REUTERS
"Fed officials press promise of complete recovery before 'punch bowl' disappears"
By Howard Schneider, Ann Saphir
March 25, 2021
WASHINGTON (Reuters) -Top Federal Reserve officials continued a barnstorming effort on Thursday to tell investors and the public at large that the U.S. central bank’s expansive support for the economy will stay in place until an accelerating recovery reaches all levels of American society and is effectively complete.
The Fed since August has been tuning its formal, technical language to make that point, but policymakers this week framed those promises in more colloquial terms and did so in interviews with more widely broadcast media than the financial outlets policymakers usually rely on.
In an interview with National Public Radio’s “Morning Edition” program on Thursday, Fed Chair Jerome Powell said that even with the economy rebounding faster than expected, any change in monetary policy would happen “very, very gradually over time and with great transparency, when the economy has all but fully recovered.”
Fed Vice Chair Richard Clarida, speaking to the Institute of International Finance, said the central bank will stay in the game until the recovery is “well and truly complete.”
Earlier in the week, “patience” was the byword used separately by Fed Governor Lael Brainard and San Francisco Fed President Mary Daly as to how the Fed would address economic recovery.
“We are not going to take this punch bowl away,” Daly said.
If the message seems insistent, Atlanta Fed President Raphael Bostic said Thursday to reporters, it’s because officials don’t want any misunderstanding about their plans to support economic progress.
“We are in a transitional period right now, and I think it is important we prevent that sort of speculation from potentially undermining the momentum that we have built,” Bostic said.
Earlier, in prepared remarks, Bostic said he “unambiguously” did not think Fed policy should change soon, even though he has penciled in an interest rate increase in 2023, sooner than most of his colleagues.
“That is still nearly two years from now,” he said.
The Fed’s loose-for-a-long-time message comes at a moment when the U.S. economy could grow at its highest annual rate since 1984.
While that represents a stunning comeback from fears of an economic depression triggered by the pandemic a year ago, it is raising concerns of too much of a good thing -- with the risk of too-high inflation or a financial bubble lurking and a suspicion the Fed may have to react eventually with higher interest rates.
The job market may finally be gaining traction - new claims for unemployment fell by about 100,000 for the week ending March 20 - and Clarida said there may be a return to full employment in a “relatively rapid” fashion.
Fed officials have all but guaranteed higher inflation this year.
The prospect of rising inflation has prompted contrarian views from some investors betting the Fed will have to raise interest rates sooner than expected as a way to curb inflation by discouraging investment and spending.
And on Capitol Hill this week, Powell was peppered with questions from Republican lawmakers about whether the Fed risked losing control of inflation or financial markets by leaving interest rates low even as a boom develops, not to mention continuing to pump $120 billion into the financial system each month with bond purchases.
The answer, so far, is that guesses about where the economy might head after such a tortured year won’t substitute for seeing it happen on the ground so that the United States can continue to claw back lost jobs and output.
FOCUS ON OUTCOMES
Richmond Fed President Thomas Barkin said in an interview with Reuters on Wednesday that the United States may well see economic growth remain above trend for several years given the pent-up demand that has accumulated during the pandemic and the amount of savings people have amassed.
But in terms of any change in Fed policy, “what matters is what outcomes we actually get,” Barkin said.
“I am going to see where we go."
"I am not trying to overthink the date (of any policy change)."
"I am trying to think about the outcome.”
Chicago Fed President Charles Evans made similar comments on Wednesday about not pulling back just because the economy seems to be healing.
“We are not just going to backtrack if we hope, and have a forecast, that we are close,” he said.
Reporting by Howard Schneider
Editing by Paul Simao and Leslie Adler
https://www.reuters.com/article/usa-fed ... SL1N2LN1UH
THE FEDERAL RESERVE
Re: THE FEDERAL RESERVE
CNBC
"The Fed has embraced the ‘punchbowl’ and has no intention of taking it away"
Jeff Cox @jeff.cox.7528 @JeffCoxCNBCcom
Published Fri, Mar 26 2021
Key Points
* The Federal Reserve has vowed to continue keeping policy loose, even in the face of surging asset valuations.
* “We won’t be preemptively taking the punchbowl away,” San Francisco Fed President Mary Daly said this week.
* Some investing experts are leery of the Fed’s stance, but Bank of America is advising clients to take advantage.
The Federal Reserve has come a long way from the days of warning about “irrational exuberance.”
Former Fed Chairman Alan Greenspan famously sent up a flare in December 1996 about stretched asset valuations triggered by wild dot-com speculation that had produced an unbridled bull market.
It took three years for the warning from “The Maestro” to come true, but the statement is still considered a seminal moment in market history where a Fed leader issued such a bold warning that went unheeded.
Flash forward 25 years and the attitude from the Fed is considerably different, even though market valuations look a lot like they did back around the time the dot-com bubble burst.
Central bank officials repeatedly have been given the opportunity to advise caution on asset valuations, and each time they have largely passed.
Other than acknowledging that prices are higher than normal in some instances, Fed speakers have largely attributed market moves as the product of an improving economy buoyed by aggressive fiscal stimulus and low interest rates that will be in place for years.
Just a few days ago, San Francisco Fed President Mary Daly spoke on the issue and said the Fed has no intention of tightening policy even in the face of roaring bull markets across several asset classes.
“We won’t be preemptively taking the punchbowl away,” Daly said during a virtual Q&A on Wednesday.
The “punchbowl” metaphor was interesting in that the term became a bit of a pejorative following the 2008 financial crisis.
Its origin in policy circles dates to William McChesney Martin, the longest-serving Fed chairman who held the position from 1951-70.
The Fed’s role, Martin said, was to act as a “chaperone who has ordered the punchbowl removed just when the party was really warming up.”
The statement delineated the cautionary role the Fed should be playing when it spots signs of excess.
Taking away the punchbowl ‘doesn’t work now’
But Daly implied that such a duty either does not exist today or is not relevant to the current situation.
“That’s something that worked maybe in the past, definitely doesn’t work now, and we’re committed to leaving that punchbowl or monetary policy accommodation in place until the job is fully and truly done,” she said.
Fed critics say the central bank failed to act on its “chaperone” role over the punchbowl in the years leading up to the financial crisis, allowing Wall Street’s exotic investing vehicles that capitalized on the subprime lending frenzy to tank the global economy.
The embodiment of those excesses came in another famous quote, from former Citigroup CEO Chuck Prince, who in 2007, a year before the worst of the crisis would explode, said: “As long as the music is playing, you’ve got to get up and dance."
"We’re still dancing.”
Citi would later become one of the key players in the crisis after it had to take severe writedowns on the toxic assets that littered its balance sheet.
In the current scenario, the financial system is largely sound. Rather than being a liability, banks have been an asset during the Covid-19 economic crisis.
It’s elsewhere that signs of excess might be found.
Stocks, bitcoin, NFTs
The stock market is the easiest place to look.
The S&P 500 has skyrocketed about 75% since its pandemic low on March 23, 2020, pushed higher by low interest rates, an improving economy and hopes that the worst of the crisis is over.
The index is trading at about 22 times forward earnings, or a little higher than it did when the dot-com bubble popped.
But there are other areas as well.
Bitcoin’s price is 10 times higher than it was a year ago.
Blank-check companies have flourished on Wall Street as investors pour cash into special purpose acquisition vehicles without specifically knowing where it’s going.
Nonfungible tokens are the latest craze, evidenced in part by Twitter founder Jack Dorsey selling his first tweet this week for $2.9 million.
At a news conference last week, Fed Chairman Jerome Powell gave at least a nod to what’s happening when he noted that “some asset valuations are elevated compared to history.”
Otherwise, though, the party is on and the Fed is still pouring the champagne.
That has some investing pros worried.
‘People do stupid things’
“This is the problem with the Fed."
"They’re really good at throwing a party, but there’s always the day after,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
“There’s always a time when the party ends and everyone is hung over."
"During that party, people get into accidents and people do stupid things.”
For its part, the Fed said it’s going to keep short-term interest rates anchored near zero and its asset purchases pegged at a minimum $120 billion a month until it reaches a set of aggressive if somewhat squishy goals.
