THE ECONOMY

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MARKETWATCH

"Opinion: You better believe the Fed is doing quantitative easing — and here are the beneficiaries"


By Ivan Martchev

Published: Nov 20, 2019 4:41 p.m. ET

The Federal Reserve maintains that its recent repurchase-agreement activity — as well as the buying of Treasury bills of up to $60 billion a month — is not quantitative easing (QE).

But if the Fed’s balance sheet is growing and so are excess reserves in the banking system, it becomes the very definition of QE.


The operation — let’s call it QE4 — is supposed to carry through the second quarter of 2020, as per the Fed’s own statements.

We don’t know when in the second quarter such QE maneuvers might end, but whether it’s April or June, we may see a record-high Fed balance sheet during that quarter.

Fed’s balance sheet swelling

The lowest reported point of the Fed’s balance sheet since the balance sheet normalization started was $3,759,946 billion ($3.76 trillion rounded) on Aug. 28, 2018.

The latest reported level is $4,047,882.

That’s close to $300 billion in QE added in only 2½ months since the disruptions in overnight interest rate markets started in September.

If the Federal Reserve carries the $60 billion monthly rate until the second quarter, that would mean that it would have surpassed the all-time high of $4.5 trillion in its balance sheet holdings (set in February 2015) sometime during June 2020.

How can one not be bullish in such an environment of ample liquidity infusion?

Repurchase agreements, even though many are short-term, affect the level of the balance sheet.

If the Fed overlaps multiple repurchase agreements at any given time, the Fed’s balance sheet could easily overshoot its all-time high.

I don’t believe that the Fed’s balance sheet is the only determinant of the level of the stock market, but it sure is a major factor.

Balance-sheet expansion is like printing money — but for financial institutions only.

It does affect the monetary base (excess reserves plus currency in circulation), which is the narrowest definition of money supply (M0).

It basically causes asset-price inflation without causing uncontrolled broad money supply growth, which is why has it has not (yet) resulted in hyperinflation.


In prior economic downturns, the Fed would lower interest rates, which would stimulate lending, which would help lift the economy out of a recession.

After the 2008 downturn, the Fed not only lowered interest rates but also provided a large amount of electronic dollars, called excess reserves, which first affected the prices of Treasury and mortgage securities, investment-grade corporate bonds and ultimately junk bonds and stocks.

One could argue that the Fed pulled the economy out of a deflationary hole in large part by using asset prices, so it was not the improving economy affecting the prices of financial assets, but financial assets causing the economy to improve.

I think we have a similar QE dynamic at present.

While philosophically I do not find palatable such extreme levels of intervention in financial markets, since it has not backfired yet, one should assume the Fed would keep doing it, until/if/when it backfires.

https://www.marketwatch.com/story/you-b ... latestnews
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Re: THE ECONOMY

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MARKETWATCH - The Fed

"Fed’s Brainard forecasts ‘above-trend growth’ for economy over next 18 months"


By Greg Robb

Published: Nov 20, 2019 11:18 a.m. ET

The U.S. economy should be able to shake off trade uncertainty and continue on a moderate expansion path through 2020, said Fed Gov. Lael Brainard on Wednesday.

“In terms of the domestic economy, again, powered by the consumer, I do expect to see trend, of above-trend growth, actually continuing out over the course of the next year, year-and-a half,” Brainard said, in an interview on CNBC.


Some closely watched tracking estimates of fourth-quarter growth, including the Atlanta Fed’s GDPNow tracker, see growth slowing sharply to a 0.4% rate this quarter from the 1.9% rate in the July-September quarter.

Brainard said these tracker estimates are “quite a bit lower” than the consensus of Wall Street economists.

Brainard said she expects some moderation in the second half of the year, but noted the U.S. consumer “has proven enormously resilient.”

Most companies in the consumer sector remain “quite upbeat,” she said.

There should also be some “bounce-back” from special factors in the manufacturing sector, she added.

The monthlong General Motors strike weakened economic growth in the third quarter and economists expect some rebound in coming quarters.

Like many of her Fed colleagues, including Chairman Jerome Powell, Brainard said she supported a pause in interest-rate policy after the three rate cuts engineered since July.

“For my own part, I want to monitor, I want to wait, as I assess how the outlook is adjusting” to the “pretty substantial” easing, Brainard said.

