US Federal Reserve signals no change to interest rates

The Federal Reserve has signalled no change to US interest rates, which will remain near zero.

The Fed also said it would continue with a $600bn (£375bn) Treasury bond-purchase plan to strengthen the US economy.
The vote by members of the bank's rate-setting committee, the Federal Open Market Committee, was unanimous.
The Federal Reserve made no mention of Friday's earthquake in Japan, and how that might affect the global recovery.
"In light of the ongoing crisis in Japan and uncertainty about financial and economic repercussions yet to come, the Fed is firmly and unanimously in wait-and-see mode," said analyst Chris Low of FTN Financial in New York.
Extended period
The bank's decision to keep interest rates unchanged had been widely predicted.
However, its rate-setting committee said in a statement that it believed "the economic recovery is on a firmer footing".
The Fed also noted the recent rise in energy and commodity prices, but said it expected "these effects to be transitory".
The central bank reiterated a previous warning that economic conditions were "likely to warrant exceptionally low levels for the federal funds rate for an extended period".
The federal funds rate has remained unchanged, at a record low of zero to 0.25%, since December 2008.

Fed Makes No Mention of Japan

Federal Reserve policy statements are supposed to outline the forces that will drive monetary policy over coming months, so while it wasn’t unexpected, it’s nevertheless puzzling central bankers omitted the biggest risk of all: Japan.
It is true economists are still trying to come to terms with the fluid and very unpredictable course of events coming out of Japan in the wake of last week’s earthquake and tsunami, which has turned into a humanitarian catastrophe and metastasizing nuclear disaster. No forecasters can say with any reliability what impact Japan will have on the world economy, or on the U.S. economy.
And yet, for a Fed that likes to weigh all the risks to the outlook, one of the biggest ones out there is the impact Japan might have on the U.S. Economists have flagged the automotive and technology sectors as potential problem spots, but Japan’s tragedy has the potential to go further and strike at financial markets. That could have knock-on effects on the growth outlook and how the Fed pursues monetary policy.
As it stands now, Fed policy makers see a recovery standing on “firmer footing” amid labor markets that are “improving gradually.” While it expects inflation to remain contained, it nevertheless notes rising commodity and energy prices are “putting upward pressure” on inflation, even as policy makers see the gains as “transitory.” Most Fed watchers had anticipated the Fed would say that, as much as they also saw the central bank continuing forward with its $600 billion bond-buying program.
Fed watchers looked to what the central bank said and saw it as evidence the Fed is growing more confident in the recovery. “Our expectation for a mid-2012 rate hike is not changed by this statement” and “it does point to the Fed beginning the baby steps required to exit from its current strategy,” said Eric Green of TD Securities.
And yet, Japan has the potential to change this outlook, in very significant ways. For one, the powerful downdraft swamping global markets is a problem for the Fed. If stock prices fall significantly, the Fed may have to react by providing more economic stimulus. Central bank officials have pointed to the rise in equity prices since embarking on QE2 as a signature success of the policy. If stocks were to fall a lot, the impact on confidence and wealth would have to be taken into account by policy makers, given the central role officials like Fed Chairman Ben Bernanke have granted markets.
More broadly, if supply-chain disruptions proved truly profound and wounded the auto and technology industries, they could blunt or end the powerful round of growth seen over recent months. Factories, even at their relatively small share of U.S. output, have been a major engine of the recovery, so weakness there would be worrisome for the broader course of the move out of recession.
Continued Japan problems could change the Fed outlook in other ways. Fed officials Tuesday flagged their awareness of the impact energy was having on pushing up inflation. But oil prices have fallen as Japan’s problems have grown. Perhaps, demand for oil will now be weaker and reduce the brewing inflation problem central bankers acknowledge.
None of this is to say there’s been a big shift in the odds the Fed will continue QE2 beyond its currently stated target. But as much as anything mentioned in the Fed statement, the unacknowledged problems in Japan could be a big influence on monetary-policy decisions over coming months. Said RBS Securities analysts: “The uncertainty generated by recent developments in Japan gives the Fed even more reason to show patience. Indeed, it is possible lingering uncertainty could push back the timetable for Fed action.”
Economists are currently split over the impact Japan might have on the U.S. Deutsche Bank economists said in a research note “the possible effects on the U.S. economy from the earthquake in Japan appear less damaging than the recent weakness in U.S. markets would imply.”
But not everyone agrees with that view. Japanese events, along with political unrest in the Middle East, are a potential game changer, warns Bernard Baumohl of the Economic Outlook Group. “The first two weeks of March unleashed a fusillade of geopolitical and natural shocks the likes of which we haven’t seen since World War II,” he said, noting “the shocks will ripple through the world economy for years to come.”