Central bank officials want the economy not only to be running at what appears to be full employment but also for the benefits of that to be spread among income, racial and gender lines.
Achieving that goal, they believe, will require allowing the economy to run hotter than normal for a while, with a tolerance for inflation a little above 2% for a period of time.
Boockvar said those policies are misguided and the Fed will regret running policy with such a loose hand.
“Even other central banks understand that in hockey, you go where the puck is headed,” he said.
“When you keep rates at zero for a long period of time and tell people they’re staying there, it no longer is stimulative because it creates no sense of urgency to act now.”
Elsewhere on Wall Street, though, the attitude is primarily to go with the flow.
Bank of America is advising clients to be a little leerier of stocks than usual and instead invest in real assets – property and commodities in the more traditional sense, but also collectibles, farm and timber assets and even wine.
The firm sees real assets as “cheap” and also closely correlated to rising inflation and interest rates.
“Real assets are a hedge for War against Inequality, inflation & infrastructure spending,” Michael Hartnett, the bank’s chief investment strategist, said in a recent note.
He said the investing class also benefits from “themes of ’bigger government & ‘smaller world.’”
From the Fed’s perspective, Daly said she sees “pockets of concern” on valuations, but overall doesn’t see financial conditions as “frothy.”
“We absolutely look at financial stability indicators,” she said.
“But we assess it on a broad scale, not just one specific market."
"We are not in a position to manage the movement of the stock market, which [is] affected by a tremendous number of things.”
Data also provided by Reuters
https://www.cnbc.com/2021/03/26/the-fed ... -away.html
"The Fed has embraced the ‘punchbowl’ and has no intention of taking it away"
Jeff Cox @jeff.cox.7528 @JeffCoxCNBCcom
Published Fri, Mar 26 2021
Key Points
* The Federal Reserve has vowed to continue keeping policy loose, even in the face of surging asset valuations.
* “We won’t be preemptively taking the punchbowl away,” San Francisco Fed President Mary Daly said this week.
* Some investing experts are leery of the Fed’s stance, but Bank of America is advising clients to take advantage.
The Federal Reserve has come a long way from the days of warning about “irrational exuberance.”
Former Fed Chairman Alan Greenspan famously sent up a flare in December 1996 about stretched asset valuations triggered by wild dot-com speculation that had produced an unbridled bull market.
It took three years for the warning from “The Maestro” to come true, but the statement is still considered a seminal moment in market history where a Fed leader issued such a bold warning that went unheeded.
Flash forward 25 years and the attitude from the Fed is considerably different, even though market valuations look a lot like they did back around the time the dot-com bubble burst.
Central bank officials repeatedly have been given the opportunity to advise caution on asset valuations, and each time they have largely passed.
Other than acknowledging that prices are higher than normal in some instances, Fed speakers have largely attributed market moves as the product of an improving economy buoyed by aggressive fiscal stimulus and low interest rates that will be in place for years.
Just a few days ago, San Francisco Fed President Mary Daly spoke on the issue and said the Fed has no intention of tightening policy even in the face of roaring bull markets across several asset classes.
“We won’t be preemptively taking the punchbowl away,” Daly said during a virtual Q&A on Wednesday.
The “punchbowl” metaphor was interesting in that the term became a bit of a pejorative following the 2008 financial crisis.
Its origin in policy circles dates to William McChesney Martin, the longest-serving Fed chairman who held the position from 1951-70.
The Fed’s role, Martin said, was to act as a “chaperone who has ordered the punchbowl removed just when the party was really warming up.”
The statement delineated the cautionary role the Fed should be playing when it spots signs of excess.
Taking away the punchbowl ‘doesn’t work now’
But Daly implied that such a duty either does not exist today or is not relevant to the current situation.
“That’s something that worked maybe in the past, definitely doesn’t work now, and we’re committed to leaving that punchbowl or monetary policy accommodation in place until the job is fully and truly done,” she said.
Fed critics say the central bank failed to act on its “chaperone” role over the punchbowl in the years leading up to the financial crisis, allowing Wall Street’s exotic investing vehicles that capitalized on the subprime lending frenzy to tank the global economy.
The embodiment of those excesses came in another famous quote, from former Citigroup CEO Chuck Prince, who in 2007, a year before the worst of the crisis would explode, said: “As long as the music is playing, you’ve got to get up and dance."
"We’re still dancing.”
Citi would later become one of the key players in the crisis after it had to take severe writedowns on the toxic assets that littered its balance sheet.
In the current scenario, the financial system is largely sound. Rather than being a liability, banks have been an asset during the Covid-19 economic crisis.
It’s elsewhere that signs of excess might be found.
Stocks, bitcoin, NFTs
The stock market is the easiest place to look.
The S&P 500 has skyrocketed about 75% since its pandemic low on March 23, 2020, pushed higher by low interest rates, an improving economy and hopes that the worst of the crisis is over.
The index is trading at about 22 times forward earnings, or a little higher than it did when the dot-com bubble popped.
But there are other areas as well.
Bitcoin’s price is 10 times higher than it was a year ago.
Blank-check companies have flourished on Wall Street as investors pour cash into special purpose acquisition vehicles without specifically knowing where it’s going.
Nonfungible tokens are the latest craze, evidenced in part by Twitter founder Jack Dorsey selling his first tweet this week for $2.9 million.
At a news conference last week, Fed Chairman Jerome Powell gave at least a nod to what’s happening when he noted that “some asset valuations are elevated compared to history.”
Otherwise, though, the party is on and the Fed is still pouring the champagne.
That has some investing pros worried.
‘People do stupid things’
“This is the problem with the Fed."
"They’re really good at throwing a party, but there’s always the day after,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
“There’s always a time when the party ends and everyone is hung over."
"During that party, people get into accidents and people do stupid things.”
For its part, the Fed said it’s going to keep short-term interest rates anchored near zero and its asset purchases pegged at a minimum $120 billion a month until it reaches a set of aggressive if somewhat squishy goals.
Central bank officials want the economy not only to be running at what appears to be full employment but also for the benefits of that to be spread among income, racial and gender lines.
Achieving that goal, they believe, will require allowing the economy to run hotter than normal for a while, with a tolerance for inflation a little above 2% for a period of time.
Boockvar said those policies are misguided and the Fed will regret running policy with such a loose hand.
“Even other central banks understand that in hockey, you go where the puck is headed,” he said.
“When you keep rates at zero for a long period of time and tell people they’re staying there, it no longer is stimulative because it creates no sense of urgency to act now.”
Elsewhere on Wall Street, though, the attitude is primarily to go with the flow.
Bank of America is advising clients to be a little leerier of stocks than usual and instead invest in real assets – property and commodities in the more traditional sense, but also collectibles, farm and timber assets and even wine.
The firm sees real assets as “cheap” and also closely correlated to rising inflation and interest rates.
“Real assets are a hedge for War against Inequality, inflation & infrastructure spending,” Michael Hartnett, the bank’s chief investment strategist, said in a recent note.
He said the investing class also benefits from “themes of ’bigger government & ‘smaller world.’”
From the Fed’s perspective, Daly said she sees “pockets of concern” on valuations, but overall doesn’t see financial conditions as “frothy.”
“We absolutely look at financial stability indicators,” she said.
“But we assess it on a broad scale, not just one specific market."
"We are not in a position to manage the movement of the stock market, which [is] affected by a tremendous number of things.”
Data also provided by Reuters
https://www.cnbc.com/2021/03/26/the-fed ... -away.html
Re: THE FEDERAL RESERVE
REUTER$S
"NY Fed's Williams says 'a lot of positives' ahead for the economy"
By Jonnelle Marte
March 30, 2021
NEW YORK (Reuters) - As more Americans are vaccinated and households and businesses benefit from fiscal support, there are reasons to be optimistic about the U.S. economy, New York Federal Reserve Bank President John Williams said on Tuesday.
“I’m optimistic about the overall economy,” Williams said during a virtual event organized by the New York Fed and AARP about small businesses.
“We’re making great strides on the vaccination program...I think we have a lot of positives going forward.”
The policymaker said low interest rates caused by the Fed’s rate cuts reduce borrowing costs and can help the economy rebound, he said.