She noted some turnaround in residential investment since the cuts occurred.

The risks remain tilted to the downside, Brainard noted.

The Fed’s rate cuts have been described by economists and market participants as so-called insurance against these risks, which include the trade conflict between the U.S. and China.

Stocks were lower Wednesday as Wall Street doubts grow about a trade truce between the U.S. and China.

The Dow Jones Industrial Average was down 71 points in morning trading.

The Fed will release minutes of its October meeting at 2 p.m. Eastern Time.

Economists are looking for a sense of how long the Fed pause might last.

https://www.marketwatch.com/story/feds- ... 2019-11-20
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Re: THE ECONOMY

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MARKETWATCH - The Fed

"Fed’s Kashkari says some data suggests caution on economy"


By Greg Robb

Published: Nov 21, 2019 11:41 a.m. ET

Some of the recent U.S. economic data that give hints about future activity are raising a bit of concern about the outlook, Minneapolis Federal Reserve President Neel Kashkari said Thursday.

“Forward looking indicators are a little more cautious because businesses have pulled back on investment,” Kashkari said, during a talk at the Minneapolis Chamber of Commerce.

Kashkari said he wasn’t forecasting a recession.

“Overall, my base-case scenario is continued economic growth,” Kashkari said.

But there are” risks on the horizon,” he added.

The biggest risk remains tariffs and trade, he said.

The consumer is still strong and wages are growing, he noted.

This has been powering the economy.

But the consumer tends to be “a backward-looking indicator,” the Minneapolis Fed president said.

The Fed has cut its benchmark interest rate three times since July to a range of 1.5%-1.75%.

Kashkari, who will be a voting member of the Fed’s interest-rate committee next year, has been a strong supporter of the three interest rate cuts this year.

Earlier this month, the Minneapolis Fed president indicated he was happy to pause on further monetary easing to see how the economy develops.

Minutes of the Fed’s October meeting show “most” officials thought the stance of policy was now “well calibrated” after last month’s cut.

https://www.marketwatch.com/story/feds- ... 2019-11-21
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Re: THE ECONOMY

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MARKETWATCH

"U.S. jobless claims stick to 5-month high of 227,000"


By Jeffry Bartash

Published: Nov 21, 2019 9:50 a.m. ET

The numbers:

The number of people who applied for jobless benefits clung to a five-month high in mid-November, likely reflecting seasonal swings in employment just before the start of the holiday season.

Initial jobless claims were flat at 227,000 in the seven days ended Nov. 16, a week that included the Veterans’s Day holiday.

Economists polled by MarketWatch had forecast new claims to total 218,000 after seasonal adjustments.

The number of applications for unemployment benefits was revised up by 2,000 in the prior week to 227,000, the government said Thursday.

The current level of new claims is the highest since last June.

What happened:

Actual or unadjusted jobless claims last week were almost exactly identical compared to the same week a year earlier: 226,444 vs. 226,576.

That suggests barely any change in the rate of layoffs in the U.S. economy.

The government adjusts jobless claims to account for periodic swings in seasonal employment patterns.

In most weeks the adjustments don’t matter, but they can result in gyrations that are most pronounced around big holidays such as Christmas.

November includes two holidays, Veterans Day and Thanksgiving, making it a hard month to make accurate seasonal adjustments.

The monthly average of new claims nationwide, meanwhile, rose by 3,500 to 221,000.

The four-week average gives a more stable view of the labor market than the more volatile weekly number.

The number of people already collecting unemployment benefits, known as continuing claims, increased by 3,000 to 1.69 million.

These claims are still near the lowest level since the early 1970s.

Big picture:

The U.S. economy has slowed and so has hiring, but there’s little evidence that layoffs have begun to accelerate.

Companies are still selling enough goods and services to maintain current employment levels and that’s acted as a stabilizing force for the economy.

What they are saying?

“Claims may be volatile over the next several weeks, but we would not read too far into that,’ said Thomas Simons, senior money market economist at Jefferies LLC.

“The labor market remains tight, and layoff activity remains limited.”

Market reaction:

The Dow Jones Industrial Average and S&P 500 fell slightly in early Thursday trades, but stock prices remain near record highs.

