats that business investment has been soft
  • Repeats that ” uncertainties about this outlook remain.”
  • Market-based measures of inflation “remain low” versus “have declined”
  • Repeats that survey based measure of inflation “little changed”
  • Repeats that inflation “running below” 2% target
  • Says cut was “in light of the implications of global developments for the economic outlook as well as muted inflation pressures”
The previous statement said the Fed ” will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion” and also that “uncertainties about this outlook have increased.” The line about “uncertainties about this outlook remain” unchanged.
Guidance is also unchanged with the new statement saying ” will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”
The quick view here is that the statement is pretty much identical to the previous one. The market wanted a more-dovish signal. The odds of a Sept cut have fallen to 69% from 78%.
Powell’s press conference is at 2:30 pm ET.

Fed’s Bullard and Kashkari make case for rate cut

  
  Analysis
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Slowing growth momentum and the lack of inflationary pressure are fuelling the case among Federal Reserve policymakers that a rate cut may be necessary this year in order to stimulate the economy.

A duo of Fed officials — St Louis Fed president James Bullard and Minneapolis Fed president Neel Kashkari — on Friday cited rising global uncertainty as a reason the US central bank should take immediate action to lower rates.

At its latest policy meeting this week, the Federal Open Market Committee voted 9-1 to hold rates steady but signalled a strong possibility of cutting them this year.

Mr Bullard, one of the most dovish members of the Fed board, was the lone dissenter. He said on Friday he pushed for a quarter-percentage point cut at the meeting in order to safeguard against weaker growth, tepid inflation and an increasingly volatile environment.

“I believe that lowering the target range for the federal funds rate at this time would provide insurance against further declines in expected inflation and a slowing economy subject to elevated downside risks. Even if a sharper-than-expected slowdown does not materialise, a rate cut would help promote a more rapid return of inflation and inflation expectations to target,” he said in a brief statement posted on his bank’s website.

Mr Kashkari, a non-voting member of the FOMC, went even further. In an essay published on Friday, he said he argued at this week’s meeting for a 50 bps cut in order to “re-anchor” inflation expectations. (more…)

Taleb Says ‘Every Human’ Should Short U.S. Treasuries

  
Analysis, Education
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TalebFeb. 4 (Bloomberg) — Nassim Nicholas Taleb, author of “The Black Swan,” said “every single human being” should bet U.S. Treasury bonds will decline, citing the policies of Federal Reserve Chairman Ben S. Bernanke and the Obama administration.

It’s “a no brainer” to sell short Treasuries, Taleb, a principal at Universa Investments LP in Santa Monica, California, said at a conference in Moscow today. “Every single human being should have that trade.”

Taleb said investors should bet on a rise in long-term U.S. Treasury yields, which move inversely to prices, as long as Bernanke and White House economic adviser Lawrence Summers are in office, without being more specific. Nouriel Roubini, the New York University professor who predicted the credit crisis, also said at the conference that the U.S. dollar will weaken against Asian and “commodity” currencies such as the Brazilian real over the next two or three years.

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UBS On The Exasperating Euro

  
Education, Forex
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Strategist, UBS

For foreign exchange investors there’s nothing more exasperating than the euro at the moment. Having fallen from above 1.51 against the dollar in December to below 1.19 in June, the euro has since bounced smartly back to above 1.30. Defying predictions of a Eurozone break-up or a further perilous decline to parity, the euro has instead wrong-footed many in the currency market.

Indeed, exasperation explains one of the factors behind the euro’s correction, as investors had become increasingly bearish on the currency. The belated bailout of Greece, sharp bond spread widening within the Eurozone, concerns about competitiveness, and political tensions within Europe all convinced foreign exchange participants that the euro had become a one-way bet. Hence, the euro’s summer recovery has been the clear pain trade in the currency markets, forcing investors to close their shorts.

The reversal in the exchange rate has been driven by stronger data in the Eurozone and renewed concerns about the health of the US economy. In particular Germany’s super-competitive exporters have benefited from the slide in the euro in the first half of the year. An excellent reflection of this is the continuing strength of the Swiss franc. As Switzerland sends 20% of its exports to Germany, the franc is a proxy for the largest economy in Europe. In many ways it is a substitute for the old German mark.

In contrast, the dollar has fallen this summer as weaker US growth has forced Federal Reserve officials to consider resuming quantitative easing. As last year’s inventory bounce has begun to wear off, structural concerns about the health of the US housing and labour markets have come to the fore again.

In the near term the euro is likely to keep its gains; there are still shorts in the market and fears about the Fed will keep the dollar on the back-foot. But the longer-term picture remains bearish. The structural problems of high debts, low growth and diverging current account imbalances remain stubbornly high. Fiscal austerity will undermine Eurozone growth this year and next. The European Central Bank won’t be in a position to raise interest rates until well into 2011, at the earliest.

What are the risks to our long-term bearish euro view? The major concern of course is the Fed resuming asset purchases in order to expand US money supply. This would undermine the dollar as it did in March 2009 when the Fed started a year-long programme of buying Treasuries and mortgage-backed securities. The other concern is that the consensus among foreign exchange participants remains bearish on the euro. As a result, their positioning would keep the markets vulnerable to further exasperating rallies in the currency.

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