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

[millionairemind]

Like what our SGX does when there are abnormal mkt moves.....

Feb 26, 2010
Fed examines Goldman deals
WASHINGTON - THE US Federal Reserve is reviewing the role of Goldman Sachs and other firms to helped Greece hide its debt problems, chairman Ben Bernanke said on Thursday.

Mr Bernanke said the central bank was examining Wall Street firms' transactions with Greek authorities that could have exacerbated Greece's fiscal woes.

'We are looking into a number of questions related to Goldman Sachs and other companies and their derivatives arrangements with Greece,' said Mr Bernanke, in response to a lawmaker's question during testimony to Congress.

Greece's troubled finances are already under close scrutiny by European Union regulators amid fears that its problems could spread to other members of the 16-nation eurozone.

Greece's total debt, estimated at 300 billion euros (S$600 billion), or 113 per cent of gross domestic product, is nearly double the 60 per cent eurozone limit, while its public deficit at 12.7 per cent of GDP is more than four times the maximum level under eurozone rules. The Greek authorities also have come under fire over a currency swap arranged with Goldman Sachs that allegedly enabled Athens to mask debt almost a decade ago as the country joined the eurozone.

Mr Bernanke, wrapping up two-day report on monetary policy, was asked by Senator Christopher Dodd whether Mr Bernanke believed there should be limits on the use of credit default swaps (CDS) to prevent the intentional creation of runs against governments. -- AFP

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HOME > BREAKING NEWS > MONEY > STORY

Feb 26, 2010
Bernanke quizzed on bank plan
WASHINGTON - FEDERAL Reserve chairman Ben Bernanke told lawmakers on Thursday that a proposal by President Barack Obama aimed at curbing risky bank activity may be difficult to enforce and have 'unintended consequences'.

Testifying in the US Senate, Mr Bernanke answered questions about Mr Obama's proposal based on the 'Volcker Rule' devised by former Fed chief Paul Volcker to force commercial banks with federally insured deposits to choose between traditional lending and trading activities.

Mr Bernanke said the Fed would have to be involved in enforcing such a rule 'as part of our overall risk management assessment'.

'I think we would all agree that we don't want companies taking excessive risks when they're protected by the government safety net,' Mr Bernanke told the Senate Banking Committee. Mr Bernanke said it may be hard to distinguish proprietary trading, which could involve more risk, from 'appropriate hedging behavior.'

'You have to be careful of unintended consequences,' he said. 'Hedging, market making, customer activities can involve ownership of securities for a period of time. I do think if you want to go in that direction you should at least allow some role for the supervisors to make determinations about individual activities.'

He added that he believes the Fed has that authority 'to some extent now, but if Congress wants to reinforce that of course it could never - it couldn't hurt'. The Obama initiative unveiled last month, which needs approval by Congress, includes a new proposal to limit the consolidation of the financial sector, placing broader limits on 'excessive growth of the market share of liabilities' at the largest financial firms. -- AFP

[kennynah]

so while on paper, the president appoints the fed reserve chairman...it doesn't mean the fed reserve chairman is beholden to him.. the fed reserve chairman answers to no one...except for his phantom superiors...

[millionairemind]

Published March 13, 2010

Janet Yellen picked for Fed post

She is US govt's choice as new vice chairwoman, says senior official

(Washington)

THE Barack Obama administration has settled on Janet L Yellen, president of the Federal Reserve Bank of San Francisco, to serve as vice chairwoman of the Federal Reserve, a senior administration official said on Thursday.

Ms Yellen, 63, who was chairwoman of the White House Council of Economic Advisers and a member of the Fed's Board of Governors in the Clinton administration, was widely considered to be the front-runner for the position. She would succeed Donald L Kohn, who intends to retire when his four-year term expires in June.

The administration official said top officials, including Treasury Secretary Timothy Geithner, were still in conversations with Ms Yellen about the position. Reached at home on Thursday night, Ms Yellen declined to comment.

If Ms Yellen was offered the position and accepted, her salary would be less than half that of her compensation at the San Francisco Fed. But she would be returning to the Fed headquarters at a crucial time for the institution, which faces the task of stimulating economic recovery without igniting inflation. Ms Yellen is viewed by some economists as relatively more inclined to keep interest rates low to stimulate economic growth and reduce the high rate of joblessness.