The 10-year Treasury yield edged up to 1.77%.

https://www.marketwatch.com/story/joble ... 2019-11-21
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Re: THE ECONOMY

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MARKETWATCH

"U.S. leading indicators fall third straight month, adding more evidence of slowing economy"


By Jeffry Bartash

Published: Nov 21, 2019 10:34 a.m. ET

The numbers:

Economic growth in the U.S. has softened considerably since the end of the summer, according to an index that measures the nation’s economic health.

The leading economic index fell 0.1% in October to mark the third straight decline, the Conference Board said Thursday.

What’s more, the index’s six-month growth turned negative for the first time since mid-2016.

What happened:

The decline last month stemmed mostly from higher applications for unemployment benefits, weaker orders for manufactured goods, and the number of hours employees work.

The LEI is a weighted gauge of 10 indicators designed to signal business-cycle peaks and valleys.

Big picture:

The U.S. economy slowed during the summer and fall largely due to worries over the trade fight with China.

Farmers and manufacturers have been particularly hard hit while anxious corporate chieftains have been more reluctant to hire, spend and invest.

What’s kept the economy going is strong consumer spending, the byproduct of the best labor market in decades.

The U.S. is unlikely to grow much faster until trade tensions with China are either reduced or resolved.

What they are saying?:

“Taken together, the LEI suggests that the economy will end the year on a weak note, at just below 2 percent growth,” said Ataman Ozyildirim, economist at the board.

Market reaction:

The Dow Jones Industrial Average and S&P 500 fell slightly in early Thursday trades, but stock prices remain near record highs.

The 10-year Treasury yield edged up to 1.77%.

https://www.marketwatch.com/story/us-le ... 2019-11-21
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Re: THE ECONOMY

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ASSOCIATED PRESS

"Trumps signs temporary spending bill, averting shutdown for now"


By Associated Press

Published: Nov 21, 2019 6:39 p.m. ET

WASHINGTON — President Trump on Thursday signed a short-term funding bill, averting the threat of a government shutdown until next month.

Trump signed the bill, which will extend funding through December 20, hours before government funding was set to expire.


The Senate, by a 74-20 vote, passed the short-term funding bill earlier in the day.

The push to keep the government funded comes as the House is in the midst of contentious public impeachment inquiry hearings.

House Democrats are probing whether Trump abused his power by pressing Ukraine’s president Volodymyr Zelenskiy to investigate Democratic rival Joe Biden and his son’s dealings in that Eastern Europe nation.


The stopgap spending bill would give negotiators four more weeks to try and break an impasse involving funding for Trump’s border wall project that has gridlocked progress on the 12 appropriations measures that fund about one-third of the government.

Talks on the broader full-year appropriations measures have hit a rough patch after the administration rejected bipartisan entreaties to add about $5 billion to grease their path.

Negotiations on the full-year measure also could be buffeted by the toxic atmosphere that’s worsening because of the ongoing impeachment probe, which could send articles of impeachment to the House floor around the Dec. 20 deadline for averting another potential shutdown.

The chief holdup is Trump’s demands for up to $8.6 billion more for the U.S.-Mexico border wall.

Republicans controlling the Senate have stuck with Trump despite worries that an impasse over his demands could force Congress into resorting to funding the government for the entire budget year at current spending levels.

“The appropriations process can go down one of two paths."

"On the first path, President Trump stays out of our way and gives Congress the space to work together and find an agreement,” said Senate Minority Leader Chuck Schumer, D-N.Y.

“On the second path, President Trump stomps his feet, makes impossible demands, and prevents his party, the Republicans, from coming to a fair arrangement.”

Both sides on Capitol Hill want to avoid any chance of such a full-year continuing resolution, as it is known in Washington-speak.

Such an outcome would be an inefficient way to run the government and has particularly negative consequences for the Pentagon budget.

The measure contains an assortment of technical provisions to ensure that spending on the 2020 census can ramp up despite delays in the agency’s full-year funding bill.

It also reverses a planned cut in highway spending next year and offers greater assurances about funding a 3.1 percent pay raise for the military that takes effect Jan. 1.

It would extend, for three more months, several surveillance-related provisions of the Foreign Intelligence Surveillance Act that expire Dec. 15 and are controversial with civil libertarians.

https://www.marketwatch.com/story/trump ... latestnews
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Re: THE ECONOMY

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MARKETWATCH

"U.S. consumer sentiment brightens a bit in late November"


By Greg Robb

Published: Nov 22, 2019 11:16 a.m. ET

The numbers:

The final reading of the University of Michigan’s U.S. consumer-sentiment index in November was 96.8, above the October level of 95.5.