Fed officials agreed at their March meeting to leave interest rates at near zero levels and to keep purchasing $120 billion a month in bonds until “substantial further progress” is made for the central bank’s goals on inflation and the labor market.
But fiscal support, including aid to households and small businesses, will also be important for the recovery going forward, Williams said.
Earlier on Tuesday, the New York Fed and AARP released research showing that the coronavirus pandemic dealt a heavy blow to small businesses owned by older Americans from minority groups, and that Asian-owned firms were particularly hard hit by closures and revenue declines.
Reporting by Jonnelle Marte, Editing by Franklin Paul and Sonya Hepinstall
https://www.reuters.com/article/usa-fed ... SL1N2LS2BV
"NY Fed's Williams says 'a lot of positives' ahead for the economy"
By Jonnelle Marte
March 30, 2021
NEW YORK (Reuters) - As more Americans are vaccinated and households and businesses benefit from fiscal support, there are reasons to be optimistic about the U.S. economy, New York Federal Reserve Bank President John Williams said on Tuesday.
“I’m optimistic about the overall economy,” Williams said during a virtual event organized by the New York Fed and AARP about small businesses.
“We’re making great strides on the vaccination program...I think we have a lot of positives going forward.”
The policymaker said low interest rates caused by the Fed’s rate cuts reduce borrowing costs and can help the economy rebound, he said.
Fed officials agreed at their March meeting to leave interest rates at near zero levels and to keep purchasing $120 billion a month in bonds until “substantial further progress” is made for the central bank’s goals on inflation and the labor market.
But fiscal support, including aid to households and small businesses, will also be important for the recovery going forward, Williams said.
Earlier on Tuesday, the New York Fed and AARP released research showing that the coronavirus pandemic dealt a heavy blow to small businesses owned by older Americans from minority groups, and that Asian-owned firms were particularly hard hit by closures and revenue declines.
Reporting by Jonnelle Marte, Editing by Franklin Paul and Sonya Hepinstall
https://www.reuters.com/article/usa-fed ... SL1N2LS2BV
Re: THE FEDERAL RESERVE
CNBC
"Critics slam the Fed as home prices rise at a historic rate"
Diana Olick @in/dianaolick @DianaOlickCNBC @DianaOlick
Published Tue, Mar 30 2021
Key Points
* Home prices nationally in January were up 11.2% year over year, according to the latest S&P CoreLogic Case-Shiller Index. That is the largest annual gain in nearly 15 years.
* As of last week the Federal Reserve held $2.2 trillion of agency mortgage-backed securities.
* “They’ve continued on autopilot. I don’t think there’s been any discussion within the Fed,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
Home price gains are accelerating at an alarming pace, fueled by Covid pandemic-related inflation, which some claim is not getting enough attention from the Federal Reserve.
Home prices nationally in January rose 11.2% year over year, according to the latest S&P CoreLogic Case-Shiller Index.
That is the largest annual gain in nearly 15 years.
As a comparison, annual price gains were 10.4% in December, 9.5% in November, 8.4% in October, 7% in September, 5.8% in August and 4.8% last July.
In January 2020, the annual gain was just 3.9%, and the monthly moves were in small fractions, not whole percentage points.
“In more than 30 years of S&P CoreLogic Case-Shiller data, January’s year-over-year change is comfortably in the top decile."
"That strength is reflected across all 20 cities,” noted Craig Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices.
“January’s price gains in every city are above that city’s median level, and rank in the top quartile of all reports in 18 cities.”
The main reason home prices are now rising so quickly is that strong demand butting up against record low supply.
Bidding wars for homes are now the rule, not the exception.
But mortgage rates are also playing a key role, one engineered by the Federal Reserve.
While rates are rising slightly now, they are still near historic lows, having set more than a dozen new lows last year.
Mortgage rates loosely follow the yield on the 10-year Treasury note, which has fallen dramatically during the pandemic.
Mortgage rates are also influenced by the purchases and yields of agency mortgage-backed securities, or MBS.
These purchases provide the mortgage market with liquidity.
The Federal Reserve had been tapering its purchases of MBS in order to normalize the market after the last recession, but it turned that taper around last March with the onset of the pandemic.
It now owns more than a third of the MBS market.
At the start of 2019, the Fed held $1.6 trillion in agency MBS.
It tapered that down to $1.37 trillion by mid-March of 2020.
Then, when the economy and housing market were suddenly in Covid free fall, the central bank began buying more again.
As of last week, the Fed held $2.2 trillion of agency MBS.
“They’ve continued on autopilot."
"I don’t think there’s been any discussion within the Fed."
"The Fed is just afraid to change because they don’t want it to be seen as a form of taking their foot off the pedal,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
The housing market has, in turn, blasted off.
The stay-at-home culture of the pandemic hit consumers literally where they live, and demand for housing has yet to ease up.
Low mortgage rates only added fuel to the fire.
“Again, why is the Fed still buying MBS?"
"As home price changes are not included in either CPI or PCE, the question is when and how this filters into imputed rent, but inflation is real for those looking to buy a home,” said Boockvar.
“The Fed again is responsible for pricing out first-time buyers.”
A Fed spokesman declined to comment.
But what if the Fed tapered its purchases again, or stopped buying MBS altogether?
“Is there some sort of liquidity breakdown or crisis of confidence that sends a shockwave throughout financial markets?"
"We’ve seen that happen before and it results in rates moving lower for organic reasons, but without the benefit of simultaneous strength in financial markets,” said Matthew Graham, chief operating officer at Mortgage News Daily.
“With or without the Fed, rates were low because of the pandemic."
"Mortgage rates are exactly as far away from 10-year Treasury yields as they have been for the past decade (and they never broke below that historical range in the past year)."
"Rates are rising due to light at the end of the tunnel,” Graham said.
The best case for cold water on home prices, then, is simply more supply on the market and less demand.
Sellers have been very slow to act this spring, but buyers are starting to pull back, some priced out of the homes they would like to purchase.
“Affordability crunch resulting from strong home price growth and higher mortgage rates will discourage some potential home buyers from entering the market and take some wind out of its sails, slowing the home price growth rate by about a half by the end of 2021,” said Selma Hepp, deputy chief economist at CoreLogic.
The lack of homes for sale remains the biggest concern, she added.
“Potential sellers may be discouraged by their inability to find a new home and subsequently choose to not list their own home – leading to a vicious cycle of declining for-sale homes,” Hepp said.
Data also provided by Reuters
https://www.cnbc.com/2021/03/30/federal ... -soar.html
"Critics slam the Fed as home prices rise at a historic rate"
Diana Olick @in/dianaolick @DianaOlickCNBC @DianaOlick
Published Tue, Mar 30 2021
Key Points
* Home prices nationally in January were up 11.2% year over year, according to the latest S&P CoreLogic Case-Shiller Index. That is the largest annual gain in nearly 15 years.
* As of last week the Federal Reserve held $2.2 trillion of agency mortgage-backed securities.
* “They’ve continued on autopilot. I don’t think there’s been any discussion within the Fed,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
Home price gains are accelerating at an alarming pace, fueled by Covid pandemic-related inflation, which some claim is not getting enough attention from the Federal Reserve.
Home prices nationally in January rose 11.2% year over year, according to the latest S&P CoreLogic Case-Shiller Index.
That is the largest annual gain in nearly 15 years.
As a comparison, annual price gains were 10.4% in December, 9.5% in November, 8.4% in October, 7% in September, 5.8% in August and 4.8% last July.
In January 2020, the annual gain was just 3.9%, and the monthly moves were in small fractions, not whole percentage points.
“In more than 30 years of S&P CoreLogic Case-Shiller data, January’s year-over-year change is comfortably in the top decile."
"That strength is reflected across all 20 cities,” noted Craig Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices.
“January’s price gains in every city are above that city’s median level, and rank in the top quartile of all reports in 18 cities.”
The main reason home prices are now rising so quickly is that strong demand butting up against record low supply.
Bidding wars for homes are now the rule, not the exception.
But mortgage rates are also playing a key role, one engineered by the Federal Reserve.
While rates are rising slightly now, they are still near historic lows, having set more than a dozen new lows last year.
Mortgage rates loosely follow the yield on the 10-year Treasury note, which has fallen dramatically during the pandemic.