Federal Reserve says, let them eat iPads

WASHINGTON (MarketWatch) — The heckling that New York Federal Reserve President William Dudley endured at a recent event doesn’t look to have made much of an impact on the Fed’s interest rate decision on Tuesday.

To recall, Dudley was peppered with questions about the central bank’s policies in front of a tough audience in Queens (is there any other?), accused of being too soft on inflation. “When was the last time, sir, you went grocery shopping?” asked one member.

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Dudley, in a horrendously awkward way, responded by noting that other prices have gone the other way, pointing out that an iPad 2 can be purchased for the same price as the first iPad.
And Dudley is right, to an extent. There really hasn’t been much pass-through of surging commodity prices to items that aren’t food or energy, and of course, technology gets cheaper by the year. The big decline in commodity prices seen Tuesday suggests that perhaps the run-up in these was temporary, or at least contained a big element of speculative froth.
That froth of course was probably exacerbated by the Fed’s own $600 billion bond buying plan. But in the Fed’s eyes, the big worries are still in the labor market, notwithstanding the decline in the unemployment rate to below 9%. Not even the more hawkish members like Richard Fisher or Charles Plosser saw reason to disagree. Read more on the Fed’s decision.
The question of whether the Fed is right, of course, will be determined in months, if not years. The central bank did say it would “pay close attention” both to inflation and inflation expectations, both of which are rising. Still, that’s not much of a concession from an institution where one of its main duties is, after all, to fight inflation.
The Fed paying close attention to inflation is like a firefighter taking note of a campfire that seems pretty close to forest full of old trees and dry leaves. The Fed’s view is, the fire is contained.
Stay tuned on what happens to that campfire.

US STOCKS SNAPSHOT-Wall St falls on Japan but off session lows

(Reuters) - U.S. stocks fell on Tuesday, but ended far from session lows on the Federal Reserve's more upbeat economic outlook and growing sentiment that Japan's nuclear crisis would only temporarily depress share prices.
The Dow Jones industrial average .DJI was down 137.82 points, or 1.15 percent, at 11,855.34, according to the latest available data. The Standard & Poor's 500 Index .SPX was down 14.55 points, or 1.12 percent, at 1,281.84. The Nasdaq Composite Index .IXIC was down 33.64 points, or 1.25 percent, at 2,667.33.
(Reporting by Angela Moon, Editing by Kenneth Barry)

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Markets slumped, but clawed their way back from session lows, as traders balanced encouraging commentary from the Federal Reserve with concerns over the nuclear crisis in Japan. 

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The Dow Jones Industrial Average was lower by 138 points, or 1.2%, to 11855, the S&P 500 slid 14.5 points, or 1.1%, to 1281 and the Nasdaq Composite was off 33.6 points, or 1.3%, to 2667. The FOX 50 was down 11.58 points, or 1.26%, to 908.

Stocks came back from session lows after the Federal Open Market Committee [FOMC] said it sees the labor market "improving gradually" and the economic recovery on "firmer footing." 

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The FOMC held short-term interest rates steady between 0% and 0.25%, a highly expansionary move, in a bid to keep the economy growing. Very low interest rates can spur high levels of inflation, however, the policy-making board said despite rising energy prices, long-term inflation expectations appear to be in check. 