The preliminary reading was 95.7.

Economists surveyed by MarketWatch had forecast an unchanged reading of 95.7.

What happened:

According to the UMich report, a gauge of consumers’ views on current conditions fell to 111.6 in November from 113.2 in October, while a barometer of their expectations rose to 87.3 from 84.2.

Big picture:

This year, sentiment had two sharp declines in January, due to government shutdown, and August, due to trade tensions, but it has rebounded in each case.

Many economists and Federal Reserve officials think the U.S. economy can avoid a recession because of the strong consumer sector.

The holiday shopping season will be a good test for this thesis.

What UMich said about the data:

There was a sharp partisan divide in economic expectations among consumers.

One side anticipates a recession, while the other expects an uninterrupted expansion.

Most consumers don’t expect continued declines in inflation, unemployment and interest rates, but few consumers see sizable increases in these economic factors anytime soon.

What economists said:

One indication in the data — the gap between the present conditions and expected conditions indices — are extremely wide and “flashing a warning signal,” said Josh Shapiro, chief U.S. economist at MFR Inc.

This gap occurs when consumers believe that current prosperity is not going to last, Shapiro said.


Market reaction:

U.S. stocks were higher after the data.

The Dow Jones Industrial Average was up 80 points while the S&P 500 index jumped 8.34 points.

https://www.marketwatch.com/story/consu ... 2019-11-22
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Re: THE ECONOMY

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MARKETWATCH

"U.S. manufacturing, services sector PMIs improve in November"


By Greg Robb

Published: Nov 22, 2019 10:11 a.m. ET

The numbers:

IHS Markit said its U.S. flash manufacturing sector purchasing managers index rose to 52.2 in November from 51.3 in October.

This is the fastest rate since April.

Meanwhile the U.S. flash services sector purchasing managers index in November rose to 51.6 from 50.6.

This is the quickest expansion since July.

Any reading above 50 indicates improving conditions.

The flash estimate is typically based on approximately 85%–90% of total survey responses each month.

What happened:

Manufacturers registered a rise in new orders in November.

There was a small upturn in service sector new business also.

Both manufacturers and service providers indicated a rise in workforce numbers.

What IHS Markit said:

“A welcome upturn in the headline index from the flash PMI adds to evidence that the worst of the economy’s recent soft patch may be behind us,” said Chris Williamson, chief business economist at IHS Markit.

Big picture:

The U.S. economy is slowing but economists are divided about how severe the slowdown might be.

Manufacturing might have gotten a boost from the end of the United Automobile Workers strike and somewhat easier trade tensions.

Market reaction:

Stocks rose after the PMI data was released.

The S&P 500 was up 6.19 points.

https://www.marketwatch.com/story/us-ma ... 2019-11-22
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Re: THE ECONOMY

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CNBC

"Dallas Fed President Robert Kaplan says the fourth-quarter economy is 'weak'"


Jeff Cox@jeff.cox.7528@JeffCoxCNBCcom

Published Tue, Nov 26 2019•7:34 AM EST|Updated Tue, Nov 26 2019•8:27 AM EST

Key Points

* Dallas Fed President Robert Kaplan expects fourth-quarter growth to be "weak" as business cut inventories due to trade concerns.

* Kaplan tells CNBC that growth should rebound to 2% in 2020 as the impact of inventory cuts subsides.

* He also says current interest rate policy is "in the right place."


Dallas Federal Reserve President Robert Kaplan expects U.S. economic growth to slow substantially in the fourth quarter because businesses worried about the trade war are cutting their inventories.

"We think the fourth quarter is going to be weak," Kaplan told CNBC's Steve Liesman during a live interview on "Squawk Box."

The central bank official attributed the anemic growth level to "deglobalization" in the form of tariffs the U.S. and China have levied against each other in their trade war.

While Kaplan did not put a specific level where he thinks GDP gains will fall, gauges from the New York and Atlanta Fed are estimating rises of 0.7% and 0.4% respectively.

CNBC's own Rapid Update measure of economist expectations puts the number closer to 1.5%.

Kaplan said the inventory reduction is probably cutting half a point off GDP.

Uncertainty over future conditions is at the center of the low expectations.