Mortgage rates are also influenced by the purchases and yields of agency mortgage-backed securities, or MBS.
These purchases provide the mortgage market with liquidity.
The Federal Reserve had been tapering its purchases of MBS in order to normalize the market after the last recession, but it turned that taper around last March with the onset of the pandemic.
It now owns more than a third of the MBS market.
At the start of 2019, the Fed held $1.6 trillion in agency MBS.
It tapered that down to $1.37 trillion by mid-March of 2020.
Then, when the economy and housing market were suddenly in Covid free fall, the central bank began buying more again.
As of last week, the Fed held $2.2 trillion of agency MBS.
“They’ve continued on autopilot."
"I don’t think there’s been any discussion within the Fed."
"The Fed is just afraid to change because they don’t want it to be seen as a form of taking their foot off the pedal,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
The housing market has, in turn, blasted off.
The stay-at-home culture of the pandemic hit consumers literally where they live, and demand for housing has yet to ease up.
Low mortgage rates only added fuel to the fire.
“Again, why is the Fed still buying MBS?"
"As home price changes are not included in either CPI or PCE, the question is when and how this filters into imputed rent, but inflation is real for those looking to buy a home,” said Boockvar.
“The Fed again is responsible for pricing out first-time buyers.”
A Fed spokesman declined to comment.
But what if the Fed tapered its purchases again, or stopped buying MBS altogether?
“Is there some sort of liquidity breakdown or crisis of confidence that sends a shockwave throughout financial markets?"
"We’ve seen that happen before and it results in rates moving lower for organic reasons, but without the benefit of simultaneous strength in financial markets,” said Matthew Graham, chief operating officer at Mortgage News Daily.
“With or without the Fed, rates were low because of the pandemic."
"Mortgage rates are exactly as far away from 10-year Treasury yields as they have been for the past decade (and they never broke below that historical range in the past year)."
"Rates are rising due to light at the end of the tunnel,” Graham said.
The best case for cold water on home prices, then, is simply more supply on the market and less demand.
Sellers have been very slow to act this spring, but buyers are starting to pull back, some priced out of the homes they would like to purchase.
“Affordability crunch resulting from strong home price growth and higher mortgage rates will discourage some potential home buyers from entering the market and take some wind out of its sails, slowing the home price growth rate by about a half by the end of 2021,” said Selma Hepp, deputy chief economist at CoreLogic.
The lack of homes for sale remains the biggest concern, she added.
“Potential sellers may be discouraged by their inability to find a new home and subsequently choose to not list their own home – leading to a vicious cycle of declining for-sale homes,” Hepp said.
Data also provided by Reuters
https://www.cnbc.com/2021/03/30/federal ... -soar.html
Re: THE FEDERAL RESERVE
CNBC
"Fed’s Waller says the central bank isn’t keeping rates low to finance government debt"
Jeff Cox @jeff.cox.7528 @JeffCoxCNBCcom
Published Mon, Mar 29 2021
Key Points
* Fed Governor Christopher Waller said the central bank is not keeping rates low to help the government roll up more debt.
* That narrative “is simply wrong,” the central bank official said in his first public remarks since being confirmed in December.
* Government debt has jumped nearly 20% during the Covid-19 pandemic, and the deficit for this fiscal year is on track to easily exceed $2 trillion.
The Federal Reserve is not keeping monetary policy easy to enable the government to rung up debts and deficits, Fed Governor Christopher Waller said Monday.
Defending the Fed’s independence from the fiscal authorities in Congress, Waller rejected notions that the central bank is holding borrowing costs low to help service the debt or that it is conducting asset purchases to finance the debt-laden federal government.
“My goal today is to definitively put that narrative to rest."
"It is simply wrong,” Waller said in prepared remarks to the Peterson Institute for International Economics.
“Monetary policy has not and will not be conducted for these purposes.”
As part of its Covid crisis response, the Fed cut short-term borrowing rates to near zero and has been buying at least $80 billion of Treasurys each month, along with $40 billion of mortgage-backed securities.
At the same time, total government debt has soared by $4.5 trillion, or nearly 20%, since early March 2020, and the deficit for fiscal 2020 was more than $3.1 trillion.
The Congressional Budget Office has projected the fiscal 2021 shortfall to be $2.3 trillion, and that doesn’t include the nearly $1.9 trillion stimulus package approved recently.
Fed critics say the central bank has been charged with keeping rates low so the government can continue borrowing.
Though Fed officials have largely applauded the aggressive fiscal policy, Waller said monetary policy is not set with keeping borrowing costs low in mind.
He further stressed the importance of Fed independence from Congress so monetary policy is not designed with political objectives in mind.
“There are sizable costs if cooperation turns into fiscal control,” Waller said.
“The Congress was fully aware of the potential misuse of monetary policy for political reasons, and it purposefully created the Federal Reserve as an independent central bank,” he added.
“The design features of the Federal Reserve minimize political influence over monetary policy while still maintaining accountability to the Congress and to the electorate for its policy actions.”
Waller is the most recent addition to the board of governors, gaining confirmation in December after having been nominated by former President Donald Trump.
These are his first public remarks.
Data also provided by Reuters
https://www.cnbc.com/2021/03/29/waller- ... ficit.html
"Fed’s Waller says the central bank isn’t keeping rates low to finance government debt"
Jeff Cox @jeff.cox.7528 @JeffCoxCNBCcom
Published Mon, Mar 29 2021
Key Points
* Fed Governor Christopher Waller said the central bank is not keeping rates low to help the government roll up more debt.
* That narrative “is simply wrong,” the central bank official said in his first public remarks since being confirmed in December.
* Government debt has jumped nearly 20% during the Covid-19 pandemic, and the deficit for this fiscal year is on track to easily exceed $2 trillion.
The Federal Reserve is not keeping monetary policy easy to enable the government to rung up debts and deficits, Fed Governor Christopher Waller said Monday.
Defending the Fed’s independence from the fiscal authorities in Congress, Waller rejected notions that the central bank is holding borrowing costs low to help service the debt or that it is conducting asset purchases to finance the debt-laden federal government.
“My goal today is to definitively put that narrative to rest."
"It is simply wrong,” Waller said in prepared remarks to the Peterson Institute for International Economics.
“Monetary policy has not and will not be conducted for these purposes.”
As part of its Covid crisis response, the Fed cut short-term borrowing rates to near zero and has been buying at least $80 billion of Treasurys each month, along with $40 billion of mortgage-backed securities.
At the same time, total government debt has soared by $4.5 trillion, or nearly 20%, since early March 2020, and the deficit for fiscal 2020 was more than $3.1 trillion.
The Congressional Budget Office has projected the fiscal 2021 shortfall to be $2.3 trillion, and that doesn’t include the nearly $1.9 trillion stimulus package approved recently.
Fed critics say the central bank has been charged with keeping rates low so the government can continue borrowing.
Though Fed officials have largely applauded the aggressive fiscal policy, Waller said monetary policy is not set with keeping borrowing costs low in mind.
He further stressed the importance of Fed independence from Congress so monetary policy is not designed with political objectives in mind.
“There are sizable costs if cooperation turns into fiscal control,” Waller said.
“The Congress was fully aware of the potential misuse of monetary policy for political reasons, and it purposefully created the Federal Reserve as an independent central bank,” he added.
“The design features of the Federal Reserve minimize political influence over monetary policy while still maintaining accountability to the Congress and to the electorate for its policy actions.”
Waller is the most recent addition to the board of governors, gaining confirmation in December after having been nominated by former President Donald Trump.
These are his first public remarks.
Data also provided by Reuters
https://www.cnbc.com/2021/03/29/waller- ... ficit.html
Re: THE FEDERAL RESERVE
CNBC
"The Fed could come under fire for easy policy while the economy soars and inflation rises"
Patti Domm @in/patti-domm-9224884/ @pattidomm
Published Mon, Apr 5 2021
Key Points
* The Fed will have a tough time promising easy policy as markets watch increasingly strong economic data over the next couple of months.
* The second quarter is expected to boom, and the Fed could look behind the curve while it keeps its commitment to zero rates and bond purchases in the three-month period.
* Bond investors now see the first fed funds rate hike in December 2022 while the Fed’s consensus is that there will be no rate hike through the end of 2023.
