Financial Communique » Federal Reserve

The actions of Fed are shwoing the restrictions of the central banks

Viliyana Filipova — Fri, 02 Dec 2011 01:48:35 +0000

Coordinated by the Federal Reserve (Fed) global efforts to reduce the cost of borrowing for banks as well as demonstrate the power of the State Central Bank to revive the market and its limited ability to address European debt crisis. The stock markets around the world grew and profitability in most European government bonds fell after the Fed on Wednesday and five other central banks lowered the cost of emergency dollar loans to financial institutions outside the U.S.. At the same time central banks refrained from more drastic measures such as buying bonds or providing guarantees. the Fed Chairman Ben Bernanke again using cards played during the financial crisis that followed the bursting mortgage bubble in the U.S. in 2008 now measures designed to protect markets and the global economy from fiscal shocks in Europe.
“The actions of the banks against the consequences of the crisis, but did not solve the causes which have given rise”, said John Reading, chief economist at RDQ Economics LLC. “We must do something to stabilize the debt situation in the Eurozone”, said Reading, a former Fed economist and Bank of England. “This means the European Central Bank (ECB) to start buying more bonds than ever before”, he added.
Yesterday the Dow Jones Industrial Average rose 4.2 percent to 12,046 points – the strongest growth in the index since March 2009 Dow was also supported by positive data on private sector employment, business activity and housing in the U.S., all of which exceeded analysts’ expectations. Stoxx Europe 600 gained 3.6%. the yields on the 10-year French bonds fell 13 basis points to 3.39 percent while the yield on equivalent bonds Italian fell 22 points to 7.02 percent. Italian bond yields should decrease to below 6% – levels, which are traded by month – to allow markets to really settle down, says Reading. Premium that banks pay to borrow dollars from central banks will be reduced by half a percentage point to 50 basis points, said in a statement the Fed on Wednesday. So-called dollar swap lines will be extended by six months to February 1st, 2013. Fed coordinate with the ECB and national central banks of Canada, Switzerland, Japan and Britain. The new measures come into force on 5 December.
“Central banks tend to react to the situation with the tools available”, says Robert Pearl, a former Fed economist and CEO of International Strategy & Investment Group in Washington. “The investors are probably aware that cheap financing in dollars is not something that will solve the problem” in Europe, he said.

Asian indexes with positive session

Viliyana Filipova — Thu, 13 Oct 2011 12:51:37 +0000

The main indexes of the Asian markets today again unified trend growth after yesterday’s diverse session, after European leaders are closer to the general plan to overcome the debt crisis and the U.S. Federal Reserve announced that it had discussed the purchase of additional assets, reducing fears the global economy. The regional MSCI Asia Pacific Index rose 1.2 percent to 117.57 points, bringing its profit for the last 6 sessions to 9.5%. The Japanese Nikkei 225 advanced 1% to 8 823.25 points, while stocks of the largest publicly traded credit institution Mitsubishi UFJ Financial Group Inc value increased by 2.1% to 340 yen, while those of Mazda Motor Corp. rose 4.5 percent to 163 yen. The shares of construction equipment manufacturer Komatsu Ltd. have added 4.4 percent to its value to 1770 yen, while those of industrial robot manufacturer Fanuc Corp. rose 3.4 percent to 11,970 yen after it became clear that the orders in September rose by 20% yoy. The Chinese Shanghai SE Composite Index gained 0.8 percent to 2 438.79 points. In Hong Kong Hang Seng rose 2.3 percent to 18 757.80 points by the shares of Europe’s largest credit institution HSBC Holdings Plc increased its value by 3.3% to HK $ 64.65, after the European Commission called for “coordinated approach” to the recapitalization of banks in the euro area and those of chain stores menswear Esprit Holdings Ltd. jumped 16% to HK $ 11.78 after the company denied allegations that he was overstating the data on the number of its stores in China.
The index of Chinese companies listed on the Hong Kong Stock Exchange, Hang Seng China Enterprises, rose 3.7 percent to 9 802.58 points, after the Chinese government announced measures to assist small businesses affected severely by tight monetary policy in the country including tax incentives and easier access to bank loans.

