Federal Reserve

US Federal Reserve signals no change to interest rates

2011-03-15T13:39:00.005-07:00

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

2011-03-15T13:39:00.003-07:00

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

2011-03-15T13:39:00.001-07:00

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

2011-03-15T13:38:00.002-07:00

(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)

Japan Worries Ignite Selloff

2011-03-15T13:38:00.000-07:00

FOX Business: The Power to Prosper

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.

Today's Markets

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."