Traders in the U.S. kept a close eye on the situation in Japan, which is the third largest economy in the world. 

An explosion at a Japanese nuclear power plant sent radiation seeping into atmosphere, reaching as far as Tokyo, Japan's densely-populated capital.  News of the radiation leakage prompted many to flee and stock up on supplies like food and water. 

Japanese stocks posted losses as steep as 16% before finishing the day lower by more than 10%, on the heels of Monday's session that sent stocks sliding 6.2%. Tuesday's drop would equate to a 1271 point move on the Dow. 

The two-day losing streak for the Nikkei is the worst since 1987, wiping $620 billion in market value out.

"Instability in [Japan's] nuclear reactors remains the main factor impacting market action and psychology," Peter Boockvar, managing director at Miller Tabak + Co., wrote in a research note. 

Tuesday's session was particularly volatile.  The Dow was down more in the first five minutes of trading than it has been since October 2008, when it started the day lower by 504 points. 

Indeed, the VIX, which is frequently cited as a gauge of fear in equity markets, surged 13%.  

The New York Stock Exchange invoked rule 48 Tuesday morning, meaning trading was allowed to begin without approval from NYSE officials to prevent delays in market opening caused by volatility in futures markets that were down more than 2%.

Insurers like Metlife (MET) and Aflac (AFL) sharply declined on concerns about their exposure to Japan. 

Many American issues of Japanese companies, such as Hitachi (HIT) and Honda (HMC) staged a comeback, closing in the green after plunging in early trading. 

However, the Nikkei was headed toward an opening loss of nearly 5% when the Tokyo Stock Exchange opens at 8:00 p.m. ET. 

Oil followed equities lower on concerns Japan's demand for oil would sink.  Light, sweet crude tumbled $4.01, or 4%, to $97.18 a barrel. 

"It's all about risk," Olivier Jakob, managing director at Petromatrix, a Swiss energy consulting firm, said of Tuesday's falling energy prices. "Everybody is running a stress test with the nuclear risk in Japan." 

The escalating protests in Bahrain could also affect oil prices. The oil-producing country declared a state of emergency and a Saudi soldier was shot and killed by a protester Tuesday. 

In metals, gold sunk $32, or 2.3%, to $1392 a troy ounce -- the biggest percentage decline since January 4.

The U.S. dollar lost 1.1% compared with the Japanese yen as dollar-based assets were sold and converted to the Japanese currency to support rebuilding in Japan. The greenback was essentially unchanged against a basket of world currencies. 

Much of this week's economic data doesn't capture the effects the crisis in Japan will have on the global economy, according to Boockvar.

Import prices jumped 1.4% in February, far more than the 0.9% increase economists were expecting, as energy prices soared late in the month. The New York Federal Reserve's Empire State Manufacturing Index jumped from 15.4 in February to 17.5 in March, in yet another indication that manufacturing activity is improving nationwide. 

Corporate Movers 

General Electric (GE), which designed two of the nuclear reactors used in Japan, was one of the worst-performing Dow components.

Shaw Group (SHAW) shares were lower in on fears investment in the nuclear power industry would dwindle amid fears the Japanese nuclear crisis could be repeated elsewhere. 

DSW (DSW) unveiled fourth-quarter earnings of 41 cents a share, three cents shy of analysts' estimates of 44 cents. 

ExxonMobil (XOM) was upgraded to a "buy" by Goldman Sachs. 

UBS (UBS) was subpoenaed by U.S. and Japanese regulators over alleged manipulations of LIBOR, the rate at which banks lend to each other. 

European Markets

European markets extended the steep losses in Japan, falling to the lowest levels in 3-1/2 years. 

The English FTSE 100 dipped 1.4% to 5695, the French CAC 40 dropped 2.5% to 3780 and the German DAX plummeted 3.2% to 6647.