Ms Yellen, a Brooklyn native who received her PhD in economics at Yale, has taught in the Haas School of Business at the University of California, Berkeley, since 1980. She has published widely on a variety of macroeconomic topics and is an authority on unemployment. Among her publications is a 2001 book, The Fabulous Decade: Macroeconomic Lessons from the 1990s, written with Alan S Blinder, a former vice chairman of the Fed.

Mr Obama has named one other Fed governor, Daniel K Tarullo, who took office in January 2009. Two other seats on the Fed's seven-member board also need to be filled. -- NYT, Reuters

[millionairemind]

Mar 17, 2010
Fed extends low rates

WASHINGTON - THE Federal Reserve on Tuesday maintained record low interest rates in the hope of stimulating a still fragile US economic recovery, dogged by high unemployment and tight credit.

After a one-day meeting, the Federal Open Market Committee (FOMC) voted 9-1 to keep the federal funds rate - at which banks charge each other for loans - at an unprecedented zero to 0.25 per cent range, a central bank statement said.

The Fed said it expected to hold the 'exceptionally low' rate 'for an extended period' - reiterating its standard guidance since it slashed rates to record lows in December 2008 in a bid to jolt the world's largest economy from its worst recession in decades.

The central bank offered a slight upgrade to its view of the economy in the statement issued after the six-hour meeting chaired by Fed boss Ben Bernanke.

It said 'economic activity has continued to strengthen and that the labor market is stabilising' - a more upbeat description than the phrasing used after its last policy meeting in January that 'the deterioration in the labor market is abating'. The statement also noted that consumer spending was constrained by 'high unemployment', rather than the previous 'weak labour market', which some analysts said shifts the focus away from job growth to the unemployment level, hovering at nearly 10 per cent.

After not mentioning housing, the epicentre of the financial crisis that plunged the US economy into recession, in the last statement, the Fed said on Tuesday that new housing projects 'have been flat at a depressed level'. 'Despite noting some improvement in labour market data, the Committee gave no indication that it would proceed with the next phase of the exit strategy soon; rather, it maintained flexibility by saying it would use its policy tools as needed to promote economic recovery and price stability,' said analyst Dean Maki of Barclays Capital Research. -- AFP

[millionairemind]

Mar 19, 2010
Fed warns of loss of oversight
WASHINGTON- FOUR top Federal Reserve officials urged Congress on Thursday not to strip the US central bank of the authority to supervise small banks, saying they would lose an important finger on the pulse of the economy that helps them guide monetary policy.

A financial regulatory overhaul bill unveiled in the US Senate this week would diminish the powers of most of the regional Fed districts and leave some with no banks to oversee.

'It is a travesty,' Thomas Hoenig, president of the Kansas City Federal Reserve Bank, told a bankers' group. 'It is absolutely disenfranchising our relationship with a very important, hugely important, sector outside of Wall Street across the United States.' 'It makes the central bank the central bank of Wall Street and not of the United States,' he said.

Mr Hoenig, along with president of the Cleveland Federal Reserve Bank, Sandra Pianalto, Richmond Fed chief Jeffrey Lacker, and Fed Governor Elizabeth Duke presented a united front against the proposal at a conference sponsored by the American Bankers Association.

The Senate proposal would shift oversight of banks with assets of less than US$50 billion (S$69.8 billion) from the Fed to other regulators. By some estimates, that would reduce the number of banks under Fed supervision from around 5,800 to 50.

Fed Chairman Ben Bernanke had presented a similar argument to lawmakers on Wednesday. Mr Hoenig said the legislation introduced by Senator Christopher Dodd on Monday would remove all of the banks in his district from his bank's supervision. Other districts, such as St Louis, would likely also have no more banks to supervise. -- THOMSON REUTERS

[millionairemind]

Scoring political points

Published March 22, 2010

Bailouts unconscionable and must end: Bernanke

He says fate of world economy must never be so closely tied to fortunes of a relatively small number of giant firms again

(ST LOUIS) Federal Reserve chairman Ben Bernanke said that government bailouts of big financial companies are 'unconscionable' and must be ended as part of a regulatory overhaul following the worst financial crisis since the 1930s.

'It is unconscionable that the fate of the world economy should be so closely tied to the fortunes of a relatively small number of giant financial firms,' Mr Bernanke said last Saturday in a speech in Orlando, Florida. 'If we achieve nothing else in the wake of the crisis, we must ensure that we never again face such a situation.'

Congress is considering a resolution mechanism for financial firms that are so large or interconnected to other institutions that their failure could damage the financial system.

