THE FEDERAL RESERVE

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Re: THE FEDERAL RESERVE

Post by thelivyjr » Wed Oct 02, 2019 1:40 p

MARKETWATCH

"Fed’s Williams, downplaying recession fears, says ‘outlook very favorable’"


By Greg Robb

Published: Oct 2, 2019 4:14 p.m. ET

New York Fed President John Williams on Wednesday pushed back on market fears of a looming recession, saying that the baseline economic forecast remains “a positive one.”

“Right now, the outlook is actually very favorable,” Williams said during a talk at the University of California, San Diego.

He said GDP growth is around 2% rate, with a “very strong” labor market and inflation near a 2% rate.

Williams noted economists have been notoriously unable to predict recessions.

“Economists are really good at saying we just had a recession."

"They are not so good at expecting a recession,” he said.


Where is the economy going from here?

Williams said it was a “mixed picture.”

Global economic growth has slowed, trade disputes, and other geopolitical tensions have led to higher uncertainty and this seems to have contributed to a pullback of business investment, and trade between nations seems to be slowing down, he said.

“I think there are definitely a lot of uncertainties and risks out there that we need to be navigating,” Williams said.

The Fed is grappling with the how to model trade uncertainty, he said.

“We don’t have as much experience with this,” he said.


And sentiment seems to change from one week to another, Williams noted.

Stocks fell sharply Wednesday on recession fears.

The Dow Jones Industrial Average closed down 494 points to 26,078.

Williams, a member of Fed Chairman Jerome Powell’s inner circle, didn’t give any guidance about whether the U.S. central bank would cut interest-rates again at its late October meeting.

The Fed has cut rates by a quarter-point at its last two meetings.

Investors think there is a high probability the Fed will cut rates again on Oct. 30.

Earlier Wednesday, Richmond Fed President Thomas Barkin said the Fed might be cautious going foward given all the uncertainty facing the economy.

https://www.marketwatch.com/story/feds- ... 2019-10-02

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Re: THE FEDERAL RESERVE

Post by thelivyjr » Wed Oct 02, 2019 1:40 p

MARKETWATCH

"Fed’s Barkin says now might be time for caution"


By Greg Robb

Published: Oct 2, 2019 4:15 p.m. ET

Richmond Fed President Thomas Barkin said Wednesday that it might be wise for the central bank to move cautiously given all the uncertainty surrounding the economic outlook.

In an interview on the Fox Business Network, Barkin noted there are “different schools of thought” on the Fed about how to steer policy when the outlook is unclear.

“I think its hard to navigate with uncertainty and there’s different schools of thought about whether one should move faster so that you can get ahead of the uncertainty, or...the higher the uncertainty, the more the caution,” Barkin said, in an interview on the Fox Business Network.

Federal Reserve Chairman Jerome Powell has stressed more than once that “an ounce of prevention is worth a pound of cure” and it was appropriate for the central bank to preemptively cut interest rates.


There is a split on the Fed policy setting committee about the way forward, with some officials wanting the central bank to hold off more interest rate cuts and others calling for a rate cut.

The Richmond Fed president, who is not a voting member of the Fed’s interest-rate-setting committee this year, said he had not made up his mind about what the central bank should do at its next policy meeting at the end of the month.

“There’s a lot of time,” he said.

“My posture is very balanced."

"I’m looking at the data on the economy and I’m looking at the data on uncertainty,” he said.

The Fed has cut rates by a quarter-point at each of its last two meetings.

Barkin said these two moves were “insurance” and the Fed is watching to see what kind of impact they have.

Investor expectations of another rate cut at the Fed’s meeting on Oct. 29-30 spiked Tuesday after a weak report on the nation’s factory sector from the Institute for Supply Management.

That has always been a critical indicator of the economy’s health for central bankers.

Barkin didn’t address the ISM report specifically but said manufacturing has been “weak for some time” and could be in a modest contraction.