As the economy booms over the next couple of months, the Fed will have a more difficult time defending its super-easy policies.
Economists expect the second quarter to grow by more than 9%, and the monthly jobs reports are likely to show very strong hiring, with job growth averaging more than1 million new payrolls in each of the next several months.
Already the reaction to March’s surprisingly strong jobs report could be a sign of more to come.
March’s report Friday showed the surge in new jobs to 916,000, nearly 250,000 more than expected.
After the data was released Friday, the fed funds futures market began to immediately bring forward expectations for a Fed rate hike to December 2022, from the spring of 2023.
“Friday took us to the other side,” said Peter Boockvar, chief investment strategist at Bleakley Advisory Group.
“That’s a full year ahead of where the [Fed forecasts] are telling us the majority of the committee is."
"They’re still looking at 2024 as their first hike.”
Jim Caron, head of global macro strategy at Morgan Stanley Investment Management, said the Fed is facing one of its toughest tests ever.
Last year, the Fed moved to a new inflation policy, where it would tolerate a range for inflation, on both sides of its target of 2%.
The Fed will have to defend its zero interest rate policy and its bond purchasing program as a whole wave of data shows a big jump in economic activity and inflation, which could rise well above 2%, at least temporarily.
Because of the economic shutdowns a year ago, inflation this spring could look hot when compared to the low base of a year ago.
Fed Chairman Jerome Powell has said the Fed expects a transient increase in inflation, but some in the market expect a higher level of inflation based on surging demand and also government stimulus.
“They’re going to go through the gauntlet now."
"They’re going to go though the toughest part of the gauntlet in April and May,” Caron said.
“The data is going to be good."
"This quarter is going to test their credibility ..."
"The second quarter is going to be plus 10% growth and inflation is going to get to core PCE around 2.5%, and they’re going to say, ‘this is transitory.’”
More inflation signs ahead
As the data gets better, the Fed’s job will become even harder.
The consumer price index is released next week, and it could start to show signs of inflation just because of the comparisons with last March’s decrease in many prices.
CPI for February was up 1.7%, the biggest gain in a year.
“They want a full recovery and they will wait it out."
"That said, the concern is not just what we’re getting in stimulus but whether you get additional stimulus in infrastructure,” said Grant Thornton chief economist Diane Swonk.
“The Fed is not going to put that in their forecast until they see it, but the bond market is front-running that.”
Swonk said the inflation data could be very strong with CPI over 3%, and some components within the data spiking.
“Used vehicles are going to be up 35% versus year ago because they plummeted a year ago."
"There’s a potential for some really weird numbers in there,” she said.
Treasury yields have rising on economic optimism, expectations for inflation, and stimulus spending that should increase Treasury supply and boost the economy.
Congress recently approved a $1.9 trillion stimulus package, and some of the money has made its way into the economy.
President Joe Biden last week unveiled a $2 trillion infrastructure plan.
The benchmark 10-year Treasury, which influences mortgages and other loans, was at 1.71% Monday.
It gained about 90 basis points in the first quarter.
The 2-year yield has also been rising recently.
After the jobs report, it rose to near 0.18%, its highest level in 14 months.
Yields move opposite price, and the 2-year yield is more reflective of the Fed’s interest rate intentions than the 10-year.
The 2-year was at 0.16%
Caron said the economic data is going to keep getting better for awhile, as states reopen and vaccinations surge.
The market could also keep pressing the Fed, but he expects Fed officials to hold to 2024 for the first rate hike.
“This is a policy driven market and policy makers are super important right now,” he said.
Michael Schumacher, director of rates at Wells Fargo, said the market is pricing in more than three hikes in total for 2023.
“The market is pricing a lot of rate hikes,” said Schumacher.
He said the market is having difficulty working through the strong data and expectations for even more over the next several months.
“I suspect the market keeps throwing more rate hikes in."
"The question then is, what does Powell do?” he said.
“The point is we can see the numbers but nobody’s been down this path before."
"The reaction function is new."
"This idea of targeting inflation is new."
"What happens if inflation goes significantly above 2%?"
"The Fed is going to get a lot of heat.”
Tapering ahead?
Before the Fed even considers raising interest rates, it is expected to pare back the $120 billion a month in Treasurys and mortgage securities it is buying.
Mark Cabana, head of short U.S. rates strategy at Bank of America, expects the Fed to signal its intentions about tapering back the program soon and could begin to slow purchases in December, just about a year before it should start to raise interest rates.
“There is a real chance the Fed will start to change its tune and signal real progress in the near future,” Cabana said.
“The minutes this week will be interesting in that regard."
"The guidance, ‘substantial further progress’ has been very vague ..."
"They need to start setting the stage soon.”
The Fed releases minutes of its last meeting on Wednesday afternoon.
The Fed has stated it will continue its asset purchases at its current pace until it sees progress in the economy and job market.
Cabana said the Fed should complete paring back its asset purchases before it raises interest rates, and he believes the market is too aggressive in the timing of the first rate.
But he expects the Fed to hike aggressively once it starts.
Cabana said previous minutes already have shown a divided view inside the Fed, and that may increase as stronger economic numbers roll out.
For instance, Dallas Fed President Robert Kaplan identified himself as one of the officials on the Fed’s anonymous forecast who wants an earlier than consensus rate hike, in 2022 in his case.
“The core dominates ..."
"There’s basically two camps, and the core is most important,” said Cabana.
But he expects the discontent to get louder.
Grant Thornton’s Swonk also expects the voices of dissenters to increase as the economic data improves.
“The [regional Fed] presidents are going to get a little more nervous, and that’s going to create dissonance."
"The message gets harder,” she said.
Boockvar said the market should keep moving ahead of the Fed.
“This is the market saying we’re getting ahead of the Fed,” said Boockvar.
“The market is going to drag the Fed into a tightening at some point."
"Regardless of how dovish the Fed wants to sound, the market is beginning to make adjustments for them.”
Data also provided by Reuters
https://www.cnbc.com/2021/04/05/the-fed ... rises.html
"The Fed could come under fire for easy policy while the economy soars and inflation rises"
Patti Domm @in/patti-domm-9224884/ @pattidomm
Published Mon, Apr 5 2021
Key Points
* The Fed will have a tough time promising easy policy as markets watch increasingly strong economic data over the next couple of months.
* The second quarter is expected to boom, and the Fed could look behind the curve while it keeps its commitment to zero rates and bond purchases in the three-month period.
* Bond investors now see the first fed funds rate hike in December 2022 while the Fed’s consensus is that there will be no rate hike through the end of 2023.
As the economy booms over the next couple of months, the Fed will have a more difficult time defending its super-easy policies.
Economists expect the second quarter to grow by more than 9%, and the monthly jobs reports are likely to show very strong hiring, with job growth averaging more than1 million new payrolls in each of the next several months.
Already the reaction to March’s surprisingly strong jobs report could be a sign of more to come.
March’s report Friday showed the surge in new jobs to 916,000, nearly 250,000 more than expected.
After the data was released Friday, the fed funds futures market began to immediately bring forward expectations for a Fed rate hike to December 2022, from the spring of 2023.
“Friday took us to the other side,” said Peter Boockvar, chief investment strategist at Bleakley Advisory Group.
“That’s a full year ahead of where the [Fed forecasts] are telling us the majority of the committee is."
"They’re still looking at 2024 as their first hike.”
Jim Caron, head of global macro strategy at Morgan Stanley Investment Management, said the Fed is facing one of its toughest tests ever.
Last year, the Fed moved to a new inflation policy, where it would tolerate a range for inflation, on both sides of its target of 2%.
The Fed will have to defend its zero interest rate policy and its bond purchasing program as a whole wave of data shows a big jump in economic activity and inflation, which could rise well above 2%, at least temporarily.
Because of the economic shutdowns a year ago, inflation this spring could look hot when compared to the low base of a year ago.
Fed Chairman Jerome Powell has said the Fed expects a transient increase in inflation, but some in the market expect a higher level of inflation based on surging demand and also government stimulus.
“They’re going to go through the gauntlet now."
"They’re going to go though the toughest part of the gauntlet in April and May,” Caron said.
“The data is going to be good."
"This quarter is going to test their credibility ..."