Resolution mechanism

A plan by Senate Banking Committee chairman Christopher Dodd, a Connecticut Democrat, would allow the Federal Deposit Insurance Corp to liquidate a large firm after a panel of bankruptcy judges determines that the company is insolvent and with approval of the Fed, FDIC and Treasury Department.

The Fed chairman has faced criticism from Congress for bailouts that he said were intended to prevent a possible depression. Lawmakers including Mr Dodd have criticised the Fed's purchase of US$29 billion of securities in March 2008 to facilitate the merger of Bear Stearns Cos with JPMorgan Chase & Co, and loans to keep American International Group Inc from default.

All large financial firms rather than just big banks should be subject to stronger regulation, Mr Bernanke told bankers gathered for the Independent Community Bankers of America convention. Shareholders and creditors should not be protected from losses in any plan, he said.

The Fed is revamping its approach to supervision of large banks, using economists and quantitative analysts to help with horizontal reviews targeting risks across the financial system, Mr Bernanke said.

'We at the Federal Reserve have been working with international colleagues to require that the most systemically critical firms increase their holdings of capital and liquidity and improve their risk management,' he said.

The Fed chief also endorsed the concept of financial firms having 'living wills', or plans on how to unwind should they become insolvent. Mr Dodd's proposal includes a provision that requires large, complex companies to periodically submit 'funeral plans' for their quick and orderly shutdown in the event of failure.

'An idea worth exploring is to require firms to develop and maintain a so-called living will, which will help firms and regulators identify ways to simplify and untangle the firm before a crisis occurs,' Mr Bernanke said.

While the FDIC has the power to take over failing deposit-taking firms and wind down assets, no such authority exists for financial firms that aren't classified as banks, such as AIG or a hedge fund with extensive links throughout the banking system.

The Fed chairman also defended the central bank's structure, including 12 regional banks, as a useful decentralised network to monitor the financial system and economy. He said that the oversight of small banks has been critical to the Fed in setting monetary policy.

'A supervisory agency that focused only on the largest banking institutions, without knowledge of community banks, would get a limited and potentially distorted picture,' he said.

Supervising

Answering questions after his speech, Mr Bernanke urged community bankers to help keep the central bank informed about changes in finance and the economy.

'We greatly value the input and information we get from community banks all across the country,' he said. 'In the current crisis, understanding commercial real estate, understanding other problems in credit markets is greatly aided by knowing what's happening in community banks.'

John Bowman, acting director of the Office of Thrift Supervision, called last Saturday for the creation of a federal agency to supervise community banks and thrifts.

'Whether a community bank holds a state charter, a national bank charter or a federal thrift charter, that institution should not be supervised by the same agency that oversees complex commercial banks,' Mr Bowman said in a speech to the conference, according to an OTS release.

Mr Bernanke and Fed bank presidents are fighting efforts from Congress to shrink the Fed's role in bank supervision. Mr Dodd proposed that the Fed's supervisory authority include only bank holding companies with more than US$50 billion in assets, while the Federal Deposit Insurance Corp and the Office of the Comptroller of the Currency would regulate other banks. A Bill passed by the House of Representatives in December left the Fed's current supervisory authority intact.

The Fed oversees about 5,000 bank holding companies and more than 800 state member banks. The Board of Governors in Washington delegates supervisory authority to the regional Fed banks which have examiners on staff.

Smaller bankers are on the 'front line' of coping with aftershocks from the financial crisis, including 'high unemployment, lost incomes and wealth, home foreclosures, strained fiscal budgets', Mr Bernanke said.

The central bank chairman didn't comment directly on the economy or outlook for monetary policy in his remarks.

The Fed has kept the federal funds rate target for overnight loans between banks in a range of zero to 0.25 per cent since December 2008. Policy makers began using the 'extended period' language in March last year and have repeated it at each meeting since then. -- Bloomberg

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Bernanke Says U.S. Fiscal Outlook ‘Somewhat Dark’ (Update2)
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By Vivien Lou Chen


March 25 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke told lawmakers today that the U.S. government’s budget outlook is “somewhat dark” and Congress needs to agree on a plan to reduce the deficit.

He spoke in response to a question about the budget impact of the health-care overhaul signed into law this week by President Barack Obama. Bernanke declined to discuss the effect of the health measure, saying he didn’t want to “second guess” the Congressional Budget Office.

“Clearly everyone agrees that the overall fiscal outlook for the government is somewhat dark over the medium term, and it would be very useful if there could be a bipartisan, concerted effort to explain, demonstrate and decide how the government is going to achieve a more sustainable fiscal trajectory,” he said during testimony today to the House Financial Services Committee.

