Worries that the Federal Reserve may end its bond-buying program or even raise its benchmark interest rate helped push the yield of 10-year Treasury notes as high as 2.61 percent this week. In May, it was 1.63 percent. Mortgage rates have followed, with the average 30-year loan rate rising to 4.46 percent from 3.93 percent….More
Category: Interest rates
Japan’s Nikkei has entered bear territory. Other Asian markets have suffered sell-offs, too. The Dow Jones Industrial Average swooned Tuesday and is staging only a cautious recovery today. The Wall Street Journal’s estimable David M. Wessel wrote, “The tectonic plates of the world economy are shifting, moving the yield on the 10-year Treasury to the highest level in more than a year and shaking financial markets from Tokyo to Mumbai and Johannesburg to São Paulo.” Is the world returning to something like normal, where America grows again, China does a soft landing to slower growth and the Japanese economy can finally find its footing?
Or is it a harbinger of more volatility in financial markets—perhaps the result of a misreading of the Federal Reserve’s policy intentions by the markets or a premature move by the Fed to cut back on easy money—that yields an unwelcome increase in market interest rates before the U.S. economy achieves what Fed Chairman Ben Bernanke once called ‘escape velocity’?
The question of what the Federal Reserve will do is rightfully a preoccupation. Can it make the pivot to slightly tighter money without tanking the markets? And can emerging markets continue to thrive on the “hot dollar” trade now that Treasuries are becoming more appealing? A couple of charts explain what is not happening.More
The conventional wisdom held that this time China would lead the world out of recession. That hasn’t happened. China’s growth rate keeps being revised downward — most recently by the World Bank — and the leadership succession in Beijing is causing great uncertainty. Meanwhile, the eurozone crisis grinds on, with much of the continent as well as the United Kingdom in recession. Brazil, India and other hitherto fast-growing emerging markets are struggling.
In the United States, a long-awaited upswing in the business cycle is gaining traction. The unemployment rate fell to 7.8 percent in September from 8.1 percent the month before despite a rise of workers entering the labor force. September foreclosures fell to a five-year low, and evidence continues to accumulate that the housing market is finally hitting bottom. Prices in many areas are rising. Fresh evidence on the housing front just arrived, as Weyerhaeuser hiked its dividend two cents to of 17 cents per share on Nov. 30 to shareholders of record Nov. 9. It said there were signs of an improving housing market. The Consumer Confidence Index improved in September. The stock market rally continues. Inflation is tame.
This is not your father’s recovery, or like any we’ve seen since the end of World War II, but it’s real if very slow and uneven. Many signals are mixed.More
Whatever happens in the American electioneering over the next month, here are a few things to watch that touch only peripherally on the campaigns:
1. Slowing in Asia. The World Bank today lowered its growth forecast for East Asia and the Pacific region, chiefly because of China’s ongoing slowdown and lack of effective stimulus. This will have a direct effect on the Pacific Northwest because of our trade dependency on Asia (China is Washington’s No. 1 export destination).
2. The eurozone. Yes, this is getting old, but it’s not getting better. Greece is still in the monetary union, barely. Germany continues to resist more aggressive measures to restart growth. Austerity is causing a deep recession in many eurozone nations. It’s amazing how far they can kick the can down the road. But the best outcome on this trajectory is a long downturn complete with social unrest. The worst: A sudden crisis that causes all the dominoes to fall down.More
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Federal Reserve Board Vice Chair Janet Yellen’s speech Wednesday night is being interpreted as a sign that the central bank will keep interest rates very low for at least the next two years. She cited the ailing housing market, government cutbacks and potential shocks from overseas as the reasons. “For these reasons, I anticipate that the U.S. economy will continue to recover only gradually,” she said.
In summary, I expect the economic recovery to continue — indeed, to strengthen somewhat over time. Even so, over the next several years, I anticipate that we will fall far short in achieving our maximum employment objective, and I expect inflation to remain at or below the FOMC’s longer-run goal of 2 percent… Based on such analysis, I consider a highly accommodative policy stance to be appropriate in present circumstances. But considerable uncertainty surrounds the outlook, and I remain prepared to adjust my policy views in response to incoming information. In particular, further easing actions could be warranted if the recovery proceeds at a slower-than-expected pace, while a significant acceleration in the pace of recovery could call for an earlier beginning to the process of policy firming than the FOMC currently anticipates.
So far, so pretty good. But Paul Krugman has argued that the Fed should set an inflation target of 3 percent to 4 percent. Otherwise, it risks making the same hands-tying mistakes that a professor named Bernanke identified in policy of the Bank of Japan. Also, let’s not forget that there are losers from low interest rates.More
Apple’s Steve Jobs represented the best of American capitalism. He built and rescued a company rather than setting up a quick outfit meant to be sold for an early profit. He was driven by a desire to serve customers, make their lives better, and not to merely please the bean-counters and Wall Street. He wasn’t a financial swindler. Much of the Occupy Wall Street debate is over whether we will continue to have the country he grew up and thrived in, or an oligarchy that benefits the few. Be sure to check out the wonderful conversation between Jobs and Bill Gates at the All Things D conference, and Walt Mossberg’s appreciation.
All that said, the Jobs story threatens to suck all the oxygen out of the media chamber. Here are a few other important stories:
1. The eurozone crisis is getting worse, as shown by trouble at the Franco-Belgian bank Dexia. It’s turning into a bank run and there’s talk of nationalization. Dexia, a big lender to local governments, has $771 billion in assets. The GDP of Belgium is $471 billion. No wonder the European Central Bank is trying to turn on the liquidity fire hose.More