"The second quarter is going to be plus 10% growth and inflation is going to get to core PCE around 2.5%, and they’re going to say, ‘this is transitory.’”
More inflation signs ahead
As the data gets better, the Fed’s job will become even harder.
The consumer price index is released next week, and it could start to show signs of inflation just because of the comparisons with last March’s decrease in many prices.
CPI for February was up 1.7%, the biggest gain in a year.
“They want a full recovery and they will wait it out."
"That said, the concern is not just what we’re getting in stimulus but whether you get additional stimulus in infrastructure,” said Grant Thornton chief economist Diane Swonk.
“The Fed is not going to put that in their forecast until they see it, but the bond market is front-running that.”
Swonk said the inflation data could be very strong with CPI over 3%, and some components within the data spiking.
“Used vehicles are going to be up 35% versus year ago because they plummeted a year ago."
"There’s a potential for some really weird numbers in there,” she said.
Treasury yields have rising on economic optimism, expectations for inflation, and stimulus spending that should increase Treasury supply and boost the economy.
Congress recently approved a $1.9 trillion stimulus package, and some of the money has made its way into the economy.
President Joe Biden last week unveiled a $2 trillion infrastructure plan.
The benchmark 10-year Treasury, which influences mortgages and other loans, was at 1.71% Monday.
It gained about 90 basis points in the first quarter.
The 2-year yield has also been rising recently.
After the jobs report, it rose to near 0.18%, its highest level in 14 months.
Yields move opposite price, and the 2-year yield is more reflective of the Fed’s interest rate intentions than the 10-year.
The 2-year was at 0.16%
Caron said the economic data is going to keep getting better for awhile, as states reopen and vaccinations surge.
The market could also keep pressing the Fed, but he expects Fed officials to hold to 2024 for the first rate hike.
“This is a policy driven market and policy makers are super important right now,” he said.
Michael Schumacher, director of rates at Wells Fargo, said the market is pricing in more than three hikes in total for 2023.
“The market is pricing a lot of rate hikes,” said Schumacher.
He said the market is having difficulty working through the strong data and expectations for even more over the next several months.
“I suspect the market keeps throwing more rate hikes in."
"The question then is, what does Powell do?” he said.
“The point is we can see the numbers but nobody’s been down this path before."
"The reaction function is new."
"This idea of targeting inflation is new."
"What happens if inflation goes significantly above 2%?"
"The Fed is going to get a lot of heat.”
Tapering ahead?
Before the Fed even considers raising interest rates, it is expected to pare back the $120 billion a month in Treasurys and mortgage securities it is buying.
Mark Cabana, head of short U.S. rates strategy at Bank of America, expects the Fed to signal its intentions about tapering back the program soon and could begin to slow purchases in December, just about a year before it should start to raise interest rates.
“There is a real chance the Fed will start to change its tune and signal real progress in the near future,” Cabana said.
“The minutes this week will be interesting in that regard."
"The guidance, ‘substantial further progress’ has been very vague ..."
"They need to start setting the stage soon.”
The Fed releases minutes of its last meeting on Wednesday afternoon.
The Fed has stated it will continue its asset purchases at its current pace until it sees progress in the economy and job market.
Cabana said the Fed should complete paring back its asset purchases before it raises interest rates, and he believes the market is too aggressive in the timing of the first rate.
But he expects the Fed to hike aggressively once it starts.
Cabana said previous minutes already have shown a divided view inside the Fed, and that may increase as stronger economic numbers roll out.
For instance, Dallas Fed President Robert Kaplan identified himself as one of the officials on the Fed’s anonymous forecast who wants an earlier than consensus rate hike, in 2022 in his case.
“The core dominates ..."
"There’s basically two camps, and the core is most important,” said Cabana.
But he expects the discontent to get louder.
Grant Thornton’s Swonk also expects the voices of dissenters to increase as the economic data improves.
“The [regional Fed] presidents are going to get a little more nervous, and that’s going to create dissonance."
"The message gets harder,” she said.
Boockvar said the market should keep moving ahead of the Fed.
“This is the market saying we’re getting ahead of the Fed,” said Boockvar.
“The market is going to drag the Fed into a tightening at some point."
"Regardless of how dovish the Fed wants to sound, the market is beginning to make adjustments for them.”
Data also provided by Reuters
https://www.cnbc.com/2021/04/05/the-fed ... rises.html
Re: THE FEDERAL RESERVE
CNBC
"Fed’s Mester lauds jobs report, but says loose policy is staying put"
Jeff Cox @jeff.cox.7528 @JeffCoxCNBCcom
Published Mon, Apr 5 2021
Key Points
* Cleveland Federal Reserve President Loretta Mester told CNBC that the strong March job gains don’t move the needle on policy.
"“It was great to see that report. We need more of them coming our way,” she said.
March’s strong job gains weren’t enough to convince Cleveland Federal Reserve President Loretta Mester that it’s time to change monetary policy.
The central bank official told CNBC on Monday that she welcomed news that nonfarm payrolls rose 916,000 for the month, thanks to a surge in leisure and hospitality jobs as well as a jump in government and construction hiring.
But the Fed remains committed to keeping rates low until the employment picture brightens considerably, she added.
“I’m thinking that we’ll see a very strong second half of the year, but we’re still far from our policy goals,” Mester said during a “Closing Bell” interview.
“It was great to see that report."
"We need more of them coming our way.”
In addition to the big jobs gain, the unemployment rate also fell to 6%, its lowest of the Covid-19 pandemic era.
Still, the Fed remains tethered to ultra-loose policy until the jobs market gets back not only to full employment but also sees inclusive gains across income, racial and gender lines.
Central bank officials also have pledged to tolerate inflation that runs somewhat above their long-range 2% goal if it’s in the interest of making the economy whole again.
Parts of the financial markets have shown concern over potential inflationary effects from the Fed’s loose policy, as well as trillions in government stimulus spending.
But Mester said she is largely unconcerned by this year’s run-up in government bond yields.
The 10-year Treasury note most recently traded around 1.71%, near its highest level since before the pandemic.
“I think the higher bond yields are quite understandable in the context of the improvement in the economic outlook."
"The increase has been an orderly increase,” Mester said.
“So I’m not concerned at this point with the rise in yields."
"I don’t think there’s anything for the Fed to react to.”
Data also provided by Reuters
https://www.cnbc.com/2021/04/05/feds-me ... g-put.html
"Fed’s Mester lauds jobs report, but says loose policy is staying put"
Jeff Cox @jeff.cox.7528 @JeffCoxCNBCcom
Published Mon, Apr 5 2021
Key Points
* Cleveland Federal Reserve President Loretta Mester told CNBC that the strong March job gains don’t move the needle on policy.
"“It was great to see that report. We need more of them coming our way,” she said.
March’s strong job gains weren’t enough to convince Cleveland Federal Reserve President Loretta Mester that it’s time to change monetary policy.
The central bank official told CNBC on Monday that she welcomed news that nonfarm payrolls rose 916,000 for the month, thanks to a surge in leisure and hospitality jobs as well as a jump in government and construction hiring.
But the Fed remains committed to keeping rates low until the employment picture brightens considerably, she added.
“I’m thinking that we’ll see a very strong second half of the year, but we’re still far from our policy goals,” Mester said during a “Closing Bell” interview.
“It was great to see that report."
"We need more of them coming our way.”
In addition to the big jobs gain, the unemployment rate also fell to 6%, its lowest of the Covid-19 pandemic era.
Still, the Fed remains tethered to ultra-loose policy until the jobs market gets back not only to full employment but also sees inclusive gains across income, racial and gender lines.
Central bank officials also have pledged to tolerate inflation that runs somewhat above their long-range 2% goal if it’s in the interest of making the economy whole again.
Parts of the financial markets have shown concern over potential inflationary effects from the Fed’s loose policy, as well as trillions in government stimulus spending.
But Mester said she is largely unconcerned by this year’s run-up in government bond yields.
The 10-year Treasury note most recently traded around 1.71%, near its highest level since before the pandemic.
“I think the higher bond yields are quite understandable in the context of the improvement in the economic outlook."
"The increase has been an orderly increase,” Mester said.
“So I’m not concerned at this point with the rise in yields."