Treasuries declined today, pushing the yield on 10-year debt to the highest level since June, after this week’s record- tying $118 billion note auctions drew lower-than-average demand. U.S. stocks fell for a second day on concern governments around the world will have trouble managing growing debt levels.

The yield on the 10-year note increased 3 basis points, or 0.03 percentage point, to 3.89 percent at 4:02 p.m. in New York. It reached 3.92 percent, the highest level since June 11. The Standard & Poor’s 500 Index fell 0.2 percent to 1,165.73.

‘Accommodative Policies’

“The economy continues to require the support of accommodative monetary policies,” Bernanke said earlier today in prepared testimony. He said the central bank will be ready to tighten credit “at the appropriate time.”

The U.S. budget deficit reached a record $1.4 trillion for the fiscal year that ended Sept. 30 amid falling tax revenue from the recession, a bailout of the banking and auto industries, and the $787 billion economic stimulus package. The Obama administration expects the shortfall to widen to $1.5 trillion this year.

Bernanke said the deficit was caused in part by the recession, and that there’s no need to close it immediately.

“There’s a reason for the big deficit and I do not think it is desirable or possible to get rid of it in the next year or two,” Bernanke said during the question-and-answer period.

“Down the road, when the economy operates more normally, if we could convince creditors that we will have a more sustainable situation, that will improve interest rates today and support the growth process today,” he said.

Investor Confidence

Bernanke said the deficit might affect monetary policy if it causes investors to lose confidence in the government’s ability to achieve fiscal balance.

“Interest rates might rise because of a lack of confidence by creditors in the long-term fiscal stability of the government,” and “high interest rates tend to slow the economy,” he said.

The Congressional Budget office estimates that the health- care package will cost $940 billion over 10 years and cover 32 million uninsured Americans. That’s more than made up for with a new tax on the highest earners, fees on health-care companies and hundreds of billions of dollars in Medicare savings, which will reduce the federal deficit, the CBO said.

[millionairemind]

Published March 29, 2010

Fed officials wary of unorthodox policy

It could be difficult to remove liquidity from system, central bankers argue

(WASHINGTON) The Federal Reserve's unprecedented dose of stimulus to the economy during the recent financial crisis complicates the task of pulling back when the time is right, top central bank officials said on Friday.

Fed board governor Kevin Warsh argued that tame inflation readings on Friday should not make policymakers complacent about the risk of future price increases.

'Inflation expectations will be anchored until they are not,' Mr Warsh said in a speech in New York. 'Central bankers would be prudent to keep a very open mind about shocks that could happen domestically and overseas.'

Ben Bernanke, the Fed chairman, told Congress on Thursday that the central bank is aware of such risks and has the tools necessary to withdraw monetary stimulus in time.

These include direct open market operations to drain reserves, raising the interest the Fed pays on excess bank reserves parked at the central bank, and outright sales of some of the nearly US$1.5 trillion in mortgage-related assets the Fed committed to buying over the course of the crisis.

In an effort to combat the worst financial crisis in generations, the Fed not only slashed interest rates effectively to zero per cent but also embarked on an unprecedented emergency programme of asset purchases aimed at keeping borrowing costs low and cushioning the housing sector.

A small group within the Fed, mostly presidents of some regional Federal Reserve banks, has shown discomfort with this unorthodox policy, arguing it borders on fiscal policy and could make removing liquidity from the system difficult.

Charles Plosser, president of the Philadelphia Fed, said on Friday in an interview with The Wall Street Journal it might be prudent for the Fed to sell some of its mortgage assets before raising interest rates to make policy more effective.

In the past, Mr Plosser has gone as far as suggesting the Fed should undertake a swap of mortgage assets with the Treasury Department so that its portfolio can return to being primarily composed of sovereign bonds rather than private debt.

'Given the market functioning, I don't anticipate that selling MBS (mortgage-backed securities) at a reasonable pace is going to have a tremendous impact on mortgage rates,' Mr Plosser said.

But James Bullard, president of the St Louis Fed who has also advocated asset sales as a potential early step in the Fed's exit, said recent weakness in housing data was giving him pause.

Sales of newly built US homes fell for a fourth straight month in February to a record low annual rate of 308,000 units.

'It's making me nervous,' he said on the sidelines of a conference sponsored by the Fed. 'I will be interested in seeing the (upcoming) data, and if that begins to not look good, then I'll start to wonder.'