Fed should consider withdrawal from the program for infusing liquidity

Viliyana Filipova — Sat, 26 Feb 2011 11:31:05 +0000

The Federal Reserve (Fed) should start the withdrawal of its programs for injection of liquidity before inflation becomes a serious problem, says Jeffrey Lakar, president of the Central Bank in Richmond. After the Fed meet 50% of its second program of liquidity injections worth 600 billion dollars, known as the QE2, the price increase is already tangible, he said. Lakar said the Fed should anticipate the trend and to launch a review of the program for infusing liquidity now while the economy is still in the initial phase of recovery.
“The recovery is stable, growth will accelerate,” he says. “At this stage the business cycle should withdraw monetary stimulus in order not to let inflation.”
Better is the central bank to start selling bonds before interest rates increase, says Lakar. The Fed monetary policy aimed to create a healthy level of inflation by between 1% and 2%, which would be indication that the economy grew by controllable pace.

Bernanke: The unemployment decrease is encouraging

Viliyana Filipova — Thu, 10 Feb 2011 11:32:47 +0000

The reduction in unemployment over the past two months is an encouraging signal, said today the President of the U.S. Federal Reserve Chairman Ben Bernanke. But he warned that it would take several years to recover normal levels of employment. In a speech to the Budget Committee to the House of Representatives Bernanke told The Associated Press, also warned that failure to develop a plan to reduce the budget deficit of 1 trillion. dollars in the long run could harm the economy. In January, unemployment in the U.S. marked level of 9 percent after the most rapid decline of its two 53. This fall “gives some grounds for optimism about jobs,” said Bernanke. The Fed chairman noted that unemployment remains too high. In his labor market is improving, but slowly. The central banker said that the economy has recovered just over 1 million lost by more than 8 million jobs during the worst recession in generations. According to Bernanke unemployment is likely to remain high for some time. The central banker urged Congress to act now to reduce the budget deficit to not have at a later stage to take “painful” measures under pressure from the markets. Ben Bernanke has denied any inflationary pressures in the U.S. economy and protect liberal monetary policy the central bank.
Today’s hearing was the first chief of the Fed before the House of Representatives after the Republicans took control in January.

Fed owns higher state debt than China

Viliyana Filipova — Wed, 02 Feb 2011 19:45:46 +0000

The Federal Reserve (Fed) surpassed China and is now the largest owner of U.S. federal debt, although it has not gotten half the bonds worth 600 billion dollars from the program announced in November for the infusion of liquidity. On Thursday last week the Fed has held U.S. bonds to 1.108 trillion dollars. According to the latest data on foreign creditors of the U.S., the government bonds, which China holds are about 896 billion dollars, and for Japan – to 877 billion dollars.
“By June the Fed has accumulated to U.S. bonds worth 1.6 trillion. dollars – roughly the total U.S. debt held by China and Japan combined, “said Richard Gilhuli, strategist at TD Securities. Fed surpassed China as the largest creditor of the U.S. government a few months ago, “he notes. Fed buys U.S. debt in two programs. The largest is the program for injection of liquidity known as the QE2, which was launched in November and the buying of U.S. bonds to 600 billion dollars by June. Fed buys U.S. bonds and also for $ 30 billion each month, reinvest the payments of mortgages it holds. By June the Federal Reserve plans to acquire federal debt of $ 800 billion in both programs. Since November he bought bonds of 284 billion dollars. Fed provides 67% of bonds purchased QE2, have a maturity of between 4.5 and 10 years. Only 5% of acquired so far are bonds with a maturity longer than 17 years. Last Friday, the yield on 30-year U.S. Treasuries briefly climbed to their highest levels since April.
“The end of the QE2 will be a big test because yields on U.S. debt will probably increase after the Fed stops to buy bonds,” said David Allen, strategist at CRT Capital. “We still do not know whether this increase will be 20, 30 or even 50 basis points,” he said. Total world’s central banks hold U.S. bonds to 2.604 trillion. dollars. After intensified the pace of buying in June, when they have bonds to 2.250 trillion. dollars in November, when the Fed started Q2, central banks retain their positions in U.S. bonds at around 2.6 trillion. dollars. This indicates that after the intervention of the Fed’s other central banks have reduced the pace of buying the U.S. debt. Before the financial crisis, the Fed held the bonds to 775 billion dollars. This amount was reduced to 300 billion dollars in the first half of 2008, when the Fed sold bonds in an attempt to stabilize the financial system. The first program for injection of liquidity, launched in 2009 was about $ 300 billion.