"This means people have been destocking and probably the reason they were destocking is there was a lot of pessimism over the last number of months over future growth prospects," Kaplan said.

"We think things will stabilize."

"We've got a good chance to grow at 2% next year."

Over the long run, he sees the U.S. growing at a 1.75%-2% range, though he said even that slowed pace could come under pressure.

"It gets worse if we don't make some policy changes."

"We think over the next five or 10 years it's going to slowly decline," he said.

Those policy changes, he said, have to come on the fiscal side in terms of infrastructure spending and immigration reform.

Rates 'in the right place'

As for the Fed's only monetary policy, he said interest rates are where they should be.

The central bank in October approved its third quarter-point reduction this year, taking the overnight borrowing rate to a range targeted between 1.5%-1.75%.

"I think policy is in the right place now," Kaplan said, adding that he believes the "midcycle adjustment" that Fed Chairman Jerome Powell had alluded to this summer is over "for the time being."

In a speech Monday night, Powell signaled that interest rates are unlikely to rise anytime soon.

Kaplan is a nonvoting member of the policymaking Federal Open Market Committee, but still gets input to decisions and will get a vote in 2020.

Despite a generally positive outlook on the U.S., he and other policymakers continue to warn that future risks are skewed to the downside.

The Fed repeatedly has cautioned about the state of the global economy as well as persistently low inflation and uncertainty over trade and its impact on business investment and consumer spending.

"I think weak manufacturing, weak global growth, weak business investment all relate to uncertainty regarding trade," he said.

"If that got stabilized, I think we'd have a chance to see those measures improved."

https://www.cnbc.com/2019/11/26/dallas- ... -weak.html
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MARKETWATCH - Federal Reserve

"Fed’s Powell upbeat on economy, says low inflation allows for low rates"


By Associated Press

Published: Nov 25, 2019 11:45 p.m. ET

Federal Reserve Chairman Jerome Powell on Monday sketched an optimistic view of the economy but signaled that continued low inflation means higher interest rates won’t likely be necessary anytime soon.

Powell said that even with unemployment near a 50-year low of 3.6%, there’s still “plenty of room” for wages to rise and for more Americans to join the workforce.

He noted that annual inflation remains below the Fed’s 2% target level.

The Fed chairman made his remarks in a speech to the Greater Providence (Rhode Island) Chamber of Commerce.

The central bank has cut its benchmark short-term rate three times this year to a range of just 1.5% to 1.75%.

Powell signaled last month that the Fed will now likely remain on hold unless the economy noticeably worsens.

Powell said the three rate cuts have helped spur more home purchases, which have contributed to the economy’s ongoing expansion, now in its 11th year, the longest on record.

That long-running growth is benefiting many less-advantaged workers who had mostly seen meager hiring and wage gains in the first half of the recovery, Powell said.

Continuing to spread such opportunities is a key reason to sustain growth, he added.

“Recent years’ data paint a hopeful picture of more people in their prime years in the workforce and wages rising for low- and middle-income workers,” Powell said.

“But ... this is just a start: There is still plenty of room for building on these gains."

"The Fed can play a role in this effort.”

Powell’s buoyant outlook followed a visit earlier Monday to a workforce development program in East Hartford, Connecticut, where he heard from residents who had completed training programs and gotten higher-paying jobs.

Still, the Fed Chair highlighted a challenge for the central bank: Inflation has been stuck below the Fed’s 2% target for most of the past seven years.

While most people prefer limited price increases, the Fed worries that persistently low inflation can become ingrained and force the Fed to keep interest rates low permanently, limiting its ability to combat future downturns.

“That is why it is essential that we at the Fed use our tools to make sure that we do not permit an unhealthy downward drift in inflation expectations and inflation,” Powell said.

Powell also acknowledged that what the Fed calls the “neutral” interest rate, which neither stimulates nor inhibits growth, has fallen for the past seven years.

That “provided another reason why a somewhat lower setting of our policy interest rate might be appropriate,” Powell said.

Rhode Island’s Gov. Gina Raimondo, head of the Democratic governors’ association, told Powell at the Chamber of Commerce dinner, “I think you’re doing an extraordinary job,” especially under difficult circumstances.

“Of course, everybody has an opinion about what you should be doing,” she said, a reference to President Donald Trump’s repeated attacks on Powell.

https://www.marketwatch.com/story/powel ... 2019-11-25
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