Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.
Topic: Federal Reserve
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September 11, 2013 at 10:37 AM
Over lunch this week, a Seattle financial executive told me he believed the market has already priced in the “tapering off” of the Federal Reserve’s massive bond-buying program. Maybe so. It’s an open question as to whether the central bank should change course with the economy growing so slowly and unemployment still high. But Chairman Ben Bernanke seems committed to the move. Overseas, things might not go so well. Stephen Roach, the former chief economist for Morgan Stanley, wrote on Project Syndicate recently that “the global economy could be in the early stages of another crisis” partly because of the Fed.
As I wrote last week, the problem is centered in emerging economies. “Hot money,” short term investments, rushed into nations such as India, Indonesia, Brazil and Turkey because of the artificially low interest rates of the Fed’s QE programs. This allowed for large current account deficits to be cloaked by seeming prosperity. Now, investment is flowing back out with damaging results. Roach writes:
Under the leadership of Ben Bernanke and his predecessor, Alan Greenspan, the Fed condoned asset and credit bubbles, treating them as new sources of economic growth. Bernanke has gone even further, arguing that the growth windfall from QE would be more than sufficient to compensate for any destabilizing hot-money flows in and out of emerging economies. Yet the absence of any such growth windfall in a still-sluggish US economy has unmasked QE as little more than a yield-seeking liquidity foil.
July 26, 2013 at 10:24 AM
Rarely has the speculation about the next Federal Reserve chairman received so much early handicapping — or provoked such acrimony. The White House has floated the trial balloon of Larry Summers, the former Clinton Treasury Secretary and president of Harvard. The other favorite is Janet Yellen, former president of the Federal Reserve Bank of San Francisco and current vice chairman of the Fed’s Board of Governors.
“No more second chances for Larry Summers,” thunders Fed watcher William Greider in the Nation. In addition to being a boorish and failed president of Harvard, Summers as Treasury Secretary helped tee up the financial crisis by backing deregulation. Then he made millions working on Wall Street. An insightful piece in the New York Times looks at the “battle between the California girls and the Rubin boys.” Rubin being Robert, the former Treasury Secretary, head of Goldman Sachs and tier of exquisite tie knots. Yellen, meanwhile, is supported by economists Laura D’Andrea Tyson, chief of President Clinton’s Council of Economic Advisers and Christina Romer, who held the same position early in President Obama’s first term.
Whomever replaces Ben Bernanke will be left to wind down the Fed’s record expansion of the monetary base and more than $3 trillion in assets, while contending with a tepid recovery, high unemployment and a question over whether the Fed will use its new Dodd-Frank powers to rein in the big banks and prevent another panic. Care to make an early vote?
Read on for some of the most interesting econ and business stories you might have missed this week…and the haiku.
June 28, 2013 at 10:49 AM
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. It was the biggest one-week increase since 1987. An extra wallop is facing many student-loan borrowers when rates are set to double next week.
The economy is still weak. First-quarter growth in gross domestic product was revised downward to 1.8 percent from 2.5 percent. Many forecasters had expected annualized GDP growth this year of 3 percent. So Fed officials have scrambled to reassure the markets that no sudden moves on interest rates or the bond-buying program are being contemplated. It’s a complicated situation. While no serious inflation is on the horizon — indeed, deflation continues to be a danger — essentially zero rates create losers and winners. Fixed-income investors have often been penalized. The stock market has been powered by Fed hot money all out of proportion with the strength of the economy.
What do you think?
Read on for some of the important stories you might have missed this week and the haiku:
This Week’s Links:
• Emerging markets, hitting a wall | Tyler Cowen/NYT
• The top 0.1 income shares, 1915-2008 (chart) | Miles Kimball
• Why the growth-by-debt status quo is doomed | Zero Hedge
• Ireland falls back into recession despite austerity drive | The Guardian
• What if we’re looking at inequality the wrong way? | NY Times
• What to do with the hypertrophied financial sector | Brad DeLong
• Make banks too small to save | Baseline Scenario
Today’s Econ Haiku:
A bridge to somewhere
Federal money waiting
We jump off the bridge