Asked about the prospects of a recession, Barkin said he was “very hopeful we’ll see an expansion continue.”

“On the positive side, consumer spending seems to be strong."

"People have jobs."

"That’s a very positive thing."

"Inflation seems to be firming,” Barkin said.

Stocks were broadly weaker for the second straight day after the ISM report.

The Dow Jones Industrial Average closed down 494 points to 26,078 while the S&P 500 fell 52.64 points to 2,887.61.

https://www.marketwatch.com/story/feds- ... 2019-10-02

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Re: THE FEDERAL RESERVE

Post by thelivyjr » Fri Oct 04, 2019 1:40 p

MARKETWATCH

"Powell says economy in good place but it's facing some risks and challenges"


By Greg Robb

Published: Oct 4, 2019 2:01 p.m. ET

Federal Reserve Chairman Jerome Powell on Friday sounded upbeat about the economy, but noted it's facing some risks and challenges.

"Overall [the economy] is - as I like to say - in a good place," Powell said, at the start of a conference at the central bank.

The longer-term challenges facing the economy are from "low growth, low inflation and low interest rates," he said.

His brief remarks did not touch on the September employment report or his view about the likely path of interest rates.

https://www.marketwatch.com/story/powel ... 2019-10-04

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Re: THE FEDERAL RESERVE

Post by thelivyjr » Fri Oct 04, 2019 1:40 p

MARKETWATCH

"Risk of recession isn’t high as long as Fed gets policy right, Clarida says"


By Greg Robb

Published: Oct 3, 2019 7:39 p.m. ET

The probability of a recession is not high if the Federal Reserve can set the right interest-rate policy, Fed Vice Chairman Richard Clarida said Thursday.

The risk of a recession remains low “with appropriate monetary policy,” Clarida said during a question-and-answer session sponsored by the Wall Street Journal.


Clarida, who is No. 2 at the central bank, was upbeat about the current economy even as recession fears were sparked this week by data showing contraction in the factory sector.

Clarida stressed the economy is in “a good place” with stable inflation.

Financial conditions are also not tight.

In addition, the savings rate rose to 8.1% in August.

That means consumers have a “cushion” to survive slower growth, he said.

Clarida offered no explicit forward guidance about whether the Fed would cut rates again at its meeting on Oct. 29-30.

The Fed has cut rates by a quarter-percentage point at its past two meetings, in July and September.

Weak economic data over the past few days has raised investor expectations that the Fed would cut rates again when it meets at the end of the month.

Investors now see a 90% chance of a quarter-point cut later this month.

That’s up from a 40% likelihood last week.

Clarida refused to be drawn into the discussion about the probability of an October rate cut, saying only that the Fed would “act as appropriate” to sustain the expansion.

Clarida didn’t seem too concerned by the recent weak data, saying that the global economy has been slowing for more than a year.

The Fed has already factored in that U.S. manufacturing was being hurt by this slowdown, he said.

At the event, Clarida defended Fed Chairman Jerome Powell from one audience member, who criticized Powell for what he said was “rookie malfeasance.”

Clarida replied that Powell was doing “a fine job.”


Only seven of 17 Fed officials have called for another rate cut this year, according to the Fed’s “dot-plot” projections of interest rates.

But this minority includes Clarida and Powell, and they have managed to pull the majority of the committee along with them in the first two rate cuts.

There were three dissents in September.

In an earlier appearance on Thursday, Dallas Fed President Robert Kaplan seemed open to considering another rate cut in October.

Friday’s employment report could be pivotal for the outlook for interest rates.

Economists expect that the economy added 150,000 jobs in September.

Stocks rebounded a bit Thursday after a sharp selloff earlier in the week.

The Dow Jones Industrial Average rose 122 points, or 0.5%.

