Ben Bernanke & US Fed 01 (May 08 - Nov 10 )

[blid2def]

Of course they know something we don't lah. If they don't know something we don't, we won't be sitting here shooting our fart into the breeze.

[millionairemind]

Poor Ben..

Boxed-in Ben
Jul 17th 2008
From The Economist print edition
For the Federal Reserve chief, even good news turns out to be bad

JITTERY investors and anxious politicians have often relied on Federal Reserve chairmen to conjure up something to steady their nerves. But when Ben Bernanke gave his twice-yearly monetary testimony to Congress on July 15th and 16th, he had little to offer but unvarnished and uncomfortable truths. There were “significant downside risks” to the economy’s outlook, he said, and the chances that high inflation would persist had “intensified”. Mr Bernanke did not specify which was the bigger threat: recession or inflation. This lack of a clear policy bias invited the conclusion that, for the time being at least, the Fed thinks it cannot safely move interest rates in either direction.

With financial markets buffeted by renewed fears about the credit drought and a deepening housing slump, Mr Bernanke could hardly boast of the economy’s soundness. To make matters worse, figures released as the Fed chairman gave his second day of testimony showed that year-on-year inflation rose in June to 5.0% (see chart), the highest rate since 1991. Paltry pay rises, as well as job losses, mean employment income is probably growing by less than 3%, well below the inflation rate. Falling real income, slumping share and house prices and tighter credit all cast a cloud over consumer spending. Firms worried about future demand will be more cautious too about shelling out for costly capital projects, even if they could raise the finance.

Despite these unsettling prospects, the Fed’s rate-setters bumped up their forecasts for GDP growth in 2008, to 1.0-1.6%, from the 0.3-1.2% range set out in April. According to the central bank’s 48-page report to Congress, the upgrade was prompted by stronger data on consumer and business spending between April and June. Private-sector analysts are revising up their forecasts for this year too. The first estimate of second-quarter GDP, released on July 31st, is likely to show that the economy grew at an annualised rate of around 2%, twice as fast as in the first quarter.

The Fed’s trouble is that, though the economy has avoided recession so far, it may not do so for much longer. Indeed Mr Bernanke acknowledged that some of the demand that the Fed had hoped for later this year may have already come and gone. So the economy’s first-half resilience may be of more concern than comfort.

The performance of companies and consumers shows why. Businesses received some extra tax relief as part of February’s fiscal-stimulus package, which may have helped a little to stave off recession. There was also a spurt in the construction of offices, hotels and other business structures in the spring. However, this burst of activity may have been just the fag-end of the commercial-property boom. “These are projects that were planned when money was cheap,” says Kevin Logan, an economist at Dresdner Kleinwort in New York. Now conditions have deteriorated: vacancy rates for offices are rising and retail chains, such as Gap, are closing stores.

Consumer spending seems likely to flag too. A jump in retail sales in April and May owed something to the tax rebates first sent out at the end of April. By July 11th around $92 billion of the expected $110 billion of rebates had been disbursed. With household finances under so much pressure, consumers probably leant more heavily on the rebate cheques than had been expected. But a slim rise in retail sales in June is a hint that the effects of this one-off stimulus may already be fading.

Another crutch for consumers has been the home-equity loan. Borrowing from this source rose by 3.8% between March and June, despite a big fall in overall bank credit. This increase came about partly because access is blocked to other forms of borrowing, such as mortgage refinancing. It may also be a sign of distress borrowing, as consumers battle with rising living costs. That battle will become harder if, as anecdotal evidence suggests, banks are cutting pre-arranged credit lines.

Illustration by Bob VenablesThe brightest hope for America’s economy is its foreign sales. Net trade added more than one percentage point to GDP growth in the year to the first quarter. The weak dollar is still helping American firms take advantage of the strong demand in other parts of the world. Export volumes rose by 10.1% in the first five months of the year, compared with the same period in 2007. But even here, the future is looking bleaker. Rising global inflation, spurred in part by countries with dollar pegs mimicking the Fed’s rate cuts, is now prompting central banks in many emerging economies to tighten monetary policy. That will curb demand for imports. America’s richer trading partners are struggling too. The euro-area economy may have shrunk in the second quarter. The outlook for Japan and for Britain has worsened too.