The risk of new recessionary bottom is increased

Viliyana Filipova — Tue, 24 Aug 2010 16:29:57 +0000

The risk of new recessionary bottom increased during last six months, claims the president of the Federal Reserve in Chicago Charles Evans. New recessionary bottom is still the most likely scenario to the U.S. economy, but I am concerned about the strength of the recovery, “he said. High unemployment and a strong housing sector concerned do so fragile recovery, says Evans. It provides that unemployment, now 9.5 percent, remain high in the foreseeable future. Against this background, he said, ultra-expansionary monetary policy the Fed is appropriate. Evans argues that the securitization process by which mortgage loans are converted into packets of bonds sold to investors, reducing the incentive for creditors in the restructuring of troubled home loans. He said efforts to restructure these loans to prevent defaults are “drop in the ocean. Securitization appears a conflict between the interests of creditors and those companies serving the process, he says. The U.S. housing market collapse is already three years as construction is only 25% of their peak levels, and prices fell sharply across the country. Many economists fear that without the driving force behind the housing sector, economic recovery will take longer than usual. Shortly after Evans comments were exported data for sales of existing homes in the U.S. fell more than expected to 27.2 percent on a monthly and 25.5 percent yoy in July, reaching its lowest level since data began to be kept in 1999
Evans also questioned the role of financial education for borrowers to prevent bad loans. “Employees of the Chicago Fed has recently carried out a rigorous review of studies evaluating the benefits of financial education. They found that the evidence of its effectiveness are quite controversial, “he said.

Bernanke do not see soon end of unemployment

Viliyana Filipova — Wed, 21 Jul 2010 13:59:01 +0000

The unemployment rate in the U.S. is expected to remain well above 7 percent by the end of 2012 and throughout the term of the current U.S. president Barack Obama. It said Federal Reserve Chairman Ben Bernanke before Congress, said New York Times. He will need time to recover all the 8.5 million jobs, removed during the recession in the U.S. in 2008 and 2009. Ben Bernanke is concerned that the economic outlook and financial conditions in the country remain unusually uncertain, and warns that the fiscal crisis in Europe has become an obstacle to economic growth in recent months. Speaking on the occasion of his presentation was a semi-annual monetary policy report to the Federal Reserve to Congress. Analysts say his tone is become much more cautious than the presentation of the last report in February. Bernanke confirmed in his speech that the economic expansion that began in mid 2009, continues but with lower rates. That contributes significant support from governments and central banks with their common fiscal and monetary policy. He expects that the growing demand of households and businesses will help sustain growth, despite incentives from the government will have less effect.
Bernanke fears of the poor condition of the housing market, which continues to suffer from the large number of free and compulsory stolen property that pulled prices down and reduce the activity in the construction sector. On the inflation head of the U.S. central bank acknowledged that the last two years the trend is to decrease prices, but did not explicitly indicate that fears of deflation. During their last meeting in late June the Federal Reserve lowered its forecast for U.S. economic growth this year to 3% from previous 3.5% and left the base rate of his historically low level of 0.25 percent. For 2011 is projected economic growth of 3.5% to 4.5% and unemployment is expected to drop to 7 to 7.5% at the end of 2012. Bernanke testimony on the economy and monetary policy of the U.S. Federal Reserve came a little after Bush signed a law on the biggest reform in the financial sector of the country by years since the Great Depression.

FED may increase the interest level next months

Viliyana Filipova — Sun, 07 Mar 2010 19:09:27 +0000

The U.S. Federal Reserve will probably raise its main interest within six months, with between a quarter and half percentage points, according to a survey of the National Association of Business Economics (NABE), said. According to the survey, conducted every six months, most of NABE economists find this almost zero interest rate the Fed is appropriate. More and more of them, however, feel that it is too stimulating. “The majority believes that the increase in interest rates over the next six months is as likely and appropriate,” said NABE president Lynn Riyzar. According to the Fed’s high unemployment and low inflation to justify keeping interest rates extremely low for an extended period. The data indicate that the economy has gradually recovered and by some leaders of the Fed Reserve needs to start preparing the markets for the tightening of financial conditions. Economists interviewed by NABE, believe that the suspension of purchases of mortgage securities by the Fed will increase interest rates on mortgage loans with an average of 42 basis points. The program, worth 1.25 trillion. dollars, will be discontinued at the end of the month. 44% of the respondents believe that inadequate regulatory oversight was the main reason for the deep financial crisis, which led the country to a painful recession.
Most of them think that limiting the regulatory functions of the Fed, as proposed by some lawmakers, would make the central bank less efficient in conducting monetary policy. Growing proportion (44%) found fiscal policy to correct, the highest rate since 2007, the majority view, however, that additional financial incentives are not necessary. Almost 80% of economists said that the long-term deficit of the United States could reduce the country’s ability to borrow funds.