The index was down almost 840 points on Tuesday and Wednesday.

https://www.marketwatch.com/story/risk- ... 2019-10-03

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Re: THE FEDERAL RESERVE

Post by thelivyjr » Fri Oct 04, 2019 1:40 p

MARKETWATCH

"Chicago Fed's Evans says he's worried about inflation outlook, open minded on more rate cuts"


By Steve Goldstein

Published: Oct 3, 2019 4:08 a.m. ET

Chicago Fed President Charles Evans told Bloomberg Television on Thursday he was concerned about the inflation outlook and that he was open minded whether more rate cuts were needed.

He said he will go into the Federal Open Market Committee meeting ending on Oct. 30 asking whether still more accommodative policy is needed after two straight rate cuts.

Markets are pricing in a 74% chance of an Oct. 30 rate cut.

https://www.marketwatch.com/story/chica ... 2019-10-03

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Re: THE FEDERAL RESERVE

Post by thelivyjr » Fri Oct 04, 2019 1:40 p

REUTERS

"Fed's Mester: Running a 'hot' economy risks faster automation"


October 3, 2019 / 2:29 PM

WASHINGTON (Reuters) - Keeping monetary policy accommodative to draw even more people into the labor market risks encouraging firms to turn to automation more quickly, Cleveland Fed President Loretta Mester said on Thursday.

“Now (firms) they’re basically saying that it’s not really worth trying to hire of the pool that’s still out there because when they do bring them in, they don’t stay on staff more than a month...the response now is they’re going to start automating more,” Mester said during a panel discussion at the Brookings Institution in Washington.


“I am very sympathetic to getting to maximum employment, that’s certainly our goal."

"I think the policy tool we have in monetary policy isn’t really going to affect the overall labor market in the way you want to.”

She said increased automation would reduce labor demand.

The U.S. central bank cut interest rates for the first time in more than a decade in July and did so again at its subsequent policy meeting in September in what Chair Jerome Powell and some others have characterized as “insurance” against headwinds to the economy.

There is disagreement within the Fed’s policymaking committee on the need to lower borrowing costs.

The benchmark overnight lending rate currently sits in a target range between 1.75% and 2.0%.

Mester, who was against the decision to cut rates in July, has said she is growing increasingly concerned by the impact on business investment and consumer spending of the Trump administration’s escalating trade war.

She did not comment on Thursday on whether she was in agreement with the September decision.

Investors see a 90 percent probability the Fed will cut rates by another quarter percentage point at its next meeting at the end of October, according to an analysis of Fed funds futures contracts compiled by the CME Group.

Reporting by Lindsay Dunsmuir; Editing by Cynthia Osterman

https://www.reuters.com/article/us-usa- ... SKBN1WI24C

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Re: THE FEDERAL RESERVE

Post by thelivyjr » Mon Oct 07, 2019 1:40 p

MARKETWATCH

"Fed's Kashkari says he's happy central bank is easing, not sure how many more rate cuts are needed"


By Greg Robb

Published: Oct 7, 2019 11:54 a.m. ET

Minneapolis Fed President Neel Kashkari said Monday he's happy the central bank has cut interest rates, and remains unsure how many more moves are needed to support the economy.

"My message is clear, we should be supporting the economy, not tapping the brakes," Kashkari said during a question-and-answer session at a Native American finance officers conference in Prior Lake, Minn.

Looking ahead, "I want to look at the data, how it evolves over the next few months," he said, adding "how much more do we have to cut?"

"I don't know yet." Kashkari, who is not a voting member of the Fed's interest-rate committee, said "the economy appears to be showing more risks, business investment is slowing, the global economy is slowing and inflation continues to come in below our target."

Kashkari wanted a half-point cut at the September meeting, but the central bank only followed through with a quarter-point reduction.

https://www.marketwatch.com/story/feds- ... 2019-10-07

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Re: THE FEDERAL RESERVE

Post by thelivyjr » Tue Oct 08, 2019 1:40 p

MARKETWATCH

"Powell says economic expansion can last, but there are risks"


By Greg Robb

Published: Oct 8, 2019 3:51 p.m. ET

Federal Reserve Chairman Jerome Powell said the consensus among his colleagues at the U.S. central bank is that the record-long U.S. economic expansion can be sustained, but there are risks to this optimistic view.