There is little that central banks can do to support the economy when inflation is rising dangerously high. The Fed’s hands are tied by its concern that today’s inflation may lead to higher wages. Mr Bernanke is “in a box”, says Michael Feroli, an economist at JPMorgan Chase. The Fed chief has to sound hawkish to show that he has not lost sight of inflation. But equally he cannot set out a plan for interest-rate increases when the financial system is so wobbly.

The good news in the first half may even make the Fed’s job harder. If consumers have already used up much of their tax rebates and credit lines, spending is likely to flag soon. A first-half recession followed by a sluggish recovery—the standard forecast until recently—could well have enabled the Fed to raise rates in the autumn. But with the worst news on the economy yet to come, Mr Bernanke can only keep his fingers crossed that inflation does not become ingrained.

[millionairemind]

The Fed
More worried about growth
Aug 6th 2008
From Economist.com

The Fed suggests that growth is now as big a worry as inflation

IN THE past month, a worsening economic outlook, renewed financial turmoil and a big drop in oil prices have all made the Federal Reserve’s anti-inflation rhetoric seem increasingly out of place. The central bank on Tuesday August 5th acknowledged as much, in effect postponing again the date at which it can start to raise interest rates.

“Although downside risks to growth remain, the upside risks to inflation are also of significant concern,” America’s central bank said at the conclusion of Tuesday’s policy meeting. The news was in what it did not say: it dropped the assessment of its statement on June 25th, that downside risks to growth had “diminished somewhat.”

The optimism in June reflected the Fed’s belief that its job of cushioning the economy from the credit crisis was nearing completion and it could turn its focus to inflation and deciding when to start raising its short-term interest rate target from the current 2%.

That view was rapidly overtaken by events. The failure of IndyMac, a mid-sized bank, and a sudden loss of investor confidence in the big quasi-public mortgage agencies, Fannie Mae and Freddie Mac, convulsed markets. A pledge by the Treasury Department and the Fed to back up the two agencies’ borrowing ensured that neither would founder, but they are likely to become even more reluctant to expand their backing of American home mortgages. That is another blow to the moribund housing market, which had shown signs of stabilising.

The Fed’s statement on Tuesday should not have come as a surprise. Ben Bernanke, the chairman, had signalled a renewed concern about the outlook in testimony in July. Only last week the Fed announced that it was expanding and extending some of its liquidity programmes in light of “continued fragile circumstances in financial markets.”

But confusion about the central bank’s priorities has persisted because it has coupled such statements with a continuing drumbeat of concern about inflation. Lou Crandall, chief economist at Wrightson ICAP, a money-market research firm, says the Fed has a “conviction vacuum.” In fact, the Fed has been unclear whether growth or inflation would dominate its decision-making for the rest of the year because the data on both are dreadful.

The confusion has begun to lift. The inflation outlook has improved since June: commodity prices (most importantly oil) have dropped and measures of inflation expectations have improved. The unemployment rate rose to 5.7% in June, up a full percentage point since November and well above most estimates of the natural rate of unemployment, below which inflation tends to accelerate. And with the economy not expected to grow much in coming quarters (it may even shrink), downward pressure is likely on wages and inflation.

The Fed’s statement did not short-change inflation worries this week, of course: “Inflation has been high…some indicators of inflation expectations have been elevated.” But by putting these developments in the past tense, the Fed indicated that the news has stopped getting bad. Moreover, even that degree of concern may not be widely shared. That it found its way into the statement may reflect Mr Bernanke’s efforts to mollify hawkish members of the Federal Open Market Committee who might otherwise have joined repeat dissenter Richard Fisher, president of the Federal Reserve Bank of Dallas, in voting against the decision. Elizabeth Duke, a former banker who was sworn in just before the meeting started, was one of the ten officials voting in favour.

[kennynah]

ok...starting to sound hint already....rate hike wont be so soon... good lah..

[winston]

Bernanke to `Act' as Needed for `Medium-Term' Price Stability
By Craig Torres and Scott Lanman

Aug. 22 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said falling commodity prices, a stable dollar and slowing growth should bring down inflation, while warning the central bank will act should prices gains not moderate ``in the medium term.''

Bernanke called dollar stability and price declines in oil and other commodities ``encouraging.'' Still, the inflation outlook remains ``highly uncertain'' and the Fed ``is committed to achieving medium-term price stability and will act as necessary to obtain that objective,'' he said.

Bernanke's speech to the Kansas City Fed Bank's two-day conference on financial stability in Jackson Hole, Wyoming also gave a preliminary view of how the central may alter its supervision of financial institutions. He again defended the Fed's role in keeping Bear Stearns Cos. from collapse, and said ``the economy could hardly have remained immune from such severe financial disruptions.''