Mr Bullard said he does not foresee any sharp rebound in housing activity, adding that a stabilisation in prices and sales would be enough of a signal that selling assets would not be too disruptive. He said the US economy is on track for a reasonable recovery.

Market analysts appear convinced that asset sales will not be the Fed's preferred method for withdrawing stimulus.

'We believe a plan to sell Fed assets is still a long way off,' said Joseph Abate, money market strategist at Barclays Capital.

Asked about the crisis affecting Greece, whose heavy indebtedness has sparked widespread fears of renewed financial turmoil, Mr Bullard was cautiously optimistic.

'So far I think we're OK. I wouldn't want to play it down too much,' he said. 'We played down other things too much during this crisis, and it came back to bite us. So, we're watching it very carefully. But right now I don't see it having any feedback to the US.' - Reuters

[iam802]

An economic puzzle Bernanke can't solve

http://www.reuters.com/article/idUSTRE62R1P620100328

By Emily Kaiser
WASHINGTON (Reuters) - It's a mystery that has puzzled even Federal Reserve Chairman Ben Bernanke: if the U.S. economy is growing rapidly, why isn't it creating jobs?

Friday's hotly anticipated employment report for March may muddle matters even more. Economists polled by Reuters had widely divergent views, with one looking for an increase of 400,000 jobs -- which would be the strongest in a decade -- while others thought it may show another small net decline.

The consensus expects a gain of 190,000 jobs, which would mark only the second month of job growth since the recession started in December 2007, and the largest increase since March of that year.

Government jobs are expected to account for the bulk of the growth, thanks to the once-a-decade Census, which requires taking on hundreds of thousands of temporary workers. While the jobs pay well ($22.00 an hour in San Francisco; $11.75 in Ames, Iowa,) they last only a few months.

Bernanke and his central bank colleagues are well aware that Census hiring will skew readings, and have cautioned that unemployment will likely remain near 10 percent all year.

The Fed and private economists are trying to answer the bigger question of why the labor market shed 8.4 million jobs during this recession. Although the downturn was the deepest since the Great Depression, the job losses were even more severe than most forecasters had predicted based on models that compare economic growth and employment.

Bernanke offered two possible explanations.

"One is that maybe the recession was deeper than we thought," he said in response to a question from a member of Congress last week. "The other is that the productivity gains were greater than we thought they would be when firms were able to cut their work forces and still maintain output."

CAUSE FOR OPTIMISM
The first theory gained support when one of Bernanke's staff economists wrote a research paper suggesting that the most commonly used measure of U.S. economic growth, gross domestic product, had understated the depth of the recession and overstated the recent recovery.

The economist, Jeremy Nalewaik, argued that a lesser known measure called gross domestic income may give a more accurate assessment of the business cycle. GDP looks at spending to measure the size of the economy, while GDI focuses on income.

Based on GDI, the economy began contracting in 2007, not 2008 as GDP data indicates. It also shows growth did not resume until the final quarter of 2009, while GDP showed the economy had expanded in the third quarter as well.

If GDI is indeed a more accurate gauge, there is reason to think employment will soon rise. Data released last Friday showed GDI jumped at a 6.2 percent annual rate in the fourth quarter, even faster than GDP's 5.6 percent pace.

That would also help explain why payrolls were still contracting eight months after GDP indicated economic growth resumed. Employment gains normally lags economic growth by a few months, so if the cycle turn came in October rather than June, it would make more sense to see job growth now.

If the U.S. economy does indeed show large job gains for March, it would pull ahead of the euro zone, which is expected to report on Wednesday that the jobless rate ticked up to 10 percent in February from 9.9 percent the prior month.

The U.S. unemployment rate is at 9.7 percent, and the consensus view is that it will hold there in March. What happens after that is open for debate.

Some economists think it will inch up again later this year, for a somewhat counter-intuitive reason. As the labor market improves, discouraged workers may decide to start looking for work again. Those who give up the search are not officially counted in the unemployment rate, but when they jump back into the labor pool they are.

David Rosenberg, chief economist at money manager Gluskin Sheff in Toronto, is more concerned that the economy will weaken just as the Census jobs are disappearing. Government stimulus spending will be fading later this year, and the Fed may be cutting back on its extraordinary economic support.

"I would be looking for a second-half growth relapse that sees the unemployment rate climb back to a new cycle high once the Census hiring effect subsides," Rosenberg said.