"I don’t think there’s anything for the Fed to react to.”
Data also provided by Reuters
https://www.cnbc.com/2021/04/05/feds-me ... g-put.html
Re: THE FEDERAL RESERVE
REUTERS
"Fed should be 'deliberately patient' on policy, Mester says"
By Reuters Staff
April 5, 2021
(Reuters) -The U.S. economic outlook is brightening, Cleveland Federal Reserve Bank President Loretta Mester said on Monday, adding that the Federal Reserve should stick to its easy monetary policy to help support growth further.
“I’m thinking that we’ll see a very strong second half of the year, but we are still far from our policy goals,” Mester said in an interview on CNBC, referring to the Fed’s goals of full employment and 2% inflation.
Though it was “nice to see” the government’s report published on Friday showing U.S. employers added 916,000 jobs in March, the most in seven months, the economy remains nearly 8.5 million jobs short of employment levels in February 2020, she said.
“We need more of those kind of job reports coming out to actually make more progress than we’ve seen thus far,” she said.
“I think we need to be very deliberately patient in our approach to monetary policy.”
The remarks from one of the Fed’s historically more hawkish policymakers are a reminder that the Fed is operating under a very different framework from the last time the economy was emerging from a recession.
Under the old framework, the Fed aimed to tighten policy to head off inflation before it arose, a strategy now seen as needlessly liable to choke off recovery prematurely, given how sluggish inflation has proven to be in recent decades.
Under the new framework, adopted last August, the Fed has promised to keep interest rates at their current near-zero level until the economy reaches full employment and inflation hits 2% and is on track to exceed that goal for some time.
It has also said it will continue to buy bonds at a monthly pace of $120 billion until there is “substantial further progress” on both goals.
“We just need to see more progress, and we need to see more of those kind of good numbers coming our way,” Mester said, referring to the March jobs report.
She said she expects higher inflation readings over coming months, but - based on conversations with business leaders who do not feel they can pass on higher costs to customers - those price increases “are not going to be sustained.”
As for the recent rise in bond yields that some worry could hurt the Fed’s efforts to boost the economy, Mester said she is “not concerned.”
Noting the increase has not been disorderly and reflects the better economic outlook, she said, “I don’t think there’s anything for the Fed to react to.”
Reporting by Ann Saphir; Editing by Leslie Adler and Dan Grebler
https://www.reuters.com/article/usa-fed ... SL1N2LY1L6
"Fed should be 'deliberately patient' on policy, Mester says"
By Reuters Staff
April 5, 2021
(Reuters) -The U.S. economic outlook is brightening, Cleveland Federal Reserve Bank President Loretta Mester said on Monday, adding that the Federal Reserve should stick to its easy monetary policy to help support growth further.
“I’m thinking that we’ll see a very strong second half of the year, but we are still far from our policy goals,” Mester said in an interview on CNBC, referring to the Fed’s goals of full employment and 2% inflation.
Though it was “nice to see” the government’s report published on Friday showing U.S. employers added 916,000 jobs in March, the most in seven months, the economy remains nearly 8.5 million jobs short of employment levels in February 2020, she said.
“We need more of those kind of job reports coming out to actually make more progress than we’ve seen thus far,” she said.
“I think we need to be very deliberately patient in our approach to monetary policy.”
The remarks from one of the Fed’s historically more hawkish policymakers are a reminder that the Fed is operating under a very different framework from the last time the economy was emerging from a recession.
Under the old framework, the Fed aimed to tighten policy to head off inflation before it arose, a strategy now seen as needlessly liable to choke off recovery prematurely, given how sluggish inflation has proven to be in recent decades.
Under the new framework, adopted last August, the Fed has promised to keep interest rates at their current near-zero level until the economy reaches full employment and inflation hits 2% and is on track to exceed that goal for some time.
It has also said it will continue to buy bonds at a monthly pace of $120 billion until there is “substantial further progress” on both goals.
“We just need to see more progress, and we need to see more of those kind of good numbers coming our way,” Mester said, referring to the March jobs report.
She said she expects higher inflation readings over coming months, but - based on conversations with business leaders who do not feel they can pass on higher costs to customers - those price increases “are not going to be sustained.”
As for the recent rise in bond yields that some worry could hurt the Fed’s efforts to boost the economy, Mester said she is “not concerned.”
Noting the increase has not been disorderly and reflects the better economic outlook, she said, “I don’t think there’s anything for the Fed to react to.”
Reporting by Ann Saphir; Editing by Leslie Adler and Dan Grebler
https://www.reuters.com/article/usa-fed ... SL1N2LY1L6
Re: THE FEDERAL RESERVE
CNBC
"Fed’s Brainard says the economy is improving but is still ‘far from’ where it needs to be"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED WED, APR 7 2021
KEY POINTS
* Fed Governor Lael Brainard noted the “brighter outlook” for the U.S. economy but said growth is still well below the central bank’s goals.
* The Fed on Wednesday released minutes from the March meeting indicating that forecasts for higher growth and inflation alone won’t be enough to move policy.
* “We’re going to have to actually see that in the data,” Brainard told CNBC.
Federal Reserve Governor Lael Brainard said Wednesday that while the U.S. economic outlook has “brightened considerably,” it remains well away from the central bank’s goals.
“Brighter outlook, but of course our monetary policy forward guidance is premised on outcomes not the outlook, and so it is going to be some time before both employment and inflation have achieved the kinds of outcomes that are in that forward guidance,” Brainard said on CNBC’s “Closing Bell.”
She spoke shortly after the Fed released minutes from the March Federal Open Market Committee meeting, during which officials voted unanimously to hold short-term borrowing rates near zero and to continue buying at least $120 billion of bonds each month.
Along with unchanged policy, FOMC members raised their forecasts for employment and inflation.
But the minutes reflected Brainard’s comments that the economy still needs more improvement before it gets close to the Fed’s goals of full employment and sustained inflation above 2%.
“The forecast is considerably better outcomes both on growth as well as on employment and inflation,” Brainard said.
“But again, that’s an outlook."
"We’re going to have to actually see that in the data."
"When you look at the data, we are still far from our maximum employment goal.”
Unemployment fell to 6% in March as the economy added 916,000 jobs, well ahead of economists’ expectations.
Inflation is edging higher though the 1.6% level for March was still well below the Fed’s target.
The central bank has said it will allow inflation to run somewhat above 2% for a period of time in the interest of achieving full employment that is inclusive along income, racial and gender lines.
Over the past several months, the market has been pricing in both higher inflation and stronger economic growth, but Fed officials say they will maintain ultra-easy policy put in place in the early days of the Covid-19 crisis.
The minutes indicated that Fed officials have little concern over inflation despite rising longer-duration government bond yields, and Brainard reiterated the view that any near-term price pressures probably won’t last.
“It’s really important to recognize that these are transitory, and following those transitory pressures associated with reopening, it’s more likely that the entrenched dynamics that we’ve seen for well over a decade will take over,” she said.
https://www.cnbc.com/2021/04/07/feds-br ... to-be.html
"Fed’s Brainard says the economy is improving but is still ‘far from’ where it needs to be"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED WED, APR 7 2021
KEY POINTS
* Fed Governor Lael Brainard noted the “brighter outlook” for the U.S. economy but said growth is still well below the central bank’s goals.
* The Fed on Wednesday released minutes from the March meeting indicating that forecasts for higher growth and inflation alone won’t be enough to move policy.
* “We’re going to have to actually see that in the data,” Brainard told CNBC.
Federal Reserve Governor Lael Brainard said Wednesday that while the U.S. economic outlook has “brightened considerably,” it remains well away from the central bank’s goals.
“Brighter outlook, but of course our monetary policy forward guidance is premised on outcomes not the outlook, and so it is going to be some time before both employment and inflation have achieved the kinds of outcomes that are in that forward guidance,” Brainard said on CNBC’s “Closing Bell.”
She spoke shortly after the Fed released minutes from the March Federal Open Market Committee meeting, during which officials voted unanimously to hold short-term borrowing rates near zero and to continue buying at least $120 billion of bonds each month.
Along with unchanged policy, FOMC members raised their forecasts for employment and inflation.
But the minutes reflected Brainard’s comments that the economy still needs more improvement before it gets close to the Fed’s goals of full employment and sustained inflation above 2%.