The Fed chairman has tried for the past year to curb a global credit crisis that has led to a higher U.S. jobless rate, slower economic growth and some $505 billion in credit losses at financial firms. Inflation has accelerated, with food and energy costs pushing up consumer prices in the 12 months to July by the most in 17 years.

Bernanke asked Congress to give the Fed more authority over the U.S. payments system, and to consider devising a way to resolve failing investment banks. He also said regulators must shift their focus and consider how individual banks and brokers may together present large risks to the financial system.

`More Explicit'

``Making the systemic risk rationale for guidances and reviews'' of financial firms ``more explicit is certainly feasible and would be a useful step toward a more systemic orientation for financial regulation and supervision,'' Bernanke, 54, said to the conference of scholars and central bankers.

The Fed has opened up lending to nonbanks for the first time since the Great Depression, accepted mortgage debt as collateral for loans and cut the interest rate on its discount window lending. The measures have broadened the Fed's oversight and lender-of-last resort role.

Bernanke opened the discount window to investment banks in March after rescuing Bear Stearns Cos. from bankruptcy. The Fed facilitated the firm's merger with JPMorgan Chase & Co. by loaning against $29 billion of Bear securities. It opened the discount window in July to Fannie Mae and Freddie Mac, the largest U.S. mortgage finance companies.

`Over-Extended'

``They are in a lot of new lines of business now in terms of lending to entities they didn't use to, in terms of taking credit risk that central banks don't usually have,'' Vincent Reinhart, a resident scholar at the American Enterprise Institute and former director of the Board's Division of Monetary Affairs said before the speech. ``The Federal Reserve is over-extended.''

Central bankers have also reduced the benchmark lending rate 3.25 percentage points since September to 2 percent. They have kept the rate at that level since April even as the consumer price index rose to 5.6 percent in July, the fastest increase on an annual basis in 17 years.

While the Fed has expanded its lending, markets instability has continued and credit has remained scarce. Investors are concerned mortgages delinquencies will increase, leading to greater losses at banks and other financial institutions.

Shares of Fannie Mae have fallen 58 percent this month, while shares of Freddie Mac have fallen 61 percent.

Nearly a quarter of all adjustable rate mortgages to borrowers with weak or limited credit history were delinquent in the first quarter, according to the Mortgage Bankers Association.

Meanwhile, some 463,000 Americans have lost jobs since January, and economists expect annualized rates of growth of just 1.2 percent in the third quarter and 0.45 percent in the fourth quarter, according to the median estimate in a Bloomberg Survey.

[millionairemind]

Fresh warning on economy from U.S. Fed chief
By Michael M. Grynbaum Published: August 22, 2008

NEW YORK: The chairman of the Federal Reserve, Ben Bernanke, warned on Friday that the U.S. economy would "fall short of potential for a time" and urged regulators to develop a broader approach to policing the financial industry.

Speaking at a conference in Jackson Hole, Wyoming, Bernanke offered an economic outlook that was not significantly different from the comments released by Fed officials after their policy-setting meeting in early August. He did acknowledge that the effects of the recent financial crisis "are becoming apparent in the form of softening economic activity and rising unemployment."

Bernanke said he still expected inflation to slow toward the end of the year, and he found the recent decline in oil prices "encouraging." Echoing the Fed's policy statement from Aug. 8, he said that the outlook for inflation "remains highly uncertain" and that the central bank "will act as necessary" to keep prices stable.

The remarks, delivered at an annual retreat for Fed bankers and economists, came amid an extremely difficult environment for financial policy makers. Inflation has accelerated to levels not seen for decades, even as the housing slump and weak job market take a toll on household spending.

Indeed, Bernanke opened his speech by describing the financial crisis as a "gale force" and said the United States faced "one of the most challenging economic and policy environments in memory."

Fed policy makers chose to hold interest rates steady at their last two meetings, although some members said they would have preferred to raise rates in an effort to combat inflation. But concern over the giant mortgage finance companies Fannie Mae and Freddie Mac has exacerbated the credit problems on Wall Street, in turn making it more difficult for the central bank to tighten rates.

In his remarks, Bernanke did not suggest the American economy had worsened since the Fed meeting on Aug. 8. And his comments did not significantly differ from his last public remarks, which were in early July.