“FOMC participants continue to see a sustained expansion of economic activity, strong labor market conditions, and inflation near our symmetric 2 percent objective as most likely."


Many outside forecasters agree,” Powell told the National Association for Business Economics annual meeting in Denver.

He noted that inflation “has been gradually firming over the past few months.”

During the question-and-answer session, Powell said “clearly things are slowing a bit,” but he added this might be another pause that refreshes the expansion.

These slowdowns have occurred a few times in this expansion, he noted.

Powell did not give any concrete guidance to investors about the Fed’s plans regarding short-term interest rates, saying only that the meeting set for the end of October “is several weeks away.”

“We are carefully monitoring incoming information."

"We will be data dependent, assessing the outlook and risks to the outlook on a meeting-by-meeting basis,” he said.

Repeating what the central bank has said in its policy statement since the summer, Powell said the Fed “will act as appropriate to support continued growth.”

There is a split at the Fed about whether more easing or further interest rate cuts are necessary.

Some on the Fed back another rate cut prior to the end of the year, believing that low rates would calm financial markets and give businesses reason to invest.

Economists think that this camp includes Powell.

Others on the central bank want to wait for more clues about the health of the economy before giving it more stimulus.

They’re worried low rates would create what amounts to a short-lived sugar-high for the economy and foster financial imbalances.

Private sector economists are forecasting that the economy will slow over the next 14 months.

Economists at the Peterson Institute for International Economics see growth slipping to a 1.8% rate next year, down from the 2.6% rate seen in the first half of this year.

The Fed has cut interest rates twice this year by a quarter-point at the last two policy meetings.

Officials will meet again on Oct. 29-30.

Investors see an 80% chance the Fed will trim rates by another quarter point to a range of 150%-175%, according to the CME Group’s FedWatch tool.

Turning to short-term funding markets, Powell said “a range of factors” might have caused the turmoil seen last month when the cost of short-term borrowing spiked as firms scrambled to get funding.

Regardless the cause, Powell said it was now time for the Fed to increase the size of its balance sheet.

He said the central bank may purchase short-term Treasury bills.

Some analysts call this a “soft” form of quantitative easing, because the Fed buys these securities from the market, but Powell bristled at this description.

“I want to emphasize that growth of our balance sheet for reserve management purposes should in no way be confused with the large-scale asset purchase program that we deployed after the financial crisis,” he said.


Powell mentioned that the yield curve control, used by the Bank of Japan, might be a tool used to fight the next recession.

He also suggested that the central bank wasn’t interested in pushing short-term rates into negative territory, a tool used in both Europe and Japan.

“Short-term yield curve control is something worth looking at when the time comes,” Powell said.

This is a form of an interest-rate peg, where a central bank commits to buy whatever amount of bonds it needs to in order to keep a particular part of the yield curve at its target.

The BOJ has used yield curve controls to keep yields on 10-year Japanese Government Bonds around zero percent since 2016.

Stocks were volatile during Powell’s remarks.

The Dow Jones Industrial Average recovered from a loss earlier in the day, before losing ground near the close.

https://www.marketwatch.com/story/powel ... 2019-10-08

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Re: THE FEDERAL RESERVE

Post by thelivyjr » Wed Oct 09, 2019 1:40 p

MARKETWATCH

"Fed’s Powell says planned bond buying isn’t emergency stimulus; investors are skeptical"


By Chris Matthews

Published: Oct 9, 2019 2:35 p.m. ET

During a week dominated by often troubling news on the international trade front, equity investors were provided some relief Tuesday by a figure who has sparked more than one stock-market rally in recent months: Federal Reserve Chairman Jerome Powell.

During a speech and question-and-answer session at conference for the National Association of Business Economists in Denver, Powell announced that the central bank would soon start expanding the size of its balance sheet, adding bank reserves to the financial system to avoid a recurrence of the unexpected strains seen in short term money markets last month.