Federal Reserve began to withdraw money from the financial system

Viliyana Filipova — Sun, 21 Feb 2010 01:37:51 +0000

The U.S. central bank began tightening cycle of monetary policy. This happened quite a surprise, since no signals were given prior to such intentions. Policy on withdrawal of money from the system began with an increase in the discount rate that commercial banks pay the Fed on its direct loans from the central bank. He was raised by a quarter percentage point to 0,75 percent. Among the reasons the central bank is that commercial banks must rely more heavily on money markets to raise the necessary funds, rather than resorting to the services of the Fed. These changes are considered as a step toward normalization of credit facilities the Fed,” says the official release of the institution. “No change is expected to lead to further tightening in financial conditions for households and businesses and they are not intended to signal a change in the outlook for the economy or monetary policy,” the Fed explained. After news of the dollar shot up sharply since the central bank’s actions are perceived by the market as a signal that is to tighten monetary policy. The dollar jumped to a level of 1,3485 EUR / USD, as at an earlier stage had reached a level of 1,3444 EUR / USD.
This is the highest dollar level since May last year here. Another step taken by the Fed to limit the time within which may be granted loans to commercial banks. The increase in the discount rate is a first for the last three years. An increase in the Fed probably does not greatly increase the base interest rate at their next meeting.

The second mandate of Bernanke is not sure

Viliyana Filipova — Sat, 23 Jan 2010 12:48:39 +0000

Future of Ben Bernanke, who on 31 January to appear in the U.S. Senate to be reelected for a second term in office of President of the U.S. Federal Reserve (Fed), is less certain, says the online edition of the WallStreet Journal. At the end of last week the number of senators who will vote against the increase, incl. and members of the Democratic Party. Fed is subjected to very severe criticism over its policy during the passing decade of this century. According to the Financial Times the charges were for common monetary policy for financial market deregulation, weak control over the banks, which has indeed led to the emergence of the financial crisis. However, many legislators are unhappy with the actions of the U.S. central bank and specifically by Bernanke and himself during the crisis, incl. and rescue of the banking system and specifically the insurance giant AIG, to whom was committed and guaranteed $ 180 billion public money. On Friday, the Democratic Party Senators Barbara Boxer and Ras Feynhold, who are partial elections for their eventual re-election, said they would vote against a second term of Bernanke. “The next chairman must not be associated with a failed financial policies of the recent past,” said Boxer to WallStreet Journal. According to the newspaper, referring to Dow Jones Newswires, for 15 senators have announced that Bernanke will not support (4 Democrats, 10 Republicans and one non-party), 26 senators, however, have announced that they will support it, while 59 does not have publicly announced comment. Bernanke needs 60 votes to get a second term.
The U.S. Senate is the upper chamber of Congress and every state is represented by two senators, a total number 100. Senator’s term of office is 6 years as the biennial election for the renewal of one third of the seats in the Senate. Until last week no doubt that Bernanke will be reelected for a second term but lost the election in Massachusetts by Democrats last week because of what the ruling party lose its constitutional majority of 60 votes. This opened a populist rhetoric and intensify further attacks against the banking system.
The White House declared in defense of Bernanke still five months ago, when President Obama said he wants to be elected for a second term. For this recall and deputy press secretary, White House Bill Burton. He said, quoted by Fianancial Times, that the president has full confidence in Bernanke and the best candidate for this position which has helped the U.S. economy to the precipice of get out. As always in such cases, all looking guru Warren Buffett. Asked by a correspondent for CNBC what would happen if Bernanke is selected, the investor said laconically: “Just tell me why a day earlier to be able to sell a quantity of shares.” According to Christopher Todd, chairman of the Senate Banking Committee, Bernanke if not reelected, the markets will get a bad message and can lead to serious disruption.
The Senate may request the procedure for re-election of this very Bernanke Wednesday, January 27th. However, if he is not reelected to the 31 January to enter into a long procedure, but is now said to be nominated his deputy, Donald Knight.