“The forecast is considerably better outcomes both on growth as well as on employment and inflation,” Brainard said.
“But again, that’s an outlook."
"We’re going to have to actually see that in the data."
"When you look at the data, we are still far from our maximum employment goal.”
Unemployment fell to 6% in March as the economy added 916,000 jobs, well ahead of economists’ expectations.
Inflation is edging higher though the 1.6% level for March was still well below the Fed’s target.
The central bank has said it will allow inflation to run somewhat above 2% for a period of time in the interest of achieving full employment that is inclusive along income, racial and gender lines.
Over the past several months, the market has been pricing in both higher inflation and stronger economic growth, but Fed officials say they will maintain ultra-easy policy put in place in the early days of the Covid-19 crisis.
The minutes indicated that Fed officials have little concern over inflation despite rising longer-duration government bond yields, and Brainard reiterated the view that any near-term price pressures probably won’t last.
“It’s really important to recognize that these are transitory, and following those transitory pressures associated with reopening, it’s more likely that the entrenched dynamics that we’ve seen for well over a decade will take over,” she said.
https://www.cnbc.com/2021/04/07/feds-br ... to-be.html
Re: THE FEDERAL RESERVE
CNBC
"Fed officials say easy policy will stay in place until economic ‘outcomes’ are achieved"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED WED, APR 7 2021
KEY POINTS
* The Federal Reserve released minutes from its March meeting during which it kept accommodative policy in place.
* Reiterating a recent policy switch, officials at the meeting said policy will only be changed once outcomes are achieved and won’t be adjusted based on forecasts.
Federal Reserve officials indicated at their last meeting that easy policy will stay in place until it produces stronger employment and inflation, and won’t be adjusted based merely on forecasts.
The Federal Open Market Committee on Wednesday released minutes from the March 16-17 meeting as investors looked for indications about where policy may be heading in the future.
The meeting summary indicated that while officials saw the economy gaining substantially, they see much more progress needed before ultra-easy policy changes.
Members said the $120 billion a month in bond purchases “were providing substantial support to the economy.”
“Participants noted that it would likely be some time until substantial further progress toward the Committee’s maximum-employment and price-stability goals would be realized and that, consistent with the Committee’s outcome-based guidance, asset purchases would continue at least at the current pace until then.”
The adherence to “outcome-based guidance” is a pledge that the Fed will wait until the economy shows “substantial further progress” toward the dual goals of full employment and inflation that runs around 2%.
The guidance is a shift in policy for the central bank, in which it previously would adjust policy in anticipation of inflation.
The minutes said members agreed that changes in policy “should be based primarily on observed outcomes rather than forecasts.”
Markets reacted little to the news, though some questioned whether the Fed needs to continue its historically accommodative policy stance.
While the policy was adopted to deal with the uncertainty of the Covid-19 crisis, continued economic gains and progress in fighting the pandemic through vaccines makes it “difficult to understand how policy is properly calibrated now,” wrote Bob Miller, head of Americas fundamental fixed income at asset management giant BlackRock.
“The same emergency stance remains despite the absence of emergency conditions.”
At the meeting, the Fed’s policymaking arm voted to keep short-term borrowing rates anchored near zero and to continue buying at least $120 billion in bonds each month.
The market will get plenty of notice before the committee makes any changes, the minutes said.
“A number of participants highlighted the importance of the Committee clearly communicating its assessment of progress toward its longer-run goals well in advance of the time when it could be judged substantial enough to warrant a change in the pace of asset purchases,” the summary said.
“The timing of such communications would depend on the evolution of the economy and the pace of progress toward the Committee’s goals.”
In addition, the committee raised its outlook for economic growth and inflation ahead.
The median outlook for GDP in 2021 went to 6.5%, a big upgrade from the 4.2% expectation in the December projections.
Officials also indicated that the unemployment rate could fall to 4.5% by the end of the year and inflation could run to 2.2%, slightly above the Fed’s traditional 2% target.
Though inflation shows up 64 times in the minutes, Fed officials indicated little concern that it might become a problem anytime soon.
One notion in the minutes said that inflation forecasts were right around where FOMC members expected.
During a meeting with the media a few hours before the minutes were released, Chicago Fed President Charles Evans said it would take “months and months” of higher inflation “before I’m even going to have an opinion on whether this is sustainable or not.”
Heading into the March FOMC meeting, some market experts had been expecting the Fed might at least alter the duration of the bonds it has been buying to tamp down a sharp rise this year in longer-dated Treasury yields.
However, Chairman Jerome Powell and other central bank leaders have said they view the rise in rates as a reflection of stronger growth expectations rather than uncomfortable inflation pressure.
https://www.cnbc.com/2021/04/07/federal ... ting-.html
"Fed officials say easy policy will stay in place until economic ‘outcomes’ are achieved"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED WED, APR 7 2021
KEY POINTS
* The Federal Reserve released minutes from its March meeting during which it kept accommodative policy in place.
* Reiterating a recent policy switch, officials at the meeting said policy will only be changed once outcomes are achieved and won’t be adjusted based on forecasts.
Federal Reserve officials indicated at their last meeting that easy policy will stay in place until it produces stronger employment and inflation, and won’t be adjusted based merely on forecasts.
The Federal Open Market Committee on Wednesday released minutes from the March 16-17 meeting as investors looked for indications about where policy may be heading in the future.
The meeting summary indicated that while officials saw the economy gaining substantially, they see much more progress needed before ultra-easy policy changes.
Members said the $120 billion a month in bond purchases “were providing substantial support to the economy.”
“Participants noted that it would likely be some time until substantial further progress toward the Committee’s maximum-employment and price-stability goals would be realized and that, consistent with the Committee’s outcome-based guidance, asset purchases would continue at least at the current pace until then.”
The adherence to “outcome-based guidance” is a pledge that the Fed will wait until the economy shows “substantial further progress” toward the dual goals of full employment and inflation that runs around 2%.
The guidance is a shift in policy for the central bank, in which it previously would adjust policy in anticipation of inflation.
The minutes said members agreed that changes in policy “should be based primarily on observed outcomes rather than forecasts.”
Markets reacted little to the news, though some questioned whether the Fed needs to continue its historically accommodative policy stance.
While the policy was adopted to deal with the uncertainty of the Covid-19 crisis, continued economic gains and progress in fighting the pandemic through vaccines makes it “difficult to understand how policy is properly calibrated now,” wrote Bob Miller, head of Americas fundamental fixed income at asset management giant BlackRock.
“The same emergency stance remains despite the absence of emergency conditions.”
At the meeting, the Fed’s policymaking arm voted to keep short-term borrowing rates anchored near zero and to continue buying at least $120 billion in bonds each month.
The market will get plenty of notice before the committee makes any changes, the minutes said.
“A number of participants highlighted the importance of the Committee clearly communicating its assessment of progress toward its longer-run goals well in advance of the time when it could be judged substantial enough to warrant a change in the pace of asset purchases,” the summary said.
“The timing of such communications would depend on the evolution of the economy and the pace of progress toward the Committee’s goals.”
In addition, the committee raised its outlook for economic growth and inflation ahead.
The median outlook for GDP in 2021 went to 6.5%, a big upgrade from the 4.2% expectation in the December projections.
Officials also indicated that the unemployment rate could fall to 4.5% by the end of the year and inflation could run to 2.2%, slightly above the Fed’s traditional 2% target.
Though inflation shows up 64 times in the minutes, Fed officials indicated little concern that it might become a problem anytime soon.
One notion in the minutes said that inflation forecasts were right around where FOMC members expected.
During a meeting with the media a few hours before the minutes were released, Chicago Fed President Charles Evans said it would take “months and months” of higher inflation “before I’m even going to have an opinion on whether this is sustainable or not.”
Heading into the March FOMC meeting, some market experts had been expecting the Fed might at least alter the duration of the bonds it has been buying to tamp down a sharp rise this year in longer-dated Treasury yields.
However, Chairman Jerome Powell and other central bank leaders have said they view the rise in rates as a reflection of stronger growth expectations rather than uncomfortable inflation pressure.
https://www.cnbc.com/2021/04/07/federal ... ting-.html