The news helped spark a short-lived rally equity prices on Tuesday as equity investors welcomed the news that the Fed would soon start buying government debt on a regular basis again, before concerns over the U.S. - China trade dispute reversed those gains in the closing hour of trade.

U.S. stocks were higher early Wednesday as optimism rose again about prospects for a U.S. China trade deal.

But Powell’s comments have sparked a debate among market watchers as to whether the move by the Fed is another form of stimulus, or “quantitative easing,” (QE) rather than the quotidian actions of a central bank attempting to keep the plumbing of the financial system operating smoothly.

“I think what the Fed Chairman decides to call it is inconsequential,” Yousef Abbasi, global market strategist for U.S. institutional equities at INTL FCStone told MarketWatch.

“From what’s been discussed, it’s exactly what was once called QE."

"They would be buying securities and increasing liquidity and that is easing."

"However you want to refer to it, ultimately it’s supportive of equities,” he said.


Mike O’Rourke, chief market strategist at JonesTrading said in an interview that balance-sheet expansion may be different because it will involve the purchasing of short-term government debt rather than long-term debt, but that the effect is to enable private banks to maintain larger balance sheets and take on more risk.

“This is very QE-like,” he said.

In August Fed officials stopped allowing their balance sheet to shrink as U.S. Treasury securities on their books matured, but banks have been running down their reserves as they bought new debt being issued by the U.S. Treasury to fund the federal government’s nearly $1 trillion budget deficit.

Reserves dropped to less than $1.4 trillion last month, from $2.8 trillion in 2014, when the Fed stopped buying assets.

As a result the lack of liquidity in short term money markets caused overnight interest rates to spike well above the interbank fed funds rate last month.

The Fed now wants to provide enough bank reserves so the central bank can control its policy federal-funds rate and other short-term lending rates without the regular market intervention it has undertaken over the past three weeks.

Powell emphasized that the Fed is contemplating buying short term debt only as a result, rather than the longer maturity debt bought after the financial crisis.

Part of the debate centers on what “normal” or “organic” management of the Fed’s balance sheet looks like.

Those who see the Fed’s announcement as unremarkable point to the fact that during the five years prior to the financial crisis, the Fed’s balance sheet grew at a steady 4% annual clip, on average.

But after years of large-scale bond buying in the aftermath of the 2008 crisis, reverting to that same level of growth on a percentage basis necessarily means the Fed will be a much more active buyer of government debt, perhaps to the tune of about $10 billion per month.

“The problem the Fed has is convincing markets this isn’t a QE4, designed to drive long rates lower,” wrote Paul Ashworth, chief U.S. economist at Capital Economics, in a research note.

“Powell pleaded [Tuesday] that this balance sheet management should ‘in no way be confused with’ large-scale asset purchases."

"But it’s hard to communicate that effectively when the Fed’s organic balance sheet growth will be half the size of the European Central Bank’s newly unveiled QE.”

In other words, with a Fed balance sheet that has apparently been permanently increased relative to the size of the economy, the central bank’s role in financial markets has also been permanently increased.

Some analysts worry that this new outsized role for central banks have made markets complacent.

Torsten Slok, chief economist at Deutsche Bank Securities warned in a Tuesday note to clients that stock market performance is “no longer being driven by economic fundamentals, but instead by [the Federal Reserve] and [European Central Bank’s] promises of lower rates, more dovish forward guidance.”


Alec Young, managing director of global market research at FTSE Russell, however, argued that economic and corporate fundamentals will always, eventually, matter.

“The Fed is in important backstop for the market, but it’s not a panacea,” he told MarketWatch.