Most of the speech was focused on a series of proposals for an expanded and more stringent regulatory structure for the financial system. Bernanke suggested that the current structure - a patchwork of various agencies, each with a specific area of coverage - should be broadened to encompass the global financial landscape.

He called for the Fed to take a leading role in regulating capital and risk levels at a range of banks and financial institutions. While the Fed has been the primary regulator for commercial banks, it has stepped up its supervision of investment banks since the it agreed to offer them emergency loans after the near-meltdown of the investment bank Bear Stearns.

Bernanke suggested that some of those ad hoc powers, like checking levels of capital reserves and measuring risk, should be formalized.

"An increased focus on systemwide risks by regulators and supervisors is inevitable and desirable," Bernanke said. "We should be careful about over-promising, as we are still rather far from having the capacity to implement such an approach in a thorough going way."

But he added that as part of the restructuring process, "the Congress should consider granting the Federal Reserve explicit oversight authority for systemically important payment and settlement systems."

Bernanke said that for now, the Fed's bankers "remain focused on addressing the current risks to economic and financial stability."
http://www.iht.com/articles/2008/08/22/business/fed.php

[millionairemind]

Bernanke says global markets under "extraordinary stress"
Tue Sep 23, 2008 7:20am
By John Poirier

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke told the U.S. Congress Tuesday that financial markets are under severe stress and urged immediate action to buy up hundreds of billions of dollars worth of tainted mortgage assets.

"Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress," Bernanke said in remarks prepared for delivery to the Senate Banking Committee that were obtained by Reuters.

"Action by Congress is urgently required to stabilize the situation and avert what could otherwise be very serious consequences for our financial markets and our economy," he said.

Bernanke was testifying days after Treasury Secretary Henry Paulson proposed a $700 billion rescue fund to absorb impaired credits that have clogged financial markets and brought to the brink of insolvency one major financial institution after another.

Market stress has accelerated recently and could be seriously damaging if it is not reversed, Bernanke said.

"If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse," he said.

The Fed chairman said regulatory overhaul was necessary but would take longer to accomplish.

"At this juncture, in light of the fast-moving developments, it is essential to deal with the crisis at hand," he said. "Development of a comprehensive proposal for reform would require careful and extensive analysis that would be difficult to compress," he added.

[kennynah]

actually, i am beginning to like that senate/congress system ...where persons of authority have to answer publicly to a group of people's representatives (supposedly) for their actions/inactions..

the country theoretically then does not get held hostage by ONE group of people or political party.

[ishak]

actually, i am beginning to like that senate/congress system ...where persons of authority have to answer publicly to a group of people's representatives (supposedly) for their actions/inactions..

the country theoretically then does not get held hostage by ONE group of people or political party.

Televised live somemore. Democracy in full.

[kennynah]

nowadays....when the ah beng speaks.... we best listen more attentively...today, he spoke again...

*******************
Bernanke Says "Some Risk" Of Protracted Downturn; Second Stimulus Could Be Appropriate
10/20/2008 10:59 AM ET



(RTTNews) - Federal Reserve Chairman Ben Bernanke cautioned Monday that the economy is likely to remain weak for several quarters, adding that there is "some risk of a protracted slowdown." Testifying before a congressional committee, Bernanke suggested that another economic stimulus package might be appropriate at this time, though he stressed that it was up to lawmakers to judge whether it should be passed.

"Incoming data on consumer spending, housing, and business investment have all showed significant slowing over the past few months, and some key determinants of spending have worsened: Equity and house prices have fallen, foreign economic growth has slowed, and credit conditions have tightened," Bernanke said in prepared testimony before the House Committee on the Budget.

However, he noted that the slowdown should help lower prices for commodities and energy, giving some relief to consumers.
"One brighter note is that the declines in the prices of oil and other commodities will have favorable implications for the purchasing power of households," he told the congressional panel.

Bernanke also stated that another economic stimulus package could be appropriate at this time, given the economic slowdown. However, he stressed that such a package would involve a number of value judgments that should only be made by elected officials, implying that the Fed chairman, who is appointed by the president and approved by the Senate, should not be the final arbiter.

"With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate," he told the committee.

He also stated, "Any fiscal action inevitably involves tradeoffs, not only among current needs and objectives but also…between the present and the future. Such tradeoffs inevitably involve value judgments that can properly be made only by our elected officials,"

Bernanke added that such a package should include provisions aimed at helping average Americans to get loans.