“Fed easing can soften the blow from trade-driven global slowdown, but it can’t completely reverse it.”

https://www.marketwatch.com/story/feds- ... 2019-10-09

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Re: THE FEDERAL RESERVE

Post by thelivyjr » Wed Oct 09, 2019 1:40 p

MARKETWATCH

"Fed grew more worried about economy at September meeting, minutes show"


By Greg Robb

Published: Oct 9, 2019 3:53 p.m. ET

Federal Reserve officials were more worried about the U.S. economy by the time they met in mid-September, according to minutes of the central bank’s meeting released Wednesday.

“Participants generally judged that downside risks to the outlook for economic activity had increased somewhat since their July meeting, particularly those stemming from trade policy uncertainty and conditions abroad,” the minutes said.


There was even talk about possible recession, with several Fed officials noting that the probability of a recession “had increased notably in recent months.”

Even the Fed research staff had grown more worried.

While the staff’s official forecast still showed the economy growing slightly above a 2% annual rate this year and next and slightly below 2% in 2021 and 2022, signs had emerged that gave them pause.

“Softness in business investment and manufacturing so far this year was seen as pointing to the possibility of a more substantial slowing in economic growth than the staff projected,” the minutes showed.

A few weeks after the Fed meeting, a worse-than-expected reading in the ISM’s manufacturing sector gauge heightened investors concerns that a recession could hit the economy, but these fears ebbed somewhat after the September employment report showed that the unemployment rate hit a new 50-year low reading of 3.5%.

During their meeting, a few Fed officials pledged to be vigilant about signs of a softening in the labor market.

“One risk that the economy faced was that the softness recorded of late in firms’ capital formation, manufacturing and exporting activities might spread to their hiring decisions, with adverse implications for household income and spending,” the minutes said.

“Participants observed that such an eventuality was not embedded in their baseline outlook,” the summary added.

Fed officials were divided about whether to cut interest rates.

They eventually agreed, by a 7-3 vote, to trim its benchmark rate by a quarter percentage point to a range between 1.75% and 2%.


That was the second straight meeting with a rate cut.

A couple of Fed officials said they thought rate cuts might “help forestall” layoffs.

During the deliberations, many officials thought the Fed should stand still and await further developments.

“They contended that the key uncertainties were unlikely to be resolved anytime soon,” the minutes said.

A “few” wanted the Fed statement to address when the easing in response to the trade uncertainty would end.

Only two Fed officials wanted an aggressive half percentage point cut which they said would reduce the risk of an economic downturn.

The minutes said little new about the plans by policy makers for future rate cuts.

The central bank will meet again on Oct. 31.

Only seven of 17 officials had backed another cut by the end of the year, according to their “dot-plot” interest rate projections.

Roberto Perli, an analyst for Cornerstone Macro and a former Fed staffer, said he thought a possible base case for the October meeting is that the Fed will cut rates by another quarter point but then add language to the statement to signal that the bar for additional cuts is getting higher.

“That would also be a way to address to obvious divisions inside the committee about the desirability and extent of future rate cuts,” Perli said.

Fed Chairman Jerome Powell said Wednesday the central bank was operating on a meeting-by-meeting basis and would act as appropriate to sustain the expansion.

Investors have little doubt the Fed will cut interest rates again after their Oct. 29-30 meeting.

The probability of a rate cut is now slightly above 80%, according to the CME Group’s FedWatch tool.

The odds of an easing jumped after the ISM manufacturing sector data was published last week.

According to the minutes, officials discussed the strains in the short-term money markets that many analysts have tied to the Fed’s program to shrink its balance sheet.

But the discussion in the minutes is now a bit stale since Powell announced Tuesday that the Fed would “soon” start expanding the size of its balance sheet by purchasing short-term Treasury bills.

One important note, not mentioned by Powell, was that “several” officials supported consideration of a “standing repurchase agreement facility” to combat future market volatility from a lack of short-term liquidity.

Many economists think such a program could be up and running by early 2020.

Stocks were higher after the minutes were published on Wednesday on hopes of progress in U.S. and China trade talks.

https://www.marketwatch.com/story/fed-h ... 